Historically, large numbers of estates and farms were sold at auction, and while some farmers and landowners prefer to sell via private treaty, there are still a good number of agricultural lots that are successfully sold via the auction room.
Values for farmland at the Cheffins property auction climbed to in excess of £9,000 per acre for arable options in 2016 and 2017, with the auction sales being a true indicator of the growth in land values since the millennium. These values are driven by the range of buyers now competing for the best of farmland lots in the auction room, including farmers, property developers and strategic investors, as well as those who are looking to enjoy the tax efficiency of holding land as an asset, all of whom are snapping up a steady stream of supply throughout regional auction rooms across the UK.
The farmland market has experienced wide-ranging volatility and an increasingly two (or even three) tier market in recent years, but as this year’s farm marketing campaign gathers pace there are indications of more stability throughout 2019. On a national basis, the number of acres openly marketed across the UK is down by more than 50% compared with the same period in 2018, and with demand remaining firm, average land values are expected to stabilise.
Fresh interest
Although local farmers still remain the largest sector of buyers, the continued demand from rollover and inheritance tax investors, as well as from buyers who are looking to replace land acquired for infrastructure projects such as the A14 expansion and HS2, is all helping to maintain some healthy competition for certain holdings – particularly in the auction room.
The weakened sterling has prompted some renewed interest from international buyers, albeit with some caution due to the continued uncertainty of the UK farming sector post Brexit. The country’s prolonged exit from the EU has been a sizeable factor in the slight fall in land values since the 2016/2017 peak, but of course this offers buyers a chance to acquire land at a slightly more reasonable rate than before. With average arable values in the Eastern region currently holding at £8,000 per acre for unequipped land, those holdings which deliver on a number of key factors can still achieve significant premiums, while the more plain holdings in secondary locations may be discounted at 10-15% below average values depending on local interest.
Location and size continue to be the key factors driving prices along, with either established non-farming income streams or potential for diversification and longer-term development opportunities. Natural capital, soil health and irrigation are all increasingly sought-after elements as the farming industry starts to face up to some of the greatest political, environmental and financial challenges for more than a generation.
Competitive bidding
The auction room tends to be better suited to blocks of land and buildings up to 150 acres, and is less appealing for farms with residential property attached, unless the house is in need of renovation. Larger farms and estates with multiple buildings and residential property tend to fare better on the private market, due to the complexities involved in the practical and legal processes.
For landowners looking to sell up, the auction room is a very real opportunity to achieve high prices with lower legal fees, less hassle and a quick sale. It also presents an option for selling off smaller parcels or blocks of land to release capital, which is a tactic which we forecast will increase in regularity as the uncertainty of farming subsidies and incomes looms on the horizon ahead of Brexit. These smaller parcels are always the most popular lots within our auctions, with buyers ranging from adjoining neighbours, equestrian buyers, investors, speculators and amenity buyers. The auction room provides the perfect transparent environment to allow buyers to bid competitively against each other, and for vendors to maximise value of an asset that can be notoriously difficult to price.
Farmers are now seeing significant pressure to diversify into income-producing schemes and projects which could become essential in the wake of the end of EU-based farm payments, and fast capital release is often the only way of obtaining the cash to reinvest onto the farm. When land does come to the market, buyers are presented with a tax-efficient, tangible investment proposition, which has appealed to generations of buyers for hundreds of years – as Mark Twain famously said: “Buy land, they’re not making it anymore.”
Ian Kitson is a director at Cheffins
