Agricultural land stands firm (From Smallholder)

Agricultural land stands firm

12:34pm Thursday 22nd January 2009

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AS THE property market continues its decline and residential development land values plummet, agricultural land ends the year up 21.5 per cent on 2007, demonstrating its relative resilience to recessionary forces.

Analysis by Savills, tracking values back to 1970, clearly shows that agricultural land values are consistently more closely aligned to wheat prices than the broader economy.

After a period of volatility this year, wheat prices are expected to rise in 2009, thus providing a good cushion for agricultural land values.

The fourth quarter of 2008 has seen average farmland values across Britain fall by -4.4per cent, though the extremely strong growth in the first half of the year has kept most areas well into positive territory year on year. Five-year growth at the year end stands at 135 per cent.

The greatest quarterly falls were seen in the Eastern and northern regions (falling -6.6 per cent and -5.7 per cent respectively) and Wales (-5.5 per cent). Scotland, whilst recording one of the smallest quarterly falls (-3.0 per cent) ended the year just 5.6 per cent up year on year, making it the region with the lowest annual growth. Prime dairy land topped the growth table, +32.2 per cent year on year, with average quality arable land at the bottom of the table, registering +15.9 per cent growth. On a quarterly basis, poor quality livestock land fell by -9.4 per cent but still ended the year 18.2 per cent up on 2007.

Ian Bailey, head of rural research at Savills, comments: "On any other investment measure a growth of +15.9 per cent, particularly in this year of unprecedented volatility, would be a great performance. Our outlook for wheat, the main determinant in setting overall land values, is bullish for 2009. We therefore confidently expect that agricultural land will be well-placed to defy, in large part, the downward recessionary pressures."

Savills forecasts that average values will remain stable though 2009, at worst softening slightly (-5 per cent), with a more positive outlook for the second half of the year.

However, a two-tier market is expected to become more apparent, with the best market being for good quality, well-equipped land in a good location, especially good commercial arable land and the very best estates. Poor quality land, in poor locations, will be difficult to sell and will see the greatest downward pressure on values.

"Our research bears out our experience of achieving sales this year", says Penny Dart, of Savills Exeter. "Judging by the number of buyers on our books, we remain confident that farm sales will buck the trend in 2009 as buyers see land as an increasingly safe haven."

The impact of the recession is most likely to impact on demand from lifestyle buyers, with the outlook for traditional land owning buyers remaining positive.

Lifestyle (non farming) buyers accounted just under a quarter of all land purchases through 2008, down from a third in 2007, a trend which is expected to continue into 2009, as these buyers feel the full impact of the broader economic situation.

By contrast, investment buyers accounted for 24 per cent of all deals in 2008; up from 16 per cent in 2007, a clear indication that these buyers recognise the relative stability of agricultural land compared to other investment vehicles.