29 September 2000

Domestic property sales should take up land price slack

By Simon Wragg

LAND prices, which have fallen 16% since the mid-1990s, could ease further over the next six to 12 months. But any reduction will be short-lived as domestic property sales help to counter lower farm incomes and changes to tax relief.

Jim Ward, head of research at FPD Savills, told farmers attending a recent conference at Harper Adams College, this would help farmers who have built up capital in better years to expand.

Recent reports suggest that 47% more land was on the market in the first half of the year compared with 1999, explained Mr Ward. "But in the medium term – two to five years – it is likely that farm incomes will see a partial recovery. With economic growth and stable interest rates, rents and land values could recover – the latter by 10-20%," he predicted.

During that time the structure of farms will have changed. "The bottom 25% are in real trouble and require substantial restructuring, but there is probably not enough off-farm capital to do it. At the other end, the top 25% – farms typically over 200ha (494 acres) – are businesses which have a long term future in the sector and will be driving land values."

The "ripple-out effect" of high value house sales in urban areas continues to drive "lifestyle" purchases of small farms and country houses. This in turn underpins the regional farm land market.

"We are still seeing a number of cash buyers with £1m plus entering the market," he said, which may continue to counter the effects of the governments taper on capital gains relief. This is falling from the original 40% to just 10% by 2002.

Farmers looking to expand will be viewed favourably by banks where business plans and management ability suggest schemes are viable, promised Lloyds TSBs Tim Porter.

Agriculture is the second largest lending sector behind property, but had more assets. This meant producers were four times more likely to repay borrowings than average.

But the route forward for many businesses may not be a straight increase in the area farmed, he insisted. More attention should be paid to diversifying. &#42

Jim Ward believes land prices will slip for another year, then recover as farm incomes improve.