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UK farm prices get boost from house market revival

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Resurgent investor demand for land ownership as an "economic safe haven", and a kicker from a reviving housing market, should keep prices heading higher, property experts said.

British farmland in the first half of 2014 sold for an average of 12% more than a year ago, reaching an average of £9,594 per acre, Rics, the chartered surveyor's organisation, said.

While the availability of land for sale "picked up slightly… the imbalance between supply and demand appears to show no sign of waning", with interest from potential buyers showing "substantial rises" since the end of 2008.

"In the face of growing concerns around housing shortages and burgeoning populations, investors increasingly are seeing land as an economic safe haven," the institute said.

'Farmers remain keen'

Rics said that demand for farmland "remains very strong on the commercial side, particularly from farmers keen to expand production onto neighbouring plots".

However, it also highlighted the impact of a recovery in UK house price growth.

As an indication of the increasing appeal of the residential element of farm holdings, surveyors estimated that the value of bare farmland rose by a more modest 4% year on year to £8,067 per acre.

Significantly, however, there has been a revival in residential or 'lifestyle' demand, which only began to start growing at the end of 2013 having been more or less flat since 2008," said Joshua Miller, the Rics senior economist.

"This coincides with the broader turnaround in the UK housing market."

Price outlook

Many Rics members dismissed potential headwinds to the British land market created by the "impact of an increase in interest rates, reforms to CAP [the EU's common agricultural policy] and worries over future farm profitability.

"It remains to be seen if the predicted interest rate increases forecast by the Bank of England in late 2014 or early 2015 will slow demand," said Simon Lloyd of Cooke & Arkwright.

He added: "Given the amount of rollover money in our area it is unlikely that this will be the case but it might affect land values in other parts of the country."

"With an impending increase in interest rates, coupled with actual and forecast reductions in commodity prices, profitability may be under pressure thus leading to reduced strength of demand from investors and farmers alike," suggested Cambridge-based Adrian Wilson of Savills.

Scotland 'clouded with uncertainty'

However, one factor which has curbed land price growth has been uncertainty in Scotland created by the forthcoming referendum, many Rics members said.

While land prices in Wales recorded the largest price increase year on year, increasing 19% to £8,625 per acre, those in Scotland averaged £4,500 per acre - 44% below the British average.

"The current political climate in Scotland has created uncertainty and some concern which has deterred investors from outside the country," John Coleman of Edinburgh based Smiths Gore, said.

Harry Lukas of Peebles based CKD Galbraith, echoed this view, saying: "The outlook is clouded with uncertainty over CAP, independence, and Scottish land reform."

Positives are seen though.

"The continued lack of supply of farmland to the market in Scotland, will continue to keep prices firm going forward," predicted Tom Stewart-Moore at Strutt & Parker.

"Demand remains strong from neighbouring landowners keen to expand, equestrian interests in smaller land parcels and lifestyle purchasers," added Forfar, Angus based Rhona Booth.

By James Moore

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