Farmland prices in the UK have soared by some 10,000 percent in the last 60 years leading many investors to refer to the asset as “green gold” or a safe haven for their money. But some analysts warn that the steady returns of the past decades are not guaranteed in the future as tax reliefs are becoming less favourable and prices might have reached their peak.
Investing in UK farmland does not deliver the most exciting yields (an average of 2 percent) but having a tangible asset creates a sense of security. The tax reliefs, especially those to the inheritance tax (IHT), attract individuals who are planning for retirement and/or wish to pass their wealth to younger generations in a secure and stable vehicle. According to current regulations, if the farm is actively farmed by the owner, it will become exempt from the IHT after only two years, and after seven if rented to a third party.
Experts disagree on whether farmland investments will retain their profitability into the future in the face of continuing price inflation as has been seen over the past several years. Those who are bullish argue that the land supply will remain restricted thus supporting the steady increase in prices. “I think it’s quite difficult to be bearish on farmland values…Lack of supply has always been a factor as less and less comes on to the market each year.” says Ian Hepburn of Private Property Search as quoted by the Financial Times.
!m(/uploads/story/453/thumbs/pic1_inline.png)Andrew Shirley of research firm Knight Frank doesn’t completely agree, claiming that new investors will likely see no spikes in growth similar to the ones experienced by the market over the past few years. “The overall trend is still upwards as there’s a very limited supply of farmland. People are still looking in the market but they are not prepared to pay silly prices and that’s why the market is a bit flatter at the moment,” he opined.
Even with the tax breaks, some advisers believe investing in farmland is not for the average investor. This is because there are very few funds that provide opportunities for access to farmland and those funds are likely to be unregulated, high-risk and charge high fees. Furthermore, direct investments need to be carefully planned following warnings from some land agents that prices may be reaching peak levels in certain areas.
Spiking prices for farmland have been seen in Wales where the average price per acre of farmland is £6,594. However, much expert opinion expects prices to increase even more as the surge in demand is met with a shortage of available land. According to RICS spokesperson for North Wales Eifion Bibby: “There is a general shortage of farms and agricultural land becoming available in North Wales and this scarcity element is contributing significantly to the strength of market prices with localised competition being another relevant factor.” In the first six months of 2012 there were only 115 transactions of arable land compared to 298 in the second half of 2011.
Some funds have done quite well for themselves via investing in farmland. The BlackRock Agriculture Fund is looking to sell the Waite Farm, a 992-acre farm near Boston, Lincolnshire for £7.25 million. The fund bought the land in 2008 and has operated it since then: “Waite Farm has provided good returns since purchase, so we are responding to investor interest in large farm units to realise our investment.”
Stellar Asset Management is also planning a new fund for farmland investments – The First Stellar Farming LP, which will aim to capitalise on the growing interest in arable land. Savers with £15,000 or more will be allowed to invest, with the fund collecting a 2 percent initial charge and 1 percent annual management fee.