EU referendum - Impact on the land market

Arable farmers in particular are desperate to see more sun because sunshine at this time of year is so important to help their crops yield heavily.

June was a relatively dull month and July did not look summery till this week so there are concerns that yields will be down on last year, which is almost inevitable because last year was in general a bumper harvest - albeit crop prices were low. 

On the upside the weakening pound following the EU referendum has helped protect UK farmers from recent falls in wheat prices on world markets as UK wheat has become comparatively cheap. 

This weakening of sterling on the foreign exchange markets is generally good news for farmers because it makes imports more expensive and UK exports more competitive.  This has generally helped UK commodity prices such as beef, lamb or cereal. 

Indeed the exchange rate is probably the single most important factor impacting on the profitability of farmers in the UK and so in the short term at least, the effect of the referendum is good news although the longer term impacts of an exit from the EU is far more difficult to predict.

So what impact is all this uncertainty having on the land market?  Well, early indications are that Brexit has had little if any immediate effect.  Having seen a surge in land values over the last decade, farmland prices had started to ease a little over the last six months as the impact of the massive slump in commodity prices affected farm incomes. 

But with commodity prices firming a little and concern that other commercial and residential asset values are likely to slip, farmland may once again become a more attractive investment for farmers and investors alike.

And with interest rates looking destined to fall this is making borrowing money as cheap as I have ever seen.  For example fixed term rates of up to seven years offered by the Agricultural Mortgage Company have fallen below the Bank of England Base Rate, which must surely indicate that the money markets are anticipating a rate cut.

So, in the short term the outlook for farming has become a little brighter and lets hope our late arriving summer weather stays.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

Will there be an increase in land supply on the market during 2016?

Pressure from banks reviewing farm incomes could contribute to an anticipated increase in land supply on the market during 2016.

Bank reviews could encourage sales of off-lying parcels of land and motivate the sale of whole farms as pressure on commodity prices drives farmers from the industry. Other sellers may be tempted to take their profits from land bought before 2006 after which land prices started to rocket as the global recession set in.

While agricultural land values increased by 2.5 per cent in the first nine months of last year, 2015 witnessed the lowest rate of increase since 2009, indicating that now could be the time for owners to take profits and recycle their capital. 

Investment buyers driven by opportunity rather than location are still very active, creating pockets of activity that can see vastly different values in land sales only 10 miles apart.

Investors are not necessarily bad news for local farmers. While they add competition, which is great news for all those looking to sell, they invariably do not farm the land themselves and so create opportunities for innovative contractors or new farm business tenancies. 

During 2015 my firm, Carter Jonas dealt with the sale of 32,900 acres across the UK, both on and off the open market, with many of those sales made possible by our management teams negotiating deals to obtain vacant possession of farms prior to sale.

It seems the most active buyers across the country are either investors looking to avoid Inheritance Tax through Agricultural Property or Business Property Relief or those trying to avoid Capital Gains Tax following the sale of development land using Rollover Relief.  Farming purchasers are less visible and tend to focus on the 50 to 200 acre blocks in close proximity to the “home farm”.

Those seeking to take advantage of Rollover Relief have a finite three-year window to invest funds into land, which may explain why so many successful deals have been concluded in very short timescales as the three-year deadline approaches.

As the economic recovery has taken hold and government planning policy is encouraging house building, the development land market has kick-started, increasing the volume of roll-over receipts actively seeking a home in agricultural land. This source of demand is forecast to account for a growing proportion of the land buyer profile over the next few years, taking up the slack caused by the increasingly restrained purchasing activity of farming buyers. 

Across the country we have seen blocks of farmland of more than 1,000 acres sell strongly – farms and estates with shooting interest also sell well. Of particular importance is land of all descriptions outside towns and cities where development is taking place and therefore where there is roll-over money looking for a home.

James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk

It has been a busy week...

It has been another busy week with meetings in Taunton, Bristol, Oxford, Reading, the Dairy Dinner, Carter Jonas’ National Rural Division Day and two charity events on the weekend.  

After seven days like that I often sit and ask what if anything I have learned. In this case it was the huge range of fortunes affecting the rural world. 

The woes of the dairy sector are well known to us all, although NFU President Meurig Raymond spoke at the Dairy Dinner of cautious optimism.  He alluded to the price rises in recent international milk commodity auctions giving hope that these increases will eventually feed through to the milk price being paid to our farmers.

It was also interesting to hear at a breakfast meeting that the bank managers there had not seen any significant financial problems with the majority of their farming clients.  This came as a surprise and I suspect if I sit with the same bank managers in six months, they may have a different story to tell, especially if receipt of the Basic Payments are delayed until February or March as many expect.

I then went on to Carter Jonas’ Rural Division Day where we considered the land market, among other topics, and the overwhelming sentiment was that the price of sizeable blocks of quality agricultural land remain firm.  

Demand for such land is increasingly being driven by “rollover money” as farmers and landowners who have sold land for development are looking to re-invest in agricultural land, thereby rolling over the capital benefit and avoiding the payment of Capital Gains Tax in the short term.

But also true is that the land market is extremely local and values often vary hugely across short geographic distances as can be seen here in Somerset with some “flood affected” land on the Levels being worth not much more than £3,000/acre with land in places on surrounding higher ground worth three or four times as much.  This makes the valuation of land very difficult and local knowledge increasingly important.

So, while some farmers and landowners are prospering, others are struggling and as with the land market, their fortunes can be very local – one farmer may have benefited from a good milk contract or the sale of development land while their neighbour has not.  

Sometimes this may be just good or bad luck but there are individuals with the habit of attracting good fortune. Perhaps others should learn from the business attitudes of these “lucky ones”. 


James Stephen MRICS FAAV
Partner
Rural Practice Chartered Surveyor, Wells
T: 01749 683381
E: james.stephen@carterjonas.co.uk