Record rise in price of farmland says RICS

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by Lin Freestone

According to the latest market survey from the Royal Institution of Chartered Surveyors (RICS), the price of farmland has reached a record level, rising by 50% over the past year.

Arable land rose in value by 32% to £14,453 per hectare in the first half of this year; pasture land increased by 16% to an average £11,477 per hectare.

RICS has reported that ever-rising commodity prices have pushed the price of farmland to record highs as farmers and investors compete for arable land.

However, the days of the lifestyle buyer are nearly over as the credit crunch is putting an end to city expansion into the country. The precarious financial situation has made city dwellers with a desire to move into the countryside re-think their lifestyle priorities.

Another cause of the increased value of arable land is the growing demand for grain on the global market, driven by the burgeoning economies in China and India, where the middle classes are eating a higher protein diet.

The higher values have brought greater optimism to agriculture after years of underinvestment in the land, according to the director-general of the National Farmers’ Union. The current high values certainly make it more attractive for some farmers to decide to sell up and retire. The impact of new regulations and extra costs on farming with no chance of higher returns may also persuade many farmers to seek early retirement.

The increasing costs of fuel, fertiliser and animal feed have made smaller farms unprofitable, and the high prices being achieved at the moment for the land are very tempting.

In the UK, land is being bought by investment funds and big commercial farmers. Irish and Danish farmers and investors are also looking at UK land to build up their portfolios as the price of land in those countries is already very high.

Purchases by non-farmers, including lifestyle buyers, have dropped by 10% during the six-month period to account for just 27% of all land changing hands. Farmers and agricultural businesses are again the dominant buying force.

RICS reports that demand for residential farmland, which includes property, fell for the first time in three years during the first half, with 3% more surveyors reporting a drop in demand than those who saw a rise, compared with 50% more who reported a rise during the previous six months.