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UK farmland prices to soar further - Savills

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The farmland price rally, which has driven values to record highs, has further life yet, fuelled by demand from funds prizing the asset both for its investment returns and tax benefits, Savills said.

The property consultancy estimated farmland values would increase by an average 40% over the next five years, although slower than the 138% increase witnessed over the past five years.

Savills said it alone had buying interest on its books totalling £6bn from funds seeking to invest in farmland, particularly high-end commercial arable farms.

"The short-to-medium term outlook for farmland values remains a positive one," Ian Bailey, Savills head of rural research, said.

Savills in October pegged the price of prime British arable land at just under £7,200 an acre, up 8.5% year on year, adding that prices of £10,000 an acre were "regularly achieved".

Importance of quality

However, while the overall picture is one of positive growth there appears to be increasing demand for "quality" land.

"It is no longer a case of one size fits all," said Alex Lawson, Savills director of farms and estates.

"There are now clear divergences in value between the prime quality, well located blocks of arable land and the rest," said Lawson.

The price gap between secondary and tertiary quality land was "likely to widen further," particularly when "priced unrealistically".

Growth forecast

Given the relatively limited supply of good quality properties, due in part to healthy commodity prices, good commercial arable farms and the best dairy enterprises could see growth of 52.7% in the five years ending 2017, Savills forecast.

The average farm will rise in value by 34.9%.

Farmland has been regarded as a good inflation hedge in recent years, particularly during the UK recession.

The ultra-low interest rate environment has also stimulated demand.

Savills believes that base interest rates will remains below 2% for the next five years but suggest rises above this level could affect demand.

By James Moore

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