There’s no doubt that agricultural land continues to be a safe, efficient, long-term investment. Much of the value of that investment comes from the beneficial taxation treatment of land in its ownership and operation. But what we really need is for owners of land to be making the best use of it for the benefit of the wider economy. Sadly, we’re seeing too many landlords – including institutional landlords – take a short-term view to protect their total return.
Standard practice within the accounting world will apply a discount to the vacant possession value of land held within an investment portfolio if it is let out. The longer the land is let out, the bigger will be the discount to the capital value. This practice of discounting is causing managers of investment assets to take a disproportionately conservative approach to letting land.
At a time when we need longer term Farm Business Tenancies, the way which fund performance is being reported is driving a short-term approach. We need a proper debate about finding a mechanism that better reflects returns from agricultural land while ensuring sustainable investment decisions are made.
Fund managers should be measured on the basis of real returns generated from an active, sustainable asset management framework and not the paper returns that arise simply by owning land and doing nothing with it.
In any case, the impact on capital growth where investment land moves from unsustainable, short-term lettings to longer term lettings would be short-lived with all the adjustment made in the year of change. We must be able to find a more sustainable mechanism than the blunt instrument that is the IPD property index.