Where is the silver lining?

Posted by on Apr 21, 2016 in Residential Property | Comments Off on Where is the silver lining?

It has been clear since the late spring of 2015 that confidence is waning in the agricultural land market. Prices achieved in mid 2015 were in many cases lower than those in 2014 and by the end of 2015 a continuing crisis in confidence was resulting in guide prices coming down and properties failing to find a buyer.

It is not all doom and gloom. Recent research has suggested that land prices across England rose marginally in 2015 but there is little doubt that the trend has been negative in the East of England.

Essex saw over 4,000 acres in the market but divided between 21 locations this meant an average block size of 190 acres. There were only 3 offerings over 350 acres and one of those failed to sell. The only complete farm of any size to be sold was the 680 acre Margaretting Hall.

Suffolk fared rather better with more than 7,000 acres of land coming to the market though this total was dominated by two large estates of over 1,500 acres. One on the coast sold privately and the other was the Rushbrooke Estate at Bury St Edmunds that completed just before Christmas.

Blocks of 50-250 acres have been common place and a successful sale still generally requires a keen buyer in the local area. The price achieved will be entirely dependent on the level of competition and prices have ranged from £11,500/acre down to £8,500/acre with the vendor’s willingness to sell limiting the downside.

Lending institutions remain keen to support the industry but whilst collateral is rarely a problem there is concern about serviceability in a low commodity price environment. It is fortunate that interest rates remain low but most recent borrowings have been on a variable interest rate basis.

The Outlook

There seems to be general consensus that upward pressure on the land market is unlikely in the short term. We had expected non-farming money to start drying up as other asset classes recover but the recent turmoil in the stock market perhaps still makes land look like a safer bet. Annual yields on land are now below 2% and in many cases less than 1%. No sector of farming is bucking the trend and there will be farmers who cannot maintain their level of drawings from realised profits.

Landowners are still sitting on a valuable asset and there will undoubtedly be those that see 2016 as an opportunity to raise cash to maintain lifestyle or to invest in other areas. This desire to release value will increase if interest rates rise.

The prospect of Brexit may well slow the market in the run up to a referendum. The consequences of Brexit are unclear at the moment. Whilst farmer’s organisations are remaining neutral on the matter at the moment it is clear that a lot of new thinking will be required in DEFRA if the vote is to leave the EU. This eventuality will bring significant uncertainty to the future prospects for agriculture.

It is noteworthy that at least one national agent is predicting land prices to fall over the next 5 years and if you are thinking of selling we would advise that action is taken sooner rather than later. Once land starts coming to the market supply and demand factors are likely to create further price pressure.

Land Partners have advised on the purchase or sale of over 1,200 acres in 2015, including the sale of Brook Farm at Wethersfield, pictured, and are well placed to discuss your needs going forward.

Please contact Simon Dixon Smith