Residential values
House prices are rising nationally, but the picture is varied regionally. The tale of the past 12 months is not one of urban and rural but of North and South. Prices have been rising fastest in London and then spreading from it into the wider south, with prices still falling in the wider north. The Council of Mortgage Lenders and RICS started the year with “cautious optimism” for 2013, and this is becoming less cautious.
Farmland rents Average % change in rents agreed in year to 31 October
Since 2008, agricultural rents have been rising and, despite the poor harvest in 2012 and poor weather when this year’s crops were being planted, rents are still going up. We expect them to continue to rise in the medium-term as farmers view the outlook as positive and demand for food will increase. However, the outlook for commodity prices is negative, which could take some of the upward pressure off rents.
Residential rents UK residential rents
The rental sector has been a beneficiary of falling house prices and lack of mortgage availability for house buying. Rents rose overall in the UK in 2012 and are expected to rise in 2013, and this applies to rural as well as urban rental markets. A challenge for some rural landlords is ensuring the quality of houses they offer matches rising tenant expectations and also high-quality offerings from buy-to-let landlords.
Commercial property
This is the most challenging sector with most landlords fighting hard to maintain rents or minimise reductions, and to reduce void periods. Although RICS data shows occupier demand has recovered, there is still a lot of vacant property. Providing the type of property on terms that the market will accept is key (see article on making money in the countryside). Overall, we expect the main rural property markets to grow with the exception of commercial property.
Rural Investment Property UK asset class comparison: multi period total returns annualised to December 2012
Many private and institutional investors own farmland, farmhouses and rural commercial property and it has outperformed all other major asset classes. It has performed well over the long-term too and at lower risk than other asset classes. It is influenced by different factors than equities, commercial and residential property and so has a counter-cyclical profile, which makes it a good defensive property to have in a portfolio.
UK asset class comparison Multi-period total returns annualised to December 2012
Risk reward spectrum
UK rural delivers strong total return over 10 years at lower risk than other asset classes
English Farmland values (£ per acre)
Land prices have risen strongly since 2008 and we expect slower growth in 2013 as farmer confidence was knocked by the poor 2012 harvest. In the medium-term, factors that could reduce values, such as weaker world commodity prices, the reform of the European Common Agricultural Policy, and the (small) risk of reform to take away farming’s tax advantages, will be outweighed by historic low amounts of land for sale being chased by farmers and investors looking for a safe haven for money. So the pressure cooker of demand exceeding supply nationally will continue.
