UK farmland values down 3% in first quarter of 2016
As uncertainty around the UK referendum on the country’s future in the European Union grows, values for farmland fell by 3% in the first quarter of 2016, dropping back below £8,000 an acre.
The drop was the largest quarterly since the 5% decrease that occurred following the collapse of Lehman Brothers in the fourth quarter of 2008, according to the latest analysis report from real estate firm Knight Frank.
It shows that around 25% fewer acres of farmland had been advertised by the end of March, compared with the same period in 2015.
However, despite the uncertainty and value drop, a recent survey by Farmers Weekly shows that 60% of farmers will be voting to leave the EU on 23 June. The report also looks at what has happened to farmland prices since the UK joined what was known as the European Economic Community (EEC) in 1973.
Data from the Ministry of Agriculture/DEFRA shows land values increased sharply around the time, even managing to beat the hyper-inflation of the 1970s. Over the long term that trend has continued with land values outpacing inflation. But the sobering trend for farmers is how agricultural commodity prices have failed to keep up.
The report also points out that investors’ priorities have changed dramatically over the past year, as they are now looking much further afield and for value-add opportunities such as diversified income streams or development potential
And it also shows that prime country house prices rose by 0.3% on average in the first quarter of 2016, taking annual growth to 2.4%, down from 5.2% in 2014 but there was a notable rise in activity in the first quarter of the year with Knight Frank figures showing a 24% rise in sales volumes across the prime country market, compared with the same period in 2015.
Activity was focused on the sub-£1 million market, which showed strongest price growth of 4% across the last 12 months. Homes worth £5 million or more saw values fall by 2.7% in the same period.
‘From weighing up the hugely complex issues surrounding the EU referendum, to coping with a slump in agricultural commodity prices and working out what the implications of the latest changes to the planning system could be for them, estates, farms and other rural businesses are having to take some extremely big decisions,’ said Andrew Shirley, head of rural research at Knight Frank.
‘Long term strategic planning can be extremely helpful when it comes to coping with such challenges and there are also exciting opportunities to be grasped and the level of innovation and entrepreneurship in the countryside has never been greater,’ he added.
According to James Del Mar, Knight Frank’s head of rural consultancy, the tax environment for the rural landowner in the UK is becoming more challenging, particularly for those who are domiciled elsewhere.
‘At the same time, the pent up demand for new housing and infrastructure, combined with changes to the planning system, presents what some estates may see as a great opportunity to unlock the potential of their land, but others view as a threat to their very existence. Against this backdrop, planning for the future is more important for rural estates than ever before,’ he explained.
Looking ahead, Clive Hopkins, Knight Frank’s head of farms and estates, believes that whatever happens with the referendum farmland will remain an attractive asset class. ‘I don’t foresee a glut of land on the market or a significant drop in prices,’ he said.
According to propertywire “But when it comes to country houses, Rupert Sweeting, head of country house sales, pointed out that in the short term, uncertainty surrounding the outcome of the EU referendum could have an impact on the market, causing some buyers to adopt a wait and see approach until after the vote.”
He explained that while there has been weaker annual growth for large manor houses compared with farmhouses and smaller cottages, the firm forecasts price growth of 3% on average in 2016. ‘Key town and city locations are likely to outperform, as the trend for urban living continues to grow and more Londoners make the move out of the capital,’ he added.