With farmland prices at an all time high, now may just be the time to think about selling land if you are looking for a better return on capital value.
Farmland tends to provide a yield of not much more than 1-2% which reflects the low risk nature of farmland compared to many commercial property investments. But in recent years the total return from farmland has been bolstered by significant capital growth and the big question is whether this capital growth will continue as the wider economy recovers which may attract non farming investors in particular to search for higher yields elsewhere.
However, farmland does still have very significant tax advantages as compared to many other assets. For instance let land qualifies for Agricultural Property Relief which can provide up to 100% relief from Inheritance Tax on the agricultural value of the land. This can be a significant driver for many cash rich individuals who may be prepared to accept a low return on capital in order to shelter their money in the long term from the tax man.
There are then farmers themselves who are generally feeling optimistic about the future of farming following some more profitable times in recent years. Having said that it is still difficult to justify the price some farmers are prepared to pay for land considering the relatively modest profit that will be generated from farming the land.
But land is an unusual asset in that unlike shares for example, “they are not making any more of it” and there may be one off opportunities that arise which may not have been anticipated at the time of purchase. For instance, if one had purchased an area of poor quality land on some windswept hillside twenty years ago you would probably not have anticipated the renewable energy opportunities which are now available which could liberate both capital value and significant revenue generating opportunities. Clearly if you don’t own the land such opportunities would not be available to you and although it is difficult to quantify this in terms of value I believe owning land does bring opportunities which owning other assets may not.
So, there are conflicting forces at work although if my firm, Carter Jonas is anything to go by we did see an upturn in farmland sales last year where we offered over 18,000 acres of land in to the market across the country. This does perhaps indicate that some large landowners are now prepared to consider rebalancing their property portfolio by selling at least some of their agricultural land to take advantage of the record prices currently being achieved.
So what are the prospects for 2014? Well, it seems to me that demand is still likely to outstrip supply but the market is patchy with good sized blocks of arable or dairy land likely to attract premium prices while smaller blocks of secondary quality land are attracting less predictable demand and consequently, on average lower prices.
Anyone interested in discussing either the sale or purchase of farmland is welcome to contact me in Wells or Kit Harding in our Bath office who heads up our farm agency team in the South West.
James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells
T: 01749 683381