Price of farmland rises as investors pile in

The price of farmland rebounded during the second half of 2009 as low interest rates caused investors to look for alternative homes for their cash, research showed today.

The Royal Institution of Chartered Surveyors said strong demand for farmland, combined with a shortage of supply, caused prices to rise during the six months to the end of December, after they fell slightly during the first half of the year.

But unlike two years ago, when the cost of land was pushed up by 'City slickers' who were keen to try farming as a hobby or buy a second home in the country, the current wave of demand is being driven by investors.

The group said investors saw farmland as a "stable venture", after prices remained resilient during the recession, while low interest rates had also caused them to turn to alternative assets in a bid to get higher returns.

There is also strong demand for additional land from established farmers, who are keen to capitalise on rising livestock prices by acquiring land nearby, so they can expand their existing operations.

RICS spokeswoman Sue Steer said: "When prices were rising two years ago it was mainly being fuelled by hobby farmers, buying up rural retreats with City bonus money and inflating the market.

"However these latest results indicate that it is now farmers looking to expand and investors who see it as a viable business or investment class that are fuelling the rise in demand."

She added:

"Those with land are loath to dispose of it, and those without, or with a limited supply, are keen to get into the market and capitalise on its rising value."

Overall, 31pc more surveyors reported seeing a rise in demand for commercial farmland during the six months, than those who saw a fall, up from 22pc more during the first half of the year.

Demand for residential farmland, such as land with a farmhouse, also started to pick up during the period, with a balance of 1pc of surveyors reporting increased demand, compared with 30pc more who saw a reduction during the previous six months.

At the same time, 40pc more surveyors reported a drop in the availability of commercial land, while 43pc more said less residential land was coming on to the market.

The shortage of supply led to the price of land, based on transactions, rising by nearly 8pc during the second half of the year.

Surveyors expect a continuation in the current shortage of land being put up for sale to push up prices further., 18 Feb 2010

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