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Inflation fears drive English land values to record high

A quest for investments likely to keep their value if inflation soars has sent English farmland prices up by nearly 20% in a year to a record high, consultancy Knight Frank has said.

(Source: www.agrimoney.com, 23 Jun 2010)

The average price of English farmland in the April-to-June period rose 6.9% in the quarter, the fastest since the spike in crop prices early 2008 sent farm prices soaring.

The increase reflects in part a squeeze on supplies of available land, with the area up for sale 9% lower than a year ago.

However, the price rises are also being driven by a rise in demand from investors from outside the agriculture sector, “including a significant number of overseas buyers”, who are seeking protection from the price rises which many analysts believe will follow a period of weak interest rates.

More reliable than shares

“Many see it as a hedge against inflation and more reliable than stocks, shares and other less tangible investments,” Claire Glover, Knight Frank's head of farm sales, said.

Indeed, the profile of buyers had changed in focus from lifestyle buyers common ahead of the economic crisis to purchasers prioritising investment aims.

“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,” Ms Glover said.

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Savills, the rival consultancy, revealed in January that funds have £7.5bn awaiting investment in UK farmland.

Further gains

Knight Frank predicted that the increase in English land prices would continue, with gains expected at about 10% over the next year.

Even Tuesday's tough Budget - in which the UK's new coalition government unveiled cuts of 25% to spending in most government, and raised many taxes – would not dent buyers' appetites.

A rise in capital gains tax from 18% to 28% for high earners meant investment earnings were still penalised more lightly than wages.

“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%,” Andrew Shirley, head of rural land research at Knight Frank, said.

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