Land values are likely to be hit by the uncertainty surrounding Britain’s departure from the EU. However, longer term prosperity could be in store for UK farmers. Julie Liddle examines the UK picture.
The ups and down of land prices
A recent RICS survey suggests 49% of farmers think land values will drop during the next year – a concern underpinned by figures showing a 2.7% fall in land prices in the last six months.
The average land price across the UK is now estimated at £7,750 per acre, 6% lower than its high point of £8,306 in September 2015. However, the statistics are not all downbeat: historically, we have seen 160% growth in the last 10 years.
Location, Location, Location
The weaker pound has helped rural exports and increased overseas demand for UK land, but there are massive local variations. Location is crucial and geographic differences are exaggerated in these unsettled post-referendum times.
A great unknown is how the tax situation is going to develop. What, for example, is the chancellor going to do with agricultural property and business property relief? Just as importantly, what will happen to capital gains tax and roll over relief?
What will happen in the short term?
From now until 12 months after article 50 has been triggered, we do not expect much change.
The weak pound has helped farm cash flows, evidenced by stock rising £15 on last year’s price. Cheap money is available for borrowers with strong track records, although less so for marginal businesses.
Daunting prospects during the Brexit negotiations
However, the medium term represents a rather scary prospect. After 43 years in the EU, no one in the UK has any experience of negotiating trade deals. As a result, when article 50 is evoked we will have two years to negotiate – and we believe there is little chance of concluding the programme of complex agreements within that period.
Against this backdrop, agricultural support is likely to have an increasing environmental focus and we can be almost certain that payments to agriculture will reduce in the coming years. The upshot may well be a fall-off in farming profitability. While the top end farmers will continue to make money, others will come under pressure, bringing more land onto the market and creating a destabilising effect.
This means we will be looking at very unsettled marketing differentials, hinging on local market and location influences. Overall, average prices are expected to slip by between 10% and 15%.
A brighter future in the long term
However, one to two years after leaving the EU the ‘new reality’ will no doubt see a more settled farming sector across the UK.
The New Zealand model – which is not vastly different to the UK’s – also offers some assurance, showing 13.5% growth year on year for the last 15 years.
Thus in the long-term we can expect modest growth and stability. Once we have settled into a new and sustainable regime, there will be clarity that the supply of the land holding is fixed and this will drive demand, albeit slowly. The farming community will live with whatever the eventual outcome is and there will be a steady rise in land values into the future.
For more information on land prices, or advice on any other rural land and property issues, call Julie on 01768 254 354.
The above article contains the opinions and personal views of the author and is for information purposes only. It is not intended to be financial or investment advice. Professional advice from a qualified financial adviser should always be taken before proceeding with any investment decision.