Savills raised its forecast for UK land price rises after a
strong start to 2014, but warned that with grain prices falling and concerns of
rising borrowing costs, appreciation will slow in the second half of the year.
The property consultancy raised to 12%, from 8%, its
forecast for appreciation in prices of top quality land this year, increasing
its outlook for values of lower quality land too.
The upgrade followed an estimate that prices of primate
arable land soared by 9.8% in the first half of 2014 – four times the increase
recorded for prime central London property over the period.
In England values reached an average of £9,500, with some land
"achieving prices above £12,000 an acre, and £14,000 an acre is not unheard of",
Ian Bailey, the Savills head of rural
He added that the strong growth "has led to a reforecast for
values this year, although we do expect the increase in farmland values to be
more muted during the second half of the year".
Indeed, the forecast implies a retreat to just 2% in price growth
in the second half of the year.
'Some rise in supply'
The more cautious outlook reflects in part the retreat in
grain markets, which took London wheat futures for November to £126.10 a tonne
on Tuesday, the lowest for a spot contract in four years.
"Dairy commodity prices are down a bit. We are not seeing
the same prospects for farm income," Mr Bailey told Agrimoney.com.
With interest rates expected to rise too, if to low levels, "sentiment"
over the sector may decline.
"Values will definitely not crash. But we might see some
rise in supply," as less profitable farmers, likely smaller ones, takes the
opportunity to sell up at record prices.
Funds not selling
Supply of farms for sale had already increased a little, by
3% in England during the first half of the year although, at less than 60,000
acres, the amount remains small.
Sales are in fact being driven by retiring farmers, and
private individuals who purchased as an investment, and are cashing in on
"We have seen 30-40% of purchases by non-farmers in recent
years, and these are the kind of people who are selling more. They have less
sentimental attachment to the land," Mr Bailey said.
Corporate and pension fund buyers were, however, curtailing
"Net activity of these landowners appears to have shifted
towards buying rather than selling."
In the first half of the year, the surge in values of prime
arable farmland was driven by the West Midlands, where prices soared 18%, with
East of England second with growth of 13.5%.
Welsh values rose by 3.6%, but values in Scotland, which faces
a referendum on independence this autumn, were unchanged, Savills said.