Article by http://www.westernmorningnews.co.uk/
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Rural pastures have become the asset of choice for investors looking to add to their portfolio, with a new report revealing that farmland prices are rising at a rate second only to gold.
The latest Knight Frank farmland index for 2014 found the average value of agricultural land has increased by 15% over the last year and a staggering 187% over the last decade.
The news comes as the latest farm incomes survey reveals one in five livestock farms are trading at a loss and market volatility in other sectors means many farmers have had to diversify to take jobs off the farm to survive.
Although the trend for investing in rural property is nothing new, the recent surge in prices has been received with mixed feeling by members of the farming community.
Industry leaders described it as “good news” for established farmers, but admitted it could create problems young people trying to break into the industry.
The report, which looked at market results for the third quarter of 2014, found farmland prices in the UK had risen by 12% this year alone, giving land owning farmers a big asset against which to borrow.
Knight Frank head of rural research, Andrew Shirley, said the increase was likely being driven by a number of factors, including scarcity of high grade plots and growing interest from non-agricultural investors.
“What investors tend to be looking for is a large expanse of land that is easy to manage. This means flat, arable land which does not come with other residential properties,” he explained.
“Much of these large blocks are coming up in the South East of England, but there are also big prices being paid for land in the South West region, particularly in Somerset and Gloucestershire.”
One result of the recent boom is a subsequent rise in the number of deals taking place off the market, with private deals estimated to outnumber public ones by as much as two to one. “Off-market deals have always happened but they are becoming more significant,” said Mr Shirley.
“If land is available publicly this can result in a bidding war so investors often approach sellers to see if they can reach a deal before it goes on the market.” He said investors were also starting to take “a more hands on approach” to the land they purchase in an effort to get good returns.
“Buyers used to be interested in simply renting land to tenants – now they’re thinking about how they can make money more directly through business and renewable energy options.”
National Farmers’ Union tenant spokesman, Chris Cardell, said that commercial interest and investment in land in the Westcountry was already having an impact on those in the farming industry.
“There is a lot of outside corporate money coming in to the region as companies buy land to establish themselves down here, as well as other plots being sold off for house building and renewable energy sites. This is all coming together to drive up prices and rents,” he said. “This is good news for farmers coming up to retirement and ready to sell off as it will guarantee them a pension pot. But it is making it more difficult for young people breaking into farming.”
2008 crash made land a safe haven
Devon-based land agent, Hugh Townsend, believes many land purchasers are making a savvy investment after catching a cold in the 2008 financial crash.
“After the 2008 financial crisis, land became the safe haven for investment,” the farms expert and WMN farming columnist explained.
“Before then there was a market, but the demand was for large properties where the land was seen as an add on. Now you are seeing properties and land being split up, with greater value being achieved on parcels of land.”
He said the continued popularity of investing in farmland could in part be put down to a desire to avoid inheritance tax. Agricultural Property Relief allows land owners to pass on working farmland during their lifetime or as part of their will free of tax, if certain conditions are met.