Land Values Drop

Land values continue to fall according to the latest statistics.  Prices for the first half of 2016 dropped by 4% according to the RICS.  This comes after a fall of 1.5% in the last half of 2015.

The figures come from the latest Rural Land Market Survey released by the Royal Institution of Chartered Surveyors (RICS) and the Royal Agricultural University (RAU).  The cause of the fall is that supply of farmland is now outstripping demand.  The survey always includes two measures; the ‘transaction‘ based measure uses actual sales and includes a residential component (where that component is estimated to be worth less than 50% of the total value of the land).  And then the ‘opinion’ based measure; this is a hypothetical estimate of bare land only, no residential component is included and therefore it tends to be less than than the transaction-based figure. 

The transaction-based survey for the first half of 2016 fell by 2.7% compared to the second half of 2015 to £26,565 per hectare (£10,751 per acre).  The opinion-based weighted average price was down by 4%, to £19,706 per hectare (£7,975) in the first half of 2016 compared to H2 2015.  With current low commodity prices, 48% more respondents reported a fall in demand for commercial farmland, but demand for land with a residential element also saw a fairly sharp drop in demand. 

Looking ahead, price expectations for both commercial and residential land are both negative.  According to the survey, the vast majority of contributors expected commercial land prices to fall over the next 12 months.  The net balances of price expectations (i.e. those who believe prices will rise, minus those who think the market will drop) shows a figure of -56%.  Pessimism has increased from the second half of 2015 when the equivalent figure was only -34%.  The situation is similar for properties with a residential element.  In the latter part of 2015 the net balance figure was only -3% – suggesting that, overall. prices might well remain static.  Over the last 6 months sentiment has deteriorated and the index is now -42%.  Brexit will obviously have an impact on values, but just how this plays out is perhaps more difficult to say.  Any reduction in support payments will probably have more of an effect on rents but land values have many more drivers.  Short term, uncertainty and continued low commodity prices are likely to affect the market.  However, as seen back in 2008 after the banking crisis, land can be seen as a safe investment, similar to gold, in times of uncertainty.

The survey also looks at rental levels.  Arable rents under the AHA 1986 and ATA 1995 (FBTs) have both fallen since the second half of 2015;  AHAs only marginally, by 1%, to average £193 per hectare (£78 per acre) but FBT rents have fallen by 6% to average £350 per hectare (£142 per acre).  Rents for pastureland have actually risen by 7% to £148 per hectare (£60 per acre) under AHA 1986 tenancies, but fell by nearly 7% to £237 per hectare (£96 per acre) for FBT agreements compared to H2 2015 levels.