Fall in farm commodity prices

The fall in farm commodity prices has cut the profits from rural investments in the UK.

The total return in 2015 was 5.5 per cent – a decline of about 5 per cent from 2014’s return of 10.4 per cent.  This is the most subdued return since 2008 and reflects a slowing in the market after several years of very robust returns.

These figures come from the IPD UK Annual Rural Property Index which is sponsored by Carter Jonas and Savills. The Index tracks the performance of 1,873 properties with a combined capital value of more than £3 billion.

Caution around future market uncertainty was reflected in rural land capital growth, which reduced to 4.1 per cent in 2015 from 8.9 per cent in 2014. The decrease in the rate of capital growth made the most significant contribution to the decline in the total return.

As head of Carter Jonas’ rural team in the South West I believe the market is patchy but there is no doubt that the fall in commodity prices has had a very real impact on farm incomes and this in turn has impacted on confidence in the farming community.

More recently, political debate around Britain exiting the EU and the effect this may have on the agricultural industry has further dented confidence.  Now the level of uncertainty has ratcheted up a notch since the Leave campaign won the day.  However the vote is not likely to have much impact on world commodity markets and therefore farmers and investors are likely to continue being selective about investing in farmland.

All these factors have contributed to the land market cooling as farmers and investors are concerned that it will be a while yet before confidence returns to the agricultural economy. 

But farming is a long term industry and although rural incomes returns remain low at around 1.3 per cent according to the index, where land comes available for the first time in a generation, neighbouring farmers will very often still be interested in buying it. 

This is not least because in the long term land has often been seen as an excellent investment and they aren’t making any more of it. 

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

Diversify to maximise the performance of assets

Owners of rural land and property are advised to diversify to maximise the performance of their assets.

This is highlighted in Carter Jonas’ latest Model Estate report which since 2010 has tracked the annual performance of a notional agricultural estate against seven other asset classes, including residential property, commercial property, classic cars, fine wine, equities, antiques and gold.

The Model Estate showed a 4.7 per cent increase in value during 2015 which means the estate’s rank slipped to fourth place in the eight asset classes.

The let farms element of the Model Estate produced a return of just 4.2 per cent in 2015 compared with 24.3 per cent in the previous year. Growth in 2015 was driven by capital rather than rental values, although even this slowed as the agricultural land market began to cool over the course of the year.

Tim Jones, national head of the rural division at Carter Jonas said: “Net incomes, profitability and the serviceability of debt continue to be squeezed, and farmers are increasingly cautious about paying premium rental prices.

“While demand remains for tenanted large blocks of land, we have seen market rents plateau over the last 12 months, in part due to falling commodity prices. These combined factors have caused the decrease in 2015 total returns for the let farms element of the estate, when compared with the previous year.”

The Model Estate’s residential portfolio recorded a 20.7 per cent increase in value which was boosted by one-off capital gains rather than just house price or rent increases. This gain is largely attributed to the decision to convert a commercial property to residential by taking advantage of the new permitted development rights. 

This supports the notion that in order to maximise the value of rural property, landowners need to be alert to any opportunities that may arise and in recent times exploiting the relaxation of planning laws has certainly been something to keep an eye on. The potential to convert offices and farm buildings to residential use are very often the obvious diversification opportunities to consider.

Of the eight asset classes the Model Estate is analysed against, classic cars once again produced the highest return in 2015, of 16.6 per cent. This was followed by the UK’s residential sector which produced a total return of 9.5 per cent and then the commercial, recording a 7.2 per cent return.

As head of Carter Jonas’ rural team in the South West I can confirm these research findings are reflected in real life as owners of farms and rural estates look to generate alternative sources of income to augment their traditional income generated from let and in-hand farmland.    

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

Super Suffolk – in a class of its own

Every year Carter Jonas takes part in the Hadleigh Show; we run the “Guess the Weight of the Bullock” competition with the bullock always provided by the lovely farmer, Bob Mannings - it’s a great fun event and good to see so many people taking part, with the farmers and their children taking their guesses more seriously then most!  We love the day and I believe the show encapsulates Suffolk at its best with such a mix of people, animals and events all blending perfectly in the melting pot.

This is one of the earlier country shows of the year in our region and held at, what I believe to be, the most beautiful time of year.  I think it’s hard to beat Suffolk in May and June.

A question I am frequently asked by national journalists, as well as by those in the early stages of considering a move here, is “Why Suffolk?”. It’s easy to know where to start, and difficult to know where to stop, but here goes:

Suffolk is the secret jewel of East Anglia.  It’s the seventh biggest county in England sandwiched between Essex, Norfolk and Cambridgeshire while stretching out to 45 miles of National Heritage Coastline.  Our rivers are muddy and rugged and utterly charming as they flow down to our colourful coastal towns and villages.  The rich farmland and gently rolling countryside is not infrequently described as voluptuous and a journalist, who once described Suffolk as having “roses in her cheeks” got it pretty bang-on I’d say!

It’s no surprise that artists, actors and the media are drawn in by the bucolic scenery, rural tranquility, laid-back lifestyle and discreetness of Secret Suffolk.  Just to name a few: Griff Rhys-Jones, Clive Owen, Bill Nighy, Ralph & Joseph Fiennes, Twiggy, Judi Dench, Nick Robinson, Anthony Horowitz, Stephen Fry, Ed Sheeran and Claudia Schiffer. The vibrancy of our arts and entertainment can also be enjoyed in highly popular venues such as Snape Maltings and at the Aldeburgh Festival.

What more?  We have excellent private and state education; we’re one of the safest and greenest counties in the UK; no motorway crosses our county; Stansted Airport is conveniently close without the noise impact; sell-out musical festival of Latitude; about 20 golf courses; brilliant sailing; horse racing at Newmarket; superb farm shops; food and drink festivals; excellent restaurants and pubs; picture book villages and stunning historic towns.

Our architecture varies from the traditional medieval timber framed houses, to brick and flint Victorian houses, to thatched cottages, to the rarer Georgian gems as well as stunning and daring contemporary designs.  The village of Lavenham has at least 340 listed buildings and Nikolaus Pevsner had two architectural volumes dedicated entirely to our county.

Suffolk has been voted for its best quality of life of any rural area in Great Britain; for its longest life expectancy and we’re the driest county with two more hours of sunshine each week than the national average.

It’s not just about community and culture though - we’re highly commutable too, especially along the Essex/Suffolk borders.  Manningtree Station was nominated as one of the most popular and friendliest commuter stations in the UK last year.

The prosperity of Cambridge ripples out to us and we have the lowest house prices within a 60 mile radius of London. Londoners often start off with a second home in our region, spend more time here, are seduced and change to a London bolthole instead.  We’re quite an addictive cocktail!

Caroline Edwards
Partner
Residential Sales, Long Melford
T: 01787 888622
E: caroline.edwards@carterjonas.co.uk

Demand in milk and prices

Arla Foods have announced yet another milk price reduction with their UK standard price per litre dropping by a penny to 19.12 pence. This is well below the cost of production for almost all farmers and does not bode well for the coming months.

The market continues to be impacted by the global imbalance between milk supply and demand.  Commodity stocks are high and the market is extremely competitive which is continuing to generate further downward pressure on prices.

Arla Foods Farmer Board director Johnnie Russell said: “Recent data suggests that the global growth in milk production is levelling off, which may lead to volumes stabilising later in the year.  However, it is too early to predict whether this trend will continue over the coming months.”

This potential change in sentiment is reflected in the New Zealand co-op Fonterra’s forecast for the coming year where it raised its predicted price to 14.6p/litre.  But this remains a pitifully low price. Only two years ago Fonterra was paying farmers 29p/litre.

Fonterra’s very modest optimism is not based on an increase in demand for milk but rather on the expectation that farmers will start cutting production across the world due to the poor returns.

This optimism was reflected in the Global Dairy Trade auction which saw prices rise by 2.6 per cent - the third increase in four sales.  But despite this, prices remain stubbornly low with no consistent pattern of sustained price rises.

Having said that, the Dutch dairy board has also raised its official prices for butter, milk powder and cheese for the first time in over a year which lends support to Fonterra’s cautious optimism.

However with EU milk production 7.2 per cent higher on the year in the first quarter of 2016 and world production also up 3.9 per cent over the equivalent period it is clear that something dramatic is needed to rebalance supply and demand.

The hope is that the rate of increase in production will moderate if not fall and this is reflected in the EU’s milk market observatory board’s prediction that EU production is expected to rise by only 1.4 per cent over the whole year.

But it does not take a genius to work out that if demand does not also pick up by at least that amount, there is limited hope of a serious increase in milk price for at least the rest of 2016.

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

Positive new measures in the Housing and Planning Act 2016

The Housing and Planning Act 2016 has now passed into law, and while it needs secondary legislation to implement its various measures, it is good to be aware of what it is likely to bring. Whilst it is not due to come into force until April next year, other measures may be added in the interim to enable legislation, so it is advisable to be aware of changes as they develop.

Below is a summary of some of the Act’s measures and my thoughts on how these will impact the industry.

Electrical safety standards

Landlords are likely to find they will have to adopt positive measures to ensure electrical safety during a tenancy, possibly by way of annual checks. New safety standards are likely to apply not only to the electrical system in the property but also to electrical fixtures and appliances supplied by the landlord.

It is expected that to satisfy the requirement, an electrician will be required to make an inspection, and while it is uncertain as to whether or not a copy of the certificate will need to be supplied to the tenant, it would seem to be good practice to do so, especially with the changes to Section 21 rules on notices for possession and the possible ability to avoid them by the tenant requesting repairs.

The law is likely to be backed up by penalties, possibly financial, and as these are safety issues local authorities could be given the power, with the tenant’s consent, to enter the premises and rectify any failures.

I am fully in favour of improvements to the electrical safety standards guidelines, as the current legislation requires a landlord to ensure the electrics are safe, but there are no physical guidelines to show how to go about this and what can be used as evidence to demonstrate this has been done.

Banning orders

Both landlords and letting agents could be made subject to banning orders under Part 2 of the Act, made by the First Tier Tribunal (FTT) on the application by a local authority. Those subject to an order would not be able to undertake letting agency or property management work or let houses, although it is unclear at present exactly what transgressions would lead to an order.

Orders will endure for at least 12 months and, if the ban is breached, there are some serious penalties enshrined in the new law. Summary conviction could bring a ban of no more than 51 weeks and / or a fine not exceeding £30,000 with a banned person not permitted to hold an HMO licence. This would clearly have serious implications for both our clients and ourselves and should at all costs be avoided.

Rent repayment

The FTT will also have the power to make rent repayment orders where a landlord has received rent from a tenant or local authority through universal credit.

It is likely the FTT will make an order if a landlord has:
1.    Failed to comply with an improvement or prohibition order or
2.    Evicted or harassed a tenant or
3.    Has control or management of an unlicensed HMO or house or
4.    Has breached a banning order.

Either tenants or local authorities can apply for an order but the making of an order can only be made if it is beyond reasonable doubt that the landlord has committed the offence. The amount to be repaid is limited and cannot exceed the rent paid by the tenant over a 12-month period during which the offence was being committed by the landlord.

Whilst this could be positive news for tenants in properties that are not being properly maintained by their landlords, I am concerned that it could be abused by some tenants who could attempt to claim back rental payments when a landlord has in fact been fair and maintained their property well.  I imagine that as a result of this new order written correspondence between landlords, tenants and agents and detailed records will become even more important for dealing with potential claims in the future.

Database of rogue landlords and property agents

The Act will establish a database of ‘rogue’ landlords and property agents, which will be operated by the Secretary of State but updated by local authorities.

The information held will include:
(a)        the person’s address or other contact details;
(b)        the period for which the entry is to be maintained;
(c)        details of properties owned, let or managed by the person;
(d)        details of any banning order offences of which the person has been convicted;
(e)        details of any banning orders made against the person, whether or not still in force;
(f)        details of financial penalties that the person has received.

This information will be disclosed on application in redacted form and local authorities will have access to the database. This is an important move for the industry in which ‘rogue’ landlords and agents can tarnish the reputation and perception of the vast majority who operate reputably. This will certainly help to crack down on repeat offenders and hopefully weed out such individuals.

Overall, the new measures proposed in the Act are welcome changes for the industry that should improve efficiency and transparency in the residential lettings process. Whilst, as with any change to legislation, there will be new risks and potential loop holes created, these measures look to further protect tenants and landlords alike and also provide further support for agents.

The full details of the Housing and Planning Act can be viewed here.

Lisa Simon, 

Partner Head of Residential Lettings

T: 020 7518 3234 

E: lisa.simon@carterjonas.co.uk

The Brexit debate at the Bath and West Show

Whether you are in or out the Bath and West Show was the place for extremely high calibre debate on the issue of Brexit.  The show kicked off with the Country Land and Business Association breakfast where four South West MPs passionately argued their respective cases.

The debate was introduced by CLA deputy Tim Breitmeyer who said: “We face a defining moment in history – it will shape our future and our children’s future.”

With those words still ringing in our ears Neil Parrish, MP for Tiverton and former South West MEP spoke from the heart on why he believed leaving the EU would be detrimental for British agriculture in particular.
From his experience as an MEP, where he chaired the committee on Agriculture and Rural Development, he explained that compared to this country, agriculture is still regarded as a very important industry throughout the rest of the EU.  Consequently he believed that UK farming interests would be better protected within the EU.

North East Somerset MP Jacob Rees-Mogg responded with an amusing and eloquent speech focusing on higher level sovereignty issues and the undemocratic nature of the EU.  He proffered an intellectually rigorous argument why he felt the UK would be better off out of the EU, taking back control of its own laws under a democratically elected UK government.

Then Farming Minister George Eustice summed up for the Brexiteers.  His opinions have obviously been influenced to a degree by his frustration of having to deal with the implementation of EU rules in his role at DEFRA.  

He also emphasised that the government would support farmers in a post Brexit world, although his reference to the Environment Agency and RSPCA being two of the organisations earmarked to help run the domestic schemes did raise eyebrows.   

Rebecca Pow, MP for Taunton, then summed up for the Remain supporters, emphasising some of the important benefits that have come out of the EU such as environmental legislation as well as the huge benefits of free access to the biggest single market, the withdrawal from which she argued could have a devastating effect on the trade of certain agricultural produce such as British lamb.

I am not sure whether many in the audience had their opinions swayed by this first class debate but if we do vote to leave on June 23 it would certainly be fascinating to have those same speakers back in five or ten years to review the consequences of what actually does happen.

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

Don’t fall foul of new residential tenancy rules

Don’t fall foul of new residential tenancy rules is the message coming loud and clear from the Central Association of Agricultural Valuers’ spokesperson, Kate Russell.

With rental income from cottages and converted farm buildings becoming an increasingly important financial lifeline for many farmers, they need to take heed of these latest developments.

In the main, the new rules are being put in place to protect tenants from unfair treatment but landlords who may have behaved perfectly reasonably can be caught out by the new legislation.

Probably the most important new rule in 2015 was the introduction of prescribed legal requirements for Section 21 notices, which have to be served to terminate an Assured Shorthold Tenancy.

For tenancies beginning after October 1, 2015, landlords may not serve a Section 21 notice to terminate a tenancy unless the tenant has been provided with:

•    A free and valid Energy Performance Certificate (EPC)
•    A copy of the gas safety certificate for the property where appropriate and
•    A copy of the government’s guidance note: How to Rent: A Checklist for Renting in England

Other new rules include Right to Rent checks.  Since February 1, 2016, landlords must check that their tenants (and any adult living with them) have the legal right to rent in the UK. Penalties for failure to conduct such checks can result in fines of up to £3,000.

In order to comply, landlords or their agent must check original documents such as a passport or birth certificate in the presence of the document holder and then keep copies of them for a year after the tenancy ends.

In addition, all landlords must ensure there is a smoke alarm on each storey and a carbon monoxide alarm in every room with a solid fuel burning appliance, including wood burning stoves, open fires and Agas.  Failure to comply with these rules, which cover both residential and agricultural tenancies could ultimately lead to a fine of £5,000.

Then there are restrictions on landlords serving termination notices in response to tenants who may have complained about the condition of the property and the Landlord has failed to respond adequately.

And from April 1, 2016, a landlord cannot unreasonably refuse a tenant’s demand for energy efficiency improvements if they can be carried out without cost to the landlord.  While from April 1, 2018, a domestic private rented property cannot be let on a new tenancy if it has an EPC of F or G. This will also apply to existing tenancies from April 1, 2020.

However, where a property does not comply, landlords who have done everything they can to improve its energy efficiency (at no cost to themselves) can apply for a five-year exemption every five years.

So the message is that regulations concerning renting out properties are becoming more and more stringent and landlords either need to get clued up on the new legislation themselves or employ professional help to ensure their rental properties do not become an unexpected financial burden.

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