Rising farm values increase pressure to reveal risks
The price of farmland has risen over the last two years, with growth rates similar to those seen in prime residential property in central London.
The average price of farmland across Great Britain increased 12.3% in 2012 following a previous hike of 8.2% in 2011.
This leaves the current price tag for an average acre of land at £6,058. This rise has come despite falling crop yields over the last year. The yield (tonnes per hectare) of all cereal crops, for example, fell 11.1% between 2011 and 2012.
A number of encouraging positive indicators have driven land values to reach new record levels, exceeding equities and national house prices in the long term.
Estate agents Chesterton Humberts' forecasts that farmland values will increase by 30% over the next five years as the fundamentals driving growth become stronger.
Despite extreme weather conditions and a stagnating economy, farmland values in Southern and Eastern regions saw strong growth during 2012, with national figures ending the year at an average of £21,053 per hectare and £8,520 per acre.
Meanwhile long term growth shows figures have quadrupled since 1995, outpacing national house prices (160.2%) and FTSE 100 (92.4%).
Agricultural rents also exhibited healthy growth reflecting the uplift in land and commodity prices.
"Commercial farmers are taking advantage of rising food commodity prices whilst investors view the growing population, rising food demand and limited supply of land as a solid long term investment opportunity" said Andrew Pearce, head of Rural Agency.
David Hebditch, head of rural division said: "Investors are increasingly showing a greater appetite for assets which exhibit good growth potential and are tax efficient."
"Despite the recent adverse weather conditions, there is a compelling long term case for investing in farmland as the attractions of the sector with regard to scarcity value, rising food demand and tax advantages are set to continue for the foreseeable future."
"The increasingly unpredictable global weather conditions will likely exert upwards pressure on food commodity prices as well whilst new technology will create longer term greater efficiency and cost savings."
"We are quite bullish about medium term growth in farmland values given the likely supply/demand imbalance and have predicted that farmland values will rise by 6% per annum over the next five years, with larger good quality parcels capable of comfortably exceeding this."
Richard Hinton, business director at SearchFlow said: "The rising cost of farmland is putting ever-increasing pressure on farmers to get a return on their investment."
"This, in turn, is heaping pressure on commercial lawyers to ensure the most rigorous due-diligence is carried out on farmland. It's the only way to ensure issues with the land and enormous financial outlays can be avoided in the future."
The cost of cleaning contaminated land is over 40 times more than the average price to purchase it and those responsible for causing the damage often cannot be found meaning the the cost will fall on the current owner.
The cost of cleaning up contaminated land now stands at around £250,000 per acre, 4,027% more than the current average price per acre. These costs can double if contaminated land that has not been remediated by the previous occupier produces run-off into other sites.
In response to the increased risks associated with land purchases, SearchFlow has launched a report that delivers specialist due-diligence tailored for the purchase, refinancing or redevelopment of agricultural land and farms.
The report, called GroundSure Agricultural, contains a full contaminated land risk assessment and professional opinion covering essential Part IIA Environmental Protection Act requirements and provides insight on relevant past and current use of the land and site layout.
The opinion on site suitability provides support for banking security and valuation purposes, together with a more tailored wide area search than standard commercial searches.
Hinton said: "This report offers a single view of all potential risks for rural land, ensuring clarity on the situation ahead of deals being finalised."
"There are no generalisations, every report is backed by IEMA-qualified environmental consultants and further action assessments are further scrutinised to deliver a completely individual opinion of a site. With the stakes so high for farmers at the moment, we are offering this valuable search to help ease some of the pressure that comes with buying farmland."
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