Farmland – A Profitable “Safe-Haven” Asset
Farmland is considered a safe-haven asset, just like gold, but it also carries an extra perk by providing a 2-3 percent annual return. Combined with the opportunity to beat capital gains and inheritance taxes, English farmland and to some extent agricultural buildings have become attractive assets for wealthy investors. Currently, the price of farm land averages more than £6,000 an acre and only half of the buyers are farmers. Estate agents report an influx of City bankers and overseas buyers coming from India, China, Italy and even crisis-stricken Greece. In the UK about 100,000 acres of farmland are bought and sold every year.
“Every time there is a wobble in Europe you see more buyers,” says Christopher Miles, head of the rural agency for Savill’s eastern region. “Greeks, Italians and French are buying in central London and some of those are also buying farmland. It’s just a movement of capital between different countries.”
Adding another insight, Andrew Shirley from Knight Frank observed that pre-2007 a lot of people had been setting up farmland funds but when the credit crunch hit they all gave up and disappeared. Now with the upward movements in commodity prices including corn and wheat, a lot of these enthusiasts are returning to the market, having realised how valuable farmland has become. According to Mark Hill, head of food and agriculture at Deloitte, agri-land values are increasing not only in the UK but around the world due to growing concerns of shortages in food supply. Hill also warned the rise in land prices will eventually have an inflationary effect on food prices.
!m(/uploads/story/335/thumbs/pic1_inline.png)And according to Ian Bailey, head of Savill’s Rural Research department, investments in farmland and forestry have outperformed all other assets over the past ten years. Rival estate agent David Hebditch from Chesterton Humberts tends to agree: “Over the last decade the agricultural sector has flourished in a way it never did before and farmland values have hit an all-time high. We predict they will increase further by an average of six percent per annum during the next five years.”
Last year the number of farmers selling land was at its lowest since 1993, while those looking to buy land and expand their businesses continued to rise. Ed Sudgen, from independent buying agents Property Vision, asserts he has never seen so many investors looking into farmland. According to Sugden, East Anglia remains the most popular choice because the land in the region is highest-yielding. His advice for investors looking to buy land is to avoid stock farms, hard-to-farm steep rolling country and small fields.
The tax breaks allowed by the Treasury will most likely appeal to investors planning for retirement and also people who wish to pass their wealth to younger generations. There are however a few requirements to qualify for the Agricultural Property Relief scheme. Sean McCann from the National Farmers’ Union Mutual explains that to take advantage of the scheme one must have owned and farmed the land for two years or, if not farmed by the owner, it should have been owned for at least seven years and continuously farmed by a third party.
There are other complexities as well. HM Revenue & Customs will normally decline tax exemptions for land and buildings used for keeping horses, a measure aimed at discouraging taxpayers from claiming relief on a hobby rather than a genuine agricultural activity. Farmhouses or other constructions having little or no connection with the agricultural processes on the surrounding land are likewise not sheltered from tax. With such a range of requirements, it is best for buyers to seek advice from an experienced accountant before investing in agricultural land, forestry or buildings.
Meanwhile, in the United States the crop-devastating drought is eating into American farmers’ income and leading to lower growth rates in farmland values. Farmland across the mid-west plains, which includes Oklahoma and Kansas, along with part of Missouri and Nebraska, rose less than three percent in the second quarter, which is about half of the rate of growth at the beginning of the year. “We’ve seen slower gains now. Bankers expect this slower pace of growth to continue to the end of the year,” said Jason Henderson, vice president and Omaha Branch executive with the Federal Reserve Bank of Kansas City. “After this rapid growth over the last few years, we might be forming a plateau.” According to a report from the Federal Reserve, farmland values in the States are expected to remain at current levels for the rest of the growing season.
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