Land valuations face upheaval

LAND VALUATIONS in England are set to become much more complex and negative rents might become a reality, according to a new report from the Royal Institution of Chartered Surveyors.

Released at Smithfield last week, the report is the organisation”s preliminary assessment of the potential impact of the single farm payment on the capital and rental values of land. But it also highlights the way the structure of land sales might change once the SFP becomes a tradable commodity.

Hugh Fell, land agent and chairman of the report”s working group, said sales were likely to be split, with separate contracts for the land itself and for any entitlement to the SFP being transferred. “It is anticipated that banks will require separate valuations of the land security with and without entitlement to the SFP.”

But valuing the SFP would not be easy, he warned. Complications would arise because of the different types of SFP entitlement, the fact that the historic proportion would be different for every farm and the unknown level of deductions, like modulation, that could be applied to the payment during its expected eight-year lifetime.

Mr Fell said there would be seven types of entitlement, with lowland and severely disadvantaged areas split into standard, set-aside and authorised claims. Standard claims would also be made on moorland.

Demand for entitlements would also affect their value, said Mr Fell, and this would depend on the area of “naked” acres seeking entitlement and whether there would be much trade in exporting set-aside entitlements onto more marginal land. There could also be swapping of poor value entitlements for higher value ones, in the early years of the scheme.

“It will be hugely complicated. There will need to be a huge education process in the industry on how to value these things.” There was still a high level of ignorance, he said.

With subsidy payments removed from the inherent cost of land, values would be driven by demand, said Mr Fell. This would often be based on the land”s productivity, but tax reliefs, amenity, demand and availability would continue to play key roles.

Rental levels were more likely to be affected by profitability, said Mr Fell, who reckoned there could even be negative rents for short-term grass lets in some parts of the country.

This could happen in counties like Sussex, where there was lots of grass but not many animals, he said.

If demand for land fell after the scrapping of extensification and forage area payments, landowners who still needed their land farmed to satisfy cross-compliance and existing environmental scheme conditions might have to offer very low or even negative rents to attract tenants, said Mr Fell.

Longer term agreements would attract better values because of the ability to plan ahead and the chance to receive more of the regional element of the SFP, he added.