English farmland prices look poised to return to, modest, decline despite a strong finish to last year, when values enjoyed their strong quarter since early 2015, helped by interest from non-farmer buyers.
Prices of arable land in England, which holds the vast majority of UK cropping farms, averaged £9,900 per hectare in the October-to-December period, Strutt & Parker said.
That represented growth of 7.6% on prices in the July-to-September period, and of 12.5% year on year – the highest figures since the second quarter of 2015.
“While the uncertainty surrounding Brexit has taken some of the heat out of the market, the average value of arable land actually climbed during the last two quarter of 2017,” said Mark McAndrew, head of national estates and farm agency at the London-based group.
‘Farmer demand strengthening’
The recovery came amid hopes for a revival in demand for farmland from farmers, the key buyer group,
“While farmer-demand weakened in 2016 and 2017, there are signs of it strengthening,” Mr McAndrew said.
“There are an increasing number of farmers looking to roll-over development money into a land purchase,” that is buying land with windfalls from, for example, a sale of fields for housing, and so avoiding capital gains tax payments.
This trend “is driving competition”.
Improved agricultural profitability prospects, flagged separately this week by feed-to-grain trader Wynnstay, are also playing a role with Strutt & Parker noting a boost to farmers’ appetite for purchases “as farm incomes have been buoyed by higher commodity prices due to the weakening of sterling”.
A weaker pound boosts the value, in domestic terms, of assets traded internationally in other currencies, typically the dollar, although sterling did recover some ground last month.
Mr McAndrew also noted a boost from UK government pledges on farm subsidies.
“There is some medium-term certainty around support payments following Defra secretary Michael Gove’s recent announcement that area-based payments will continue in some form under the new British Agricultural Policy until around 2024.”
Nonetheless, Strutt & Parker forecast prices at best holding steady over 2018, 2019 and 2020, an potentially falling by up to 5% in each of those years.
“The company’s current view is that the outlook lies between” those outcomes, the group said.
“Average values are likely to remain broadly stable, assuming there are no adverse changes to the tax treatment of land or the UK ends up with a ‘harder’ agricultural Brexit than expected.”
The agency added that it was “forecasting there could be a return to growth in capital values over the medium term due to continued restricted supply and increased demand from rollover buyers”.
For 2021 and 2022, the group’s central forecast was for land price growth of 5% per year.
(Source – https://www.agrimoney.com/news/english-farmland-prices-face-return-to-modest-decline-51855)