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Rural Land Investing
An increased demand and shortages of rural land has ensured that UK farmland has enjoyed significant price growth in recent years.
And with reports suggesting that this increase in value could be anything up to 120 per cent within five years it is no surprise that a number of individuals are now looking to the market to realise an impressive return on investment. Indeed, two recent surveys, conducted by Savills and the Royal Institution of Chartered Surveyors (RICS) respectively, point to the fact that farmland in the UK should be viewed as a very safe investment - despite the continuing uncertainty surrounding the country's economy. In fact, over the past six months almost half (47 per cent) of chartered surveyors reported a rise, rather than a fall, in demand for commercial farmland, up from 31 per cent the previous year, RICS claims.
Meanwhile, residential farmland has also been catching the eye of savvy investors, with 14 per cent more surveyors seeing demand rise from non-farming purchasers.
According to the UK-based property consultancy Strutt and Parker, the potential for investors to realise significant capital growth with farmland makes it a "fantastic investment".
Speaking in response to Savills figures, which claim that the average value of grade 3 arable land in England increased by five per cent in the last quarter, Mark McAndrew, head of farm and estate sales at the company, believes that prices will continue to rise.
He claims that this growth is likely to be buoyed by the "pressure" that will be placed on land to produce crops for the world's growing population.
"There is this general view that the reason that land is a good investment is not from a yield perspective, but from a capital growth perspective," he said. "I think the reason that everybody thinks that land prices are going to keep going up - and possibly quite significantly - in the future is that there is going to be pressure on land to produce food. We could see significant capital growth."
Meanwhile, looking ahead, the majority of surveyors are confident that farmland prices will continue to rise over the next 12 months.
This is, in part, due to the imbalance which currently exists in terms of supply and demand. In particular, the commercial sector is expected to see the greatest growth, with 45 per cent of surveyors expecting prices to rise rather than fall. "The demand for farmland shows no sign of abating and it continues to outpace supply," Sue Steer, RICS spokesperson, said. "We are seeing demand from farmers who are keen to expand their production, particularly into neighbouring farms. "Farmland continues to be viewed as recession proof and we are seeing UK and overseas investors purchasing commercial farms as an alternative form of investment which is outperforming other markets. These investors are competing with farmers and keeping prices high." Indeed, Christopher Miles, director of Savills Farm Agency, is also positive about the future for the sector, adding that the arrival of non-farming investors is helping to bolster the market.
"Investors are looking for safer, traditional assets at a time of heightened volatility in European market," he explained. "Land can be described as gold with a cash flow." A lack of supply is expected to keep prices high with Savills predicting growth of five to six per cent in 2010 - something which is sure to catch the eye of any potential investors.
Global Farmland Markets
Last year, Savills International Farmlands Marketing Report suggested that globally farmland still presented some excellent opportunities for investors. Parts of South America, including Brazil, as well as European Union countries such as Romania and Bulgaria, are where some of the best returns could be realised, with entry values generally low.
Brazil has seen growth of 350 per cent since 2000, while Paraguay, Uruguay and Argentina also performed well. "Areas where land is relatively underdeveloped or under performing and where values are low, and high levels of management skills are available, with working capital you will see higher agricultural profitability and therefore capital appreciation," Ian Bailey, head of Savills rural research, said at the time.
The report also demonstrated that the majority of farmland investors were most concerned about seeing strong capital appreciation and the potential to increase their income through purchases.
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.