RICS: Shortage of available rural land; increase in demand keeps prices up (UK)

The H1 2010 RICS rural land market survey paints a somewhat mixed picture with respect to prices. The transaction based measure of farmland prices fell by 6% (from £16,126 to £15,177 per hectare (approx. €19,285 – €18,150)) during H1, but the opinion based measure increased by 6% (from £12,715 to £13,530 per hectare) over the same period.

This divergence in trends can be attributed, in part, to the way both measures are constructed. The transaction-based measure is determined by actual sales and includes a residential component, whereas the opinion based measure is shaped by valuations of bare land only. The fact that the transactions based measure fell, in contrast to the opinion based measure, likely reflects the slowdown in the wider housing market rather than in the farmland market per se. In addition, the decline in the transaction-based measure is likely to have been exaggerated given the relatively illiquid state of the market during H2.

The results show that demand for farmland continues to rise, although the increase in demand was much stronger for non-residential farmland than for residential. Indeed, the non-residential demand net balance increased from +31 to +47, whereas the residential demand net balance increased from +1 to +14.

Anecdotal evidence from surveyors suggests that commercial farmers are still keen to expand production, particularly onto neighboring farms given still elevated prices at the farm gate, and are willing to pay a premium in order to do so. Meanwhile, the supply of land has continued to decline but nowhere near as sharply as during the previous half. Moreover, falls in availability was broadly similar for both residential and non-residential farmland. Indeed, the non-residential availability net balance improved from -40 to -6, whereas the residential availability net balance rose from -43 to -8. Significantly, some surveyors have raised concerns that the rise in Capital Gains Tax (CGT) will further restrict supply.

Looking forward, surveyors expect farmland prices to continue rising over the next 12 months as a result of the supply/demand imbalance, but prices are expected to rise more sharply in the commercial farmland sector.

Source: RICS

Related News