Knight Frank Farmland Index Q1 2012

·         English farmland prices rose on average by 0.4% in the first three months of 2012, following drops of almost 1% in each of the final two quarters of last year.
·         The average value of agricultural land is now £6,073/acre.
·         This is just £83 below the record high of £6,156/acre reached in summer 2011.
 
Andrew Shirley, Head of Rural Research at Knight Frank, comments: “We predicted that the slight drop in the value of land in the second half of 2011 was not the start of a more significant trend. The upturn in values so far this year bears this out and we expect further growth of about 6% during the rest of the year.  Despite the on-going economic uncertainty farmland is still considered a solid, tangible “safe-haven” investment.”
 
Tom Raynham of Knight Frank’s Farm Sales team said that he has noticed an upturn in the number of investors attracted to the asset class: “So far we haven’t seen any activity from institutional investors, but specialist funds and private and corporate investors are showing a lot more interest. A number have retained us to find suitable investments for them.  As ever, the biggest problem is satisfying the demand. We have a number of good farms coming to the market, but so far this year there has been very little increase in the availability of quality land. This imbalance will help to ensure prices remain firm.”
 
Clive Hopkins, Head of Farm and Estate Sales, adds: “Farmers and landowners are still concerned about the impact of the on-going reform of the Common Agricultural Policy, but there are few signs that the proposed changes to the way agricultural subsidies are paid are having an effect on the farmland market.
 
“For example, there were initially some concerns that anybody buying agricultural land for the first time might not qualify for the new subsidies when they are allocated in 2014 or 2015. However, our legal advisors tell us that it will be possible to find ways around this issue.”
Careful planning will also be needed to ensure purchasers of farms do not fall foul of Chancellor George Osborne’s recent changes to Stamp Duty Land Tax (SDLT). In his Budget last month, Mr Osborne announced that companies, including partnerships with a corporate element, will have to pay 15% SDLT on the value of all residential property purchases over £2m. This applies, even if the house is part of a mixed-use property such as a farm. The agricultural land will be taxed at 4% as before.
 
“These changes could complicate some deals that are going through at the moment and they will undoubtedly cause some headaches for solicitors and tax advisors going forward, but I don’t think they will dent overall confidence in the market,” says Clive. “People will just have to plan property ownership structures carefully to mitigate the impact.”