Farmland values have soared in 2013, but is that a good thing? SARAH CHAMBERS spoke to Will Hargreaves of Savills, Oliver Holloway of Clarke & Simpson and Giles Allen of Strutt & Parker about a year of high demand and short supply.
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You would have thought that with average farmland prices at record levels, there would be much festive rejoicing among land agents.
Farming is often considered to be counter-cyclical - a safe haven in times of recession, but not the business to be in in economic boom times.
In the last decade - assuming you bought at the right time and sold at the right time - the mud beneath a farmer’s boot has turned to pure gold, reportedly netting a better return than the precious metal.
And so, as the housing market is making a tentative recovery after a period of gloom, farmland has never had it so good, with averages in the region reportedly hitting a new high of £10,000 an acre.
But while East Anglia’s estate agents see no obvious sign of a let-up in high land values any time soon, they believe now is the time to sell - a message they have been shouting from the highest haystacks, so far to little effect.
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Curiously, far from stampeding to agents’ front doors, vendors have hung back, or quietly sold up off the market.
Will Hargreaves, an associate at Savills’ Ipswich office, says the volume of farmland reaching the open market, measured in parcels of 50 acres or more, is probably the lowest in the last 18 years, if not more.
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“It has been a very sparse year. There has been very little on the market - this is regardless of agents,” he says.
“It’s a vicious circle really. because the commentary is always that land values are going through the roof, which means no one sells, which means that prices go up.
“It’s the major contributor to high land prices at the moment. It’s a supply and demand thing.”
Many small, struggling farms have already been swallowed up, and those that haven’t are often sold quietly and privately.
“We probably do as much off the market as on, and all the other agents are probably the same. There’s a significant amount traded privately,” says Will.
So why are farmers so keen on private sales? Traditionally, he says, it was because they could often command a better price through offering exclusivity - with buyers paying above the odds to avoid having to compete on the open market.
But there is something more afoot where farms have been in families for generations and there is a social stigma perceived to be attached to selling up.
“One thing is pride, and that’s something that affects the rural community a lot,” he says. “Land is more than a commodity for those who have been there for a long time.”
Of course, the more commercial farmers aren’t bothered by such sentiments and Will believes that the shyer vendors would often be better served by putting their farms on the open market. In any case, their belief that their sale can remain a private affair if conducted privately is misplaced, especially in the age of the internet and with property sales being a matter of public record, he points out.
“Ultimately it’s going to come into the public domain anyway,” he says. “Our advice now is always sell it on the open market, otherwise you may not realise as much as a 25% premium.”
On the open market, “because the market has got so crazy”, you are likely to e better off simply because of the competition for what land is available.
“It’s quite astonishing. You had to buy in six or seven years ago and get out now to realise quadruple growth,” he says.
None of this is down to the income buyers can generate from the land, which tends to be relatively small.
“There are people willing to pay a premium for the land they want because it satisfies other requirements so it’s tax efficient for them to do it,” he says.
“However, we are at a point now where the prices don’t stack up financially.
“You won’t make a substantial return on it and you are unlikely to see capital growth in the next five years compared to the last five years. The reasons to buy it are still there, but the reasons to sell it are getting greater and greater.”
There are always the external factors, such as trouble abroad or changes to the inheritance tax system or any number of other events which could turn the sellers’ market into a buyers’ market, he points out.
“We want to get that message out to people as much as we can. We are experiencing higher values than we ever have before in relative and absolute terms and who knows what might be around the corner to see these prices slip away,” he says. “It’s a good time to sell.”
Savills has had a good year, but across the industry as a whole there’s concern about where the next deal is coming from, he says.
“Average land prices for cereal medium to heavy grade three land, which is the majority of Suffolk, we would be looking at not less than £10,000 an acre but on average probably £10,000 to £10,500. There have been exceptional ones in Norfolk at £14,000 per acre and in Essex one at £15,000 an acre. That’s big money, but they are exceptions to the rule,” he says.
“If you had asked us last year we would probably say quotes of £8,000 to £8,500 as an average or certainly below £9,000.”
Oliver Holloway, partner at Clarke & Simpson in Framlingham, says the farmland boom has not been lost on investors, who have been swapping their polished brogues for wellington boots and entering the market in increasing numbers.
“For decades it was the price of a tonne of wheat that was the ‘hot topic’ of debate over the farmer’s kitchen table, but more recently it is the rising price of farmland that is becoming the topic of conversation and having seen land more than quadruple in 10 years, it is of little surprise,” he says.
“Without doubt, one of the driving forces behind increasing land values is a shortage of supply. Although a number of land transactions still take place ‘off market’, as they have this year, the amount of land coming onto the open market both locally and nationally has diminished.
“Other major factors supporting the rise in land prices are continued historically low interest rates and taxation advantages, primarily being the introduction of Entrepreneurs’ Relief and continuing Inheritance Tax advantages through Agricultural Property Relief and Business Property Relief.”
The enthusiasm for land hasn’t been dampened by a drop in commodity prices: although wheat prices have fallen from a high of £210/tonne down to £155/tonne and oil seed rape has dropped by almost £100/tonne, Clarke & Simpson has continued to experience strong demand in farmland from local farming interest and particularly for good large blocks of high yielding bare land.
“Farmers may only ever got one opportunity in their lifetime to acquire the adjoining field or farm and this often results in competitive bidding, further driving up the price,” Oliver points out.
The soaring values have not been confined to the East of England. Clarke & Simpson manage estates nationally as well as a number in Scotland and have seen prices rising at an increasing rate there too.
“In Suffolk, Clarke & Simpson have typically seen prices for arable land range between £8,000 to £10,000 per acre during 2013, but it is now not uncommon to see prices exceed this. Water continues to be a very sensitive issue within the larger farming environment and irrigated light land continues to demand a premium, due to the variety of crops that can be grown on it throughout the calendar year,” says Oliver.
“When Clarke & Simpson launched six farms onto the market in 2012, it was apparent that the previous trend of strong demand for large farmhouses surrounded by a few hundred acres was changing and buyers of residential properties were more keen to acquire the house with ‘say’ 20 acres rather than purchase all of the farmland. This resulted in a number of the farms being lotted with the land being sold away separately from the house. “This trend has continued through 2013 and was the case with both Southolt Hall, Southolt and Elm House Farm, Hoxne, which we marketed this summer and again, the land has been split away from the farmhouses in each case.”
Looking to the future, renewable energy projects may well benefit rural property owners, he believes.
“In particular, there has been a large increase in the use of biomass and this may well be why we have also seen a marked increase in woodland values. Woodland was often seen as the ‘poor relation’ compared to arable land, but we are receiving more and more demand for areas of woodland and there is now much less of a step in values between the two. Clarke & Simpson have sold six areas of woodland in 2013 ranging from just three acres in size to over 100 acres and prices have ranged from just over £6,000 per acre for the largest block up to £15,000 for the smaller amenity style woodlands. Clarke & Simpson have recently received instructions to sell a small block of approximately 15 acres of woodland in east Suffolk and which will be marketed in the New Year and which will carry a guide price in the region of £12,500 per acre,” he says.
But like Will, Oliver sees a downside to the high values.
“Despite arguments from some that the current high prices are unsustainable, there are no obvious signs of change. I always think it unwise to make unfounded or brash statements as to how land prices will fall or rise, but whilst the supply of farmland remains limited, interest rates low and beneficial tax advantages in place, I would be very surprised if prices were to suddenly falter during 2014,” he says.
Giles Allen, a partner at Strutt & Parker in Ipswich, says that in Suffolk and north Essex, blocks of bare land and larger residential farms increased in value by 10% to 15% in the course of the year. But it was a different story for smaller residential farms of less than 125 acres, which took longer to sell and probably only increased by up to 5% during the 12 months.
“The farmland market in Suffolk and the northern half of Essex continues to be strong with prices generally increasing, but as 2013 progressed, a definite split began to appear,” he says.
“The highlight of the 2013 farmland market however, was undoubtedly Cobblers Pieces, a 510 acre commercial arable farm with five bedroom house, situated in sought after River Roding Valley, near Ongar in Essex. Sold by Strutt and Parker, this was not the largest farm in the region to be brought to the market, but it undoubtedly achieved the highest level of interest with the eventual sale price an amazing 50% above its initial guide price.
“The larger residential farms brought to the market in the region generally also sold well, with the key factor being the amount of arable land included in the farm being sold. In general, guide prices were comfortably exceeded and the bare land price for most was in the region of £10,000/acre.
“The same can be said of bare land sales that took place in 2013. Blocks of land were generally guided at circa £8,500/acre and most achieved somewhere between this level and just under £11,000/acre. The price achieved did not reflect the quality of the land, but the local market and whether there was competitive bidding to take the sale price upwards.
“The market for smaller residential farms was more complex and reflected the more difficult trading conditions experienced by top end straight residential properties. In many cases, the residential elements of such farms were sold independently of the land, as was the case with Elm House Farm, Hoxne in north Suffolk, which was brought to the market jointly by Strutt & Parker and Clarke & Simpson and where all the farmland has been sold away from the house, which remains on the market. One farm to buck the trend was the 100 acre Hill Farm, Laxfield in mid Suffolk, which had an attractive five bedroom farmhouse, a converted coach house and stables surrounded by 98 acres. The farm sold as a whole a little below its guide during the late Autumn of 2013.”
He predicts that as there is still an appetite to buy farmland in Suffolk and north Essex and not much availability, the level of demand will continue to drive prices upwards, although probably not at the rate seen in 2013.
“We do not expect to see more than a 5% increase in arable land values during 2014,” he says.