Population growth has driven English farmland values to a record high, according to figures from Knight Frank.
The property agency’s farmland index reported a 7 per cent increase in values in 2013 to reach an average of just under £6,700 per acre, and the team predicts
Large blocks of investment-grade arable land in the UK now regularly sell for over £10,000 per acre and over the past 10 years average values have increased by 222 per cent, compared with a rise of 58 per cent for the FTSE 100 and 132 per cent for prime central London residential property.
Tom Raynham, head of Knight Frank’s agricultural investment acquisitions team, said demography is helping to drive outperformance. “Today, population growth is a global issue and the demand for food continues to grow. Acquiring farmland is one way for investors to buy into this trend,” he says.
Investors favour farmland because of its stability, he added. “Compared with other major asset classes, the performance of farmland is far less volatile. Although commodities such as wheat do experience significant price swings, agricultural support payments in the UK, along with the rest of the European Union, help to mitigate the impact of adverse weather conditions and global economic downturns.
“The recently agreed reform of the EU’s common agricultural policy means those subsidies will remain in place for at least another seven years and probably much longer.”
Farmland’s investment credibility grows apace
Enthusiasm remains weighed down by concerns about liquidity, the availability of worthwhile investments and the natural and ethical risks that come with exposure to the industry
A shortage of supply for farmland is also key to the asset’s outperformance. Knight Frank said that so far this year 125,000 acres of land have been publicly marketed in the UK. Fifteen years ago almost 200,000 extra acres were being traded.
Rising values aside, the tax benefits available are another incentive to purchase farmland according to Andrew Arnott, partner in the landed estates and rural business group at wealth management group Saffrey Champness.
Tax benefits include exemptions from inheritance tax and capital gains tax under certain circumstances, the ability to offset any losses from the farm against profits made elsewhere, and benefits by way of value added tax.
However, it is not as easy to claim these benefits as it once was. HM Revenue & Customs wants to ensure that such benefits are only available to those actively farming the land, rather than to those aspiring to a farming lifestyle or seeking the benefits of a large house in a rural location.