Demand for farmland in Great Britain has further decreased, having now been declining for the last 18 months, according to the latest RICS / RAU Rural Land Market Survey.
Respondents are highlighting uncertainty over Brexit and insecurities over future subsidies, as well as low commodity prices as the key factors hindering the market.
Alongside the decline in demand, the amount of land available for sale has also decreased across Great Britain for the first time since 2014, with19% more respondents noting a decline in availability (rather than an increase).
The lack of demand for rural land is impacting prices with the transaction based price index falling for a second consecutive quarter. Farmland prices* have dropped to £10,233 per acre in H2 2016 – this is down 7% from last year.
The slowing of the market is also predicted to lead to a further decline in prices over the next 12 months. Seventeen per cent more respondents expect prices for land with a residential component to fall rather than rise, and the price outlook is even weaker for commercial farmland, with a net balance of 31% of respondents expecting values to decline over the next twelve months.
RICS today lays out the priority areas for rural surveyors and land agents ahead of the EU negotiations, and the huge role that farming and land management will have in a post-Brexit economy. The forthcoming move away from the Common Agriculture Policy gives an opportunity to reset the British agriculture and environmental policy framework. RICS today includes calls for:
• Government to guarantee funding of targeted direct financial support beyond 2020 where it is required and provide an availability guarantee of labour
• To enhance funding immediately for UK applied agricultural and horticultural research and agri-tech development.
• Government to “rural proof” all national polices, recognise the highly diverse nature of rural land-based businesses and ensure rural development funding is available to support and develop the establishment and growth of rural businesses post Brexit.
RICS Head of Policy, Jeremy Blackburn added:
“Our survey shows that demand is continuing to slow for land, with very localised markets playing a key role; at the same time lower commodity prices and higher costs are biting. Brexit is then an overarching sense of uncertainty. Government’s guarantee of payments out till 2020 gives land based businesses certainty, but also gives the sector the chance to work with Ministers to craft this new system. Government need to modernise the systems of land classification/capability for agriculture and review permitted development rights to enable more conservation-related activities reflecting the ever increasing demands on UK land for a myriad of uses.”
Yields on investment land have also continued to drift lower, edging down to 1.5% from 1.6% previously. During H2, 63% of buyers were individual farmers while ‘lifestyle’ buyers continue to account for just under one quarter of purchases. This composition has remained more or less unchanged over the past two years, following a significant decline in lifestyle buyers just before the onset of the global financial crisis.
According to the latest feedback, average arable land rents fell by 5% in H2, which translates into an annual decline of 11%. Average pasture land rents fell by 2.6% in H2 (compared with a fall of 6.5% in H1), leaving them down by 7.9% on a year over year basis.
Gerard Smith, Chairman of the RICS Rural Board, said:
“It’s clear we are now in uncertain times and beginning to evidence the impact on land values. Coupled with continued declining agricultural profitability, the uncertainty caused by Brexit, and concerns regarding levels of agricultural support post 2020, greater caution is being exercised by both buyers and sellers. This is combined with a stronger divergence between land values based on quality and location. Demand, supply and average land values have fallen and price predictions going forward suggest further declines. However, as always, the right land in the right place should sell.”