UK land price surge drives out funds, foreigners

"Anyone who bought land at least three years ago has seen their investment double in value – no other asset has performed as well." | 30th January 2012

UK land price surge drives out funds, foreigners

The extent of the surge in UK farmland prices has driven foreign buyers and pension funds to the sidelines, leaving farmers to pay prices more than double those three years ago, property consultancy Savills said.

The number of overseas buyers tumbled to 3% of the total last year, down from 26% in 2006, when Irish and Danish purchasers led a wave of foreign investment.

Indeed, Danish investors were, for a second year, net sellers of UK farmland.

Meanwhile, corporate and institutional investors, including pension funds, accounted for 13% of sales, double the proportion seen in 2010, Savills said, noting "a lot more caution amongst the financial sector".

'Probably due to profit-taking'

The selldown came amid a market slowdown last year, when price growth eased to 5.7%, and stalled in most areas in the September-to-December period.

That represented a marked decleration after gains which, over the last five years, have totalled 138% - far better returns than those obtained from commercial or residential property, or shares.

Indeed, many of the disposals were "probably due to profit-taking", Alex Lawson, a Savills director, said.

"Anyone who bought land at least three years ago has seen their investment double in value – no other asset has performed as well," he said, adding that, in many cases, sales had been "driven by a need to raise capital for alternative investments".

Danish investors, who represented 10% of all sellers in eastern England last year, had used "gains from the British land market to reinvest at home".

'Relatively profitable'

Such cautious attitudes had left the market free to UK farmers, who accounted for more than 60% of purchases, the highest proportion for a decade, while accounting for their lowest proportion of sales since 1993.

"The arable sector is relatively profitable at the moment and farmers are feeling quietly confident having benefited from some fantastic commodity prices and this year's crops are looking excellent," Mr Lawson said.

The comments echo those of rival consultancy Chesterton Humberts which last week, forecasting a 5% rise in land prices this year, said that "some types of farming are profitable, and most farmers would like to spread their fixed costs over a greater acreage if they could".

Also last week, official data showed cereal farms as the UK's most profitable agricultural sector in 2011-12, with net income up 6% at £90,000.
Original source: Agrimoney

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