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Farmland values rose by 7% in the second quarter of 2010

Farmland price increases unlikely to be affected by emergency budget tax hikes.

(Source: Knight Frank, 23 Jun 2010)

Key points:

English farmland values rose by 6.9% in the second quarter of 2010. This takes growth over the past 12 months to 19.7%, according to the latest results of the Knight Frank Farmland Index.

The average price of farmland is at the highest level recorded by the index.

Prices are being driven up by a continuing shortage of supply and increased interest from private individuals.

The amount of farmland publicly advertised for sale so far this year has fallen by almost one third.

Values are predicted to rise further during 2010.

Andrew Shirley, head of rural land research at Knight Frank, commented:

"English farmland values continue to increase as demand outstrips supply. Average prices rose by 6.9% in the second quarter of the year, taking total growth for 2010 to 13%. Land is now worth almost 20% more than it was 12 months ago and we are predicting further growth of at least 10% over the next year.

“A shortage of farmland for sale, combined with demand from investors and overseas buyers, has helped to ensure values continue to rise. According to the Knight Frank Farmland index, demand over the past 12 months has increased by about 9%, while supply has fallen by a similar amount.

Farmland performance versus other asset classes

“As the graph clearly shows farmland has been one of the best performing assets of the past 10 years and people see it as a sensible and secure place to put their money.

  12 months 5 years 10 years
Farmland 20% 109% 183%
Prime London Houses 16% 61% 104%
Prime Country Houses 4% 1% 32%
FTSE 100 13% 3% -22%

“Although capital gains tax was increased from 18% to 28% for higher earners in yesterday’s (22 June) budget, I do not think this will stop people investing in farmland as it is still better for a higher-rate tax payer to be taxed on a capital gain at the increased rate than income at 40%.

“Because the increase in CGT is immediate it should also preclude a flurry of sales as people rush to beat the deadline.

“In addition, a welcome increase in the lifetime allowance for Entrepreneurs Relief from £2m to £5m will offset the rise in CGT for many people. This is because anybody eligible to claim the relief will pay CGT at only 10% on their first £5m of gain if they sell their farming business.”

Claire Glover, head of farm sales at Knight Frank, said:

“Prior to the credit crunch people with wealth to spare were snapping up pretty residential farms, now bare land is what they seem to be looking for. We are currently seeing huge demand from a wide range of buyers, but in particular from private non-farming individuals, including a significant number of overseas buyers looking for a safe long-term investment. Many see it as a hedge against inflation and more reliable than stocks, shares and other less tangible investments.

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