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Strong demand lifts farmland prices to record highs - RICS Rural Land Market Survey H2 2012

Farmland prices reached a new record high last year and are expected to continue to rise in 2013.

(Source: RICS Rural Market Survey H2 2012, 15 Feb 2013)

  • Farmland prices over 2% higher in the second half of last year
  • Strong demand from farmers keen to expand production
  • Farmland prices expected to rise further

The H2 2012 RICS Rural Market Survey highlights the continued appreciation in farmland prices, driven primarily by the commercial side of the market.

The survey’s ‘transaction’ based measure of farmland prices (which includes a residential component where its value is estimated to be less than 50%) increased by just over 2% in H2. The survey’s ‘opinion’ based measure (which is a hypothetical estimate by surveyors of the price of pure bare land) also increased by around 2% over the second half. Both measures of farmland prices reached record highs.

Price increases are being driven predominately by farmers, who remain keen to expand production given high agricultural commodity prices in many sectors. Nevertheless, the strength of farmland demand is not broad-based. Indeed, surveyors note that farmers in the main are discriminating in favour of large, top quality, neighbouring plots with as small a residential component as possible. As such, there is considerable price dispersion, even in the same areas; plots that are of lower soil quality or contain a higher residential component are attracting much less interest and achieving lower average per acre prices.

Meanwhile, residential demand continues to trend sideways, though surveyors note it remains supported by a number of factors. These include farmland’s relatively favourable tax treatment, its perceived ‘safe haven’ status in periods of economic uncertainty and the suggestion by some that ‘low for long’ interest rates are encouraging those with savings to diversify into alternative asset classes.

Regionally, the most expensive agricultural land is located in the West Midlands and the least expensive is located in Scotland..

Surveyors expect farmland prices to increase further over the next 12 months.

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