Farmland growth expected to outstrip inflation by the end of 2010 and prove as good an investment as gold, report claims

Written by Ray Clancy

Monday, 19 April 2010 10:30

Farmland values in the UK continued to rise in the first quarter of 2010 and even outperformed gold, according to a new report.

The average rise in value for an acre of grade three arable land during the first quarter was 1%, below that of inflation, but it is expected to comfortably outstrip inflation by the end of the year with annual growth of 5 to 6%, says the newly published Farmland Value Survey report from Savills.

‘Interestingly, gold a commodity that is much easier to trade than farmland recorded some price correction during the same period both in current and real terms,’ the report points out. It says gold fell by 1.9% in the first three months of the year and by 4.4% when adjusted for inflation.

‘We anticipate that growth will comfortably outstrip inflation by the end of the year with gold and farmland continuing to be good hedges against inflation,’ the report adds.

Farmland activity in the eastern counties accounted for just under half of all the acres marketed during the first quarter of the year. Some 43% of all land publicly marketed was in the East, but despite this, values in this region like elsewhere continued to rise.

In England, the average value of Grade 3 arable land increased by 1% during the first quarter of 2010 to £5,000 per acre. The report shows similar increases for prime arable and grade three pasture, which now average over £5,500 per acre and around £4,400 per acre respectively.

Stronger growth of 1.7% was recorded in the same period for average prime dairy land which now stands at £5,365 per acre. Poor pasture increased by 2.4% to £3,450 per acre reflecting tentative signs of increased activity in the amenity farm market.

However, the report says that these averages mask some significant ranges in value depending upon location and land quality. In the East for example the gap in values continues to widen with the best achieving around £8,000 per acre and the worst £4,500 acre.

In Scotland, as in previous years the value of farmland remained unchanged during the first quarter of 2010 mainly due to the lack of transactions to provide hard evidence of price movements. Historically the farmland market starts trading later north of the border.

‘Whilst values have risen for all land types, the gap between the best and the worst is widening. Good quality land in high demand areas is now fetching up to £8,000 per acre whilst poorer land in less popular locations is nearer £4,500 per acre,’ said Christopher Miles head of farm agency in the East.

Cash buyers now represent over 60% of applicants registered with Savills to buy farmland. Most of these applicants are looking to purchase a property of up to 500 acres.

‘The fact that non-farmer buyers have, albeit tentatively, started to re-register their interest in farmland combined with a continuing low interest rate environment leads us to see no reason why farmland values will not gain momentum and we fully expect annual growth to be in line with our forecasts of around 5% to 6%,’ said Ian Bailey head of Savills rural research.