Farming feature: What are prospects for land values amid Brexit turmoil?
- Credit: Archant
Tough times may be ahead for the farming industry, but farmland is often seen as a safe harbour in uncertain times, East Anglian land agents point out as the farming industry grapples with the fall-out from the current political uncertainty created by the Brexit impasse.
A recent Savills report, examining farmland sales in 2018 compared to the previous year, showed falling values across East Anglia and the UK.
The UK farming industry is said to be facing a ‘holy trinity of chaos’ - Brexit, the Agriculture Bill and the loss of farm subsidies. A succession of speakers at Anglia Rural Consultants’ (ARC) annual conference in the latter part of last year made it clear that change was on the way, and farmers would have to change with it.
Land agents remain optimistic about the longer term prospects for those investing in farmland, while acknowledging there are likely to be shorter-term challenges.
William Barton at Landbridge believes the ‘holy trinity’ of Brexit, the Agriculture Bill and the loss of farm subsidies is likely to affect farm profitablity in the short to medium term.
“Whilst that will have an impact on buyers and sellers perception of the market, the impacts of supply and demand in the short term as well as the perception that agricultural land is generally seen as safe investment during times of uncertainty is also likely to be telling,” he said.
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There were “ever-increasing uses and therefore demand for land”, of which there was a finite amount, and he therefore expected demand to remain “reasonably firm”.
Longer term changes in any taxation, the threat of compulsory purchase on landowners and possible land value capture, or a change in government may have a far greater impact on the market, he said.
“In the short to medium term we would expect the volume of land coming to the market to remain relatively stagnant and demand to remain relatively firm,” he said.
This was especially true for better quality, more versatile land and he predicted the market may become even more polarised than it has over the last 12 to 24 months, with lesser quality land without demand from neighbouring landowners possibly struggling to find a market.
“I think that the Agriculture Bill and its far-reaching potential consequences mean that a fair number of ageing farmers are considering the future,” he said. A number may opt to sell, rather than carry on farming or go out to contract – especially smaller farms.
Will Hargreaves, associate director with the rural team at Savills Suffolk, said 2018 was characterised by larger lot sizes, which we were often instructed to sell privately, and supply was up on 2017.
“Values were broadly in line with 2017, but with huge variations particularly for bare land blocks which ranged in value from £7,000/acre to £13,000/acre. Essex commanded the highest average value, reflecting limited supply and the weight of money from development gains,” he said.
“Farms with diverse income streams or good infrastructure were most in demand. Unsurprisingly, farmers represented a dwindling proportion of buyers with investors, landowners and lifestyle buyers making up the majority.
“Looking forward we see more of the same. Until the political situation is clearer, we expect a lower supply for the early part of 2019. The key to unlock a market shrouded in both uncertainty and such a range in prices, is knowledge.
“There is still an appetite for land in the eastern counties but understanding the who, what, and where of this demand is paramount to achieve not only a sale but the best price.
“Over the next three to five years we do predict an increase in liquidity and in the longer term there are likely to be some very significant changes in land use driven by environmental and climate change targets.
“We do not anticipate a repeat of the price increase recorded in the decade to 2014, but we do expect the market to return to its long term historical real-term growth of around 1% per annum (ie 1% above inflation).”
Clarke and Simpson
Oliver Holloway of Clarke and Simpson believes a “holy trinity of change’ is much more probable than “a holy trinity of chaos” over the coming months and years.
“Any reform takes time and requires investment to implement, so there won’t be any sudden, overnight changes. The problem is that until Brexit is resolved and policies drafted, farmers and landowners have no understanding of how much financial support might be available, and that makes decision-making for our clients very difficult.
“There is no doubt that some potential purchasers will wait for some clarity about where the UK is heading. However, we certainly haven’t seen a pre-Brexit rush of land to the market in East Anglia and the land market has remained relatively robust – there are still a lot of buyers with rollover funds from development and other sales and who are re-investing in agriculture.”
Whatever the outcome of Brexit, equilibrium between supply and demand will be crucial in determining the direction of prices, he said.
“Sudden changes of government, the tax treatment of land, or a hike in interest rates could all affect the balance of that equilibrium sharply. Other factors such as the gradual removal of area payments will however, take more time to take effect.”
Brown & Co
Brown & Co’s William Hosegood said that they had seen land prices stabilise in 2018 following three years of gradual price reductions in most sectors.
“Having said this, prices did weaken in some of the more commercial farming areas, particularly where there was no local interest but in our experience farm land values ranged from circa £6,000 per acre to, in some cases, over £12,000 per acre. We had another busy trading year being involved in agricultural property transactions across the country, totalling nearly £100m involving over 10,000 acres.
“Despite this we are of the view, for the next 12 months, that land prices are likely to remain at current levels as we have more clients on our books looking to buy farms than we have properties to sell and at the time of writing there is no evidence to show that there is going to be a significant increase in supply of land coming to the market.”
Bury St Edmunds valuer and property and pig consultant Peter Crichton remains concerned about the potential effects of a ‘no-deal’ Brexit on the sector in which he is heavily focused.
“Although the UK is a net importer of pig meat in terms of fresh and frozen pork and bacon to the tune of 60%, our domestic pig prices will not necessarily rise because cheaper European pork products will still be available unless tariffs are put in place to lift the value,” he said.
“The sting in the tail may come with the imposition of levies for pig meat products sent from the UK to mainland Europe as Germany in particular is one of the main buyers of UK cull sows. Tariffs of 45p/kg on carcasses would make it barely viable for UK cull sows to be exported to Europe considering their present ex farm value is only 60p/kg dead weight in the UK.
“Any suggestions that the government would look at waiving or reducing tariffs on imports to keep consumer pig meat prices under control would do further damage to the UK pig industry.”