The old saying that they’re not making any more farmland is likely one reason why England’s agricultural property is seen as a great store of value. Demand is outweighing supply and the 2.1% gain in value in the second quarter of 2013 for such parcels is only the beginning, according to analysts at Chsterton Humberts. The firm predicts a 5% increase in value per year based on premium sales of commercial blocks and bare land, for which there is great demand and very little supply. Bad weather and tight lending is forcing farmers to rethink growing strategy, which may further erode supply. For more on this continue reading the following article from Property Wire.
Growth in agricultural estate values in England accelerated to 2.1% in the second quarter of 2013 as demand continues to outweigh supply, according to the latest sector index.
The cumulative effect of severe weather and stricter lending is causing more farmers to re-think operational strategy, according to the report from Chesterton Humberts.
The increase in values of agricultural estates is encouraging farmers to rethink business strategies, or even sell up in some instances, says the agricultural and rural land survey.
But the firm is predicting that prices will continue to rise and agricultural estate values expected to grow 5% per annum over the next five years.
The Chesterton Humberts Agricultural Estates Index recorded growth in average per acre values of 2.1% in the second quarter of this year to stand at £10,523 per acre at the end of June.
However, this has coincided with falling agricultural productivity caused by higher than the average rainfall and total income from farming (TIFF) falling 14%.
With income down and costs rising, the agricultural sector continues to be highly reliant on the supportive attitude of banks. However, Chesterton Humberts' latest survey highlights that some lenders are currently reviewing the quality of their loan books, particularly with regard to debt servicing, which could have a significant impact on many small farms.
Moreover, seasonally adjusted data from the Bank of England suggests net lending to the sector has been trending downwards since the beginning of the year.
‘Farm operators have had a tough ride over the past couple of years and pressure on balance sheets has been intensifying,’ said David Hebditch, head of rural at Chesterton Humberts.
‘There is now added pressure as some banks are looking more closely at farmers' ability to service debt, although the underlying asset value is seldom an issue. This could result in an increase in farmers selling up while land values remain high, which in turn could create opportunities for investors who have tried unsuccessfully to access the market,’ he explained.
All of the firm’s rural departments experienced growth, although there regional variations. The strongest aggregate rise in estate values was recorded in Petersfield at 4.5% and Salisbury at 3.4%. Both experienced an increase in the amount of land marketed.
‘This suggests that growth in values is strongly linked to availability at the higher quality end of the market, in particular for commercial blocks and bare land. We maintain our forecast growth of 5% per annum for estates over the next five years,’ added Hebditch.
This article was republished with permission from Property Wire.