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Brexit uncertainty offers opportunity for land investment

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The uncertainty over Brexit and its impact on agriculture is having an effect on the UK farmland market, with English prices falling 3% in the first quarter of 2016.

It is the largest quarterly decline since the 5% slide in the final quarter of 2008 following the collapse of Lehman Brothers, says land agent Knight Frank.

Martin Robinson, head of the UK Agricultural Land Fund for Brooks Macdonald, says there are multiple issues affecting farming which are having an impact on land prices, but that it is an opportune time to consider investing.

"Brexit is having an impact, as it is in other sectors. But if you want an excuse not to invest, Brexit is a damn good excuse.

"For farmland it is particularly important, as there is concern about what would happen to support for farmers, and what it Brexit might do for commodity values."

Good time to invest

While the UK farmland market has been fairly quiet in the last few months, with one industry tracker pointing to a 24% reduction in parcels coming onto the market, there appears to have been an upsurge in the last few weeks.

Looking from an investor's point of view, Mr Robinson says it is a good time to invest in farmland.

"There will be farmers who need to sell," thanks to factors such as low commodity prices and delays in receiving payments under the European Union's Common Agricultural Policy (CAP).

"But farmland does need to be viewed as a long-term proposition."

Buy-and-leaseback model

Mr Robinson's fund buys land from farmers solely in key arable areas seeking to sell but who wish to carry on farming.

The farmer will have a three-to-five year farm business tenancy (FBT) after the sale, and the farm may be re-let to the tenant on a further FBT at the end of the period, or sold.

The model means the fund buys land at less than the open market value.

"It means we are not competing in the open market, but we do test values before we buy any land."

However, he says he has had difficulty in attracting new investment after the UK's Financial Conduct Authority watchdog termed "toxic" funds such as his – which are open ended and based in the Channel Islands.

"There were some other funds where it was difficult to get money back. We have had no such problems with our fund, but are tarred with the same brush."

'Slow burn'

One issue facing UK farmland funds is that investors are often looking for 'instant' investment, but that it is difficult to invest in large acreages all at once.

"It is a slow burn."

He says some investors who have bought large acreages on their own in recent years – such as Sir James Dyson – have looked over a wider area to build up their portfolio, driven by a long-term view and inheritance tax concerns.

"It is possible to build up a substantial holding done slowly, steadily and on a piecemeal basis."

However, he says the model he is using works well too.

"There are plenty of opportunities to invest, and there will be a greater supply of land coming onto the market, driven by the pinch affecting farming."

Price outlook

Lower commodity prices are affecting rental values, but Mr Robinson says farmland should always be viewed as a long-term proposition for capital appreciation, and not as an income.

Andrew Shirley, head of rural research for Knight Frank, said UK farmland prices are still relatively high, even with the 3% quarterly fall.

"The market is also very localised. Some parts of the UK won't see a fall because of local demand – for instance, in Herefordshire, where many farmers have diversified into chickens and energy.

But East Anglia may see prices come back because it is more subsidy dependent with such a high proportion of cereal crops.

Mr Shirley, too, believes Brexit may have an impact.

"I have just read a French paper which suggested sterling would tank by 34% in the event of Brexit, and that may give opportunities for overseas investors seeking to buy farmland in the UK," he says.

Martin Robinson will be a panel member at the Agrimoney Investment Forum on June 14 and 15 in London. He will be talking about the future outlook for farmland investment alongside Dr Prof Julian Voss from KTG Agrar SE, Nick Tapp from Craigmore Sustainables and Roger Pyle from Al Dahra.

By Emma Penny

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