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Farmland values rise again

The value of English farmland rose again in the first three months of 2013 to overtake the previous high reached in the summer of last year.

(Source: Knight Frank, 15 Apr 2013)

The average value of farmland in England rose by 1.5% in the first quarter of 2013, according to the results of the Knight Frank Farmland Index. This takes growth over the past 12 months to 4% and the past decade to 207%.

Farmland continues to outperform many other asset classes over the mid to long-term, although the recent bounce in equity values means the FTSE 100 has performed more strongly over the past year as investors recover some of their appetite for risk.

Gold, one of the few mainstream investments to have outperformed farmland this decade, has, however, lost some of its lustre, increasing in value by 1% over the past 12 months.

Although investors fed up of poor returns seem to be moving away from low-yielding (or zero-yielding in the case of gold) “safe-haven” investments such as AAA-rated government bonds, there continues to be strong interest in farmland. Knight Frank expects farmland values to increase by a further 4% to 5% over the next 12 months.

“I think farmland still has a valuable role to play in investment portfolios,” says Knight Frank’s Tom Raynham, who is acting for a number of wealthy investors. “Even though stocks and shares are back in favour, the markets remain volatile. Land offers something more tangible, yet still has the potential to provide good capital appreciation. For private investors it also offers significant tax and amenity advantages.”

Despite the continuing weather problems, demand also remains strong from farmers who are prepared to pay a premium to secure land adjoining, or close to, their existing units.

“There is still a shortage of supply and while more marginal land may have a lost a little of its value, demand remains strong for commercial units,” says James Prewett, who heads up farm sales in central and western England for Knight Frank.

More land could come up for sale over the next few seasons as some farmers decide they’ve had enough of the weather – for many, 2013 could be the third successive difficult harvest – and look to take advantage of current strong land prices.

However, UK agriculture still has a very strong balance sheet overall with liabilities well under 10% of the sector’s capital value. This means there is unlikely to be a huge increase in the number of disposals. If it appears an oversupply is causing values to weaken, potential vendors may well decide to sit tight until the market firms again.

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