Farmers should avoid being tempted into buying poor-quality land after two years of strong commodity prices, according to property consultants Bidwells.
While the land market is currently buoyant, investors are being encouraged by some agents to put their money into land that may struggle to sell in weaker market conditions, said James Brooke, head of rural farm agency at Bidwells.
“The perception at the moment is that land is a good investment, as it can provide significant capital growth. This is not always the case,” said Mr Brooke.
“Some land is good news, but productivity is a critical factor and land quality needs to be understood.”
Bidwells has on a number of occasions recently advised people not to buy because it doesn’t believe the land will be a good investment, said Mr Brooke.
Buyers need to fully understand the agricultural land market and be aware of any changes that could come into effect after a purchase, he warned.
“For example, someone could buy what appears to be some good-quality land, but if the irrigation licence is taken away, it would be worth considerably less.”
Mr Brooke advised buyers to “take some serious advice from someone who knows the market” before investing in any land.
“Buyers need to look at whether the land will be profitable before subsidy payments. My advice would be to take away subsidies and think, how much profit will I make?
Investors have rushed into land purchasing to try and take advantage of the rising prices, even to the extent of farming the land at a loss, and this has made the market weaker, said Mr Brooke.
Farming at a loss is counterproductive for farmers and for the market as a whole – but this situation only represents a small proportion, he added.
During 2011, 61% of land purchases were made by farmers, compared with 58% in the previous year. “We anticipate this year bringing a similar result,” said Mr Brooke.
“Agricultural farms are becoming more popular and are generally speaking a good investment.
“We are at the point where generating a profit without subsidies is possible, meaning farmers are able to invest back into the business. I think we’ll see a flattening out of traditional land prices. There will be a big supply and going forward, prices will soften.”
What farmers need now is for banks to continue to support agriculture for the right opportunities, said Mr Brooke.
“We’ve seen a reduction in lending previously, but this is coming back and we’ll see less non-agricultural money coming into the land market.”
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