Farmland is top performing asset class

TENANTED FARMLAND rewarded landlords and property investors again last year, with returns topping 18% for the third year running.

Though the return fell slightly on 2003, the latest IPD let land index showed land outperformed equities (13%) and residential property (9%).

Over the past 10 years, let land has out-performed all other asset classes.

But a 15.7% rise in capital values accounted for most of the margin, said IPD director Kevin Swaddle, whose survey covers estates totalling 175,000ha (432,449 acres) worth almost £1.1bn.

The actual yield from rents and other income on let land fell to 2.5% last year – the lowest return since the index began in 1981, he said.

Rents were coming down, and landlords would have to squeeze alternative sources of income, added Jason Beedell of Smiths Gore, one of the index’s sponsors.

“They will need to work their portfolios much harder.

“On some estates, agriculture accounts for less than half the income. Whenever there is an opportunity to generate income landlords must take it.”

Dr Beedell also predicted that capital value growth would slip to nearer 8% in the future.

Desmond Hampton, of fellow sponsor Cluttons, said he was advising his clients to sell let land unless it had long-term development potential.

But Hugh Coghill of Savills, which also sponsors the index, said: “I don’t share the view that the income yield is totally unbearable.”

He said there could also be scope to increase rents. “A lot of landlords may have been over-generous 7-8 years ago.”

George Dunn, chief executive of the Tenant Farmers Association, said this was wishful thinking.


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