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Fields of gold: Investors discover lucrative haven in Britain's farmland

The price of farmland is rising at its fastest rate for more than 30 years as wealthy city dwellers and overseas buyers seek a slice of idyllic rural England and jittery investors rush to move their money out of stocks & shares because of the global credit crunch.

(Source: The Independent, 17 Apr 2008)

In contrast to falling residential and commercial property values, the average price of farmland rose by more than 10 per cent in the first quarter of 2008, according to a study of agricultural property sales which will be published this month. Arable land, in particular, has become so profitable that its average price has soared from £4,000 an acre in January last year to £5,500 an acre today.

"So far this year, we have seen some of the same trends we saw last year but at an even more accelerated pace," said Andrew Shirley, head of rural land research at the Knight Frank estate agency, which conducted the study. "We have seen farms in Kent and Dorset sell for more than £6,000 an acre and another batch in the North-west go for £5,000. This time last year, the same farms might have fetched £3,500 per acre – that is nearly a 75 per cent increase in some areas."

According to the Royal Institution of Chartered Surveyors, the value of farmland rose by 28 per cent during the second half of 2007. The last time agricultural property prices increased at such a rate was during the late 1970s, when annual increases of 40 per cent were common. Knight Frank believes prices will continue to rise by between 10 and 20 per cent this year.

The increases are being fuelled by the astonishing demand for agricultural holdings at a time when food prices are at an all-time high and when very little farmland is coming up for sale. Savills Private Finance, an independent mortgage broker, said the amount of land coming on to the public market each year was down from about 600,000 acres per year in the 1960s to 125,000 acres a year today.

However, demand has never been higher. For the first time last year, so-called "lifestyle farmers" – City traders and investors who use their wealth to pursue agriculture as a hobby – overtook bona fide farmers as the chief buyers of agricultural property.

Knight Frank's figures for 2007 show that 38 per cent of farmland was bought by agricultural enthusiasts, compared to 32 per cent sold to traditional farmers. However, other estimates suggest that lifestyle farmers bought 45 per cent of the available land.

Analysts say instability in the world's financial markets is fuelling the rush for farmland as investors look to transfer their wealth from stocks and shares into holdings more likely to being a quick return. One trader said: "Big funds will always invest in areas that are doing well and, with food prices being what they are at the moment, they are desperate to get into agricultural property, particularly profitable arable land."

The price of wheat and other cereals has more than doubled in 12 months. While that means the cost of food is going up, it has also improved the profitability of arable farming and made it an attractive investment. At the same time, Britain's agricultural land is attracting interest from abroad.

While more and more British farmers are buying up farms in Russia and the former Soviet states, our farmland is relatively cheap by western European standards. Fifteen per cent of British farms are now sold to overseas buyers. Last year, the Dutch overtook the Irish as the chief foreign purchasers, snapping up 6 per cent of the available property, compared to Ireland's 5.5 per cent. Investors from Denmark bought 3 per cent, as did others from Sweden, Norway and Finland. While studies show that the Irish tend to favour farmland in the west of England, northern European buyers are looking increasingly to East Anglia.

Jeremy Zeid, an arable market specialist at the estate agency Carter Jonas, said: "If anything, the credit crunch has strengthened the agricultural property market. Some people will have seen millions wiped off their investments but those who have placed some of their money into the agricultural sector will be rubbing their hands with glee.

"I would estimate that prices will continue to grow by between 10 and 20 per cent in the next 12 months. It will slightly depend on how much comes on to the market in the spring and autumn but it will pretty much be the opposite to what is happening in the residential sector, where prices are rapidly tailing off."

The boom in agricultural property is mirrored across the Atlantic. The most recent figures from the US Department of Agriculture show that the price of an average acre of arable land rose by 13 per cent in 2007 and is likely to go up by a further 15 per cent this year.

'The returns are better now'

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