Property sales set to continue slow recovery

A lack of market evidence over the past 12 months has made it difficult to gauge the state of the land market and where it is heading.

But Strutt & Parker’s analysis of all farm sales over 100 acres provides a few clues.

Perhaps the most encouraging aspect of 2005 from an agent’s point of view was that property sales did increase, albeit to a level still significantly lower than has been seen in the past. Overall, 104,099 acres were put up for sale – a 35% increase on 2004.

The south-east (13,244 acres) and the north (19,866 acres) both saw increases of almost 60%, while the south-west was the only region to see a decline in sales – a small drop of 5%.

Overall, the midlands saw the most land offered, with 36,319 acres up for grabs.

Mark McAndrew, from the firm’s farm sales team, says: “The increases in volume in the latter part of this year are from an historically very low base.

In the late 1990s, almost 200,000 acres were marketed each year – double the current level.

“Foot-and-mouth in 2001 followed by the announcement of the mid-term review in 2003 stopped the market in its tracks.

It may well be that the increased trickle of land coming to the market in the next few months gathers momentum and we start to head back to previous levels.”

Despite this increase in availability, land values continued to rise.

Bare arable (2941/acre) and pastureland (2788/acre) rose by 8% and 18%, respectively.

A slowdown in the residential property market saw the proportion of farm values accounted for by farmhouses and other dwellings slip very slightly, but land still accounts for only just over 40% of the value of a farm’s sales price.

This contrasts sharply with 1997, when soil made up three-quarters of the value.

“The dramatic rise in residential values over the last 10 years has changed the balance of power on farms and estates,” says Mr McAndrew.

“The long-term impact must surely be that the farmers who tend to want more land and less house will congregate in the counties that still provide this balance – such as Lincolnshire.

“In areas where residential values dominate, the lifestyle buyer now competes with a new breed of investor interested in buying farms and estates which offer diverse potential in the long term.

“An example of this was the sale of the 2337-acre Ashby St Ledgers Estate in Northants to the Crown Estate, which was drawn to the property by its strategic location and its potential, with land abutting a village, known mineral deposits and the site of a former mansion house demolished in the middle of the last century.”

But residential or “lifestyle” buyers still played an active role in the 2005 market.

This was reflected by a rise in whole-farm values in all regions, except the midlands, with the average price across the country moving up 2.3% to 5929/acre.

Unsurprisingly, values in the south-east were highest at 10,360/acre, but this figure must be treated with care given the limited number of sizeable farms sold in the region.

The influence of residential buyers also goes some way to explaining the rapidly narrowing gap between arable and pasture values.

In 1997, cropping soil was worth over two and a half times more than grass, but this year the differential was only 153/acre.

The removal of production-based subsidies is likely to exacerbate this trend in 2006 as the value of poorer quality arable land is no longer supported by IACS payments.

“With subsidies separated from land, there are new factors that drive the value of grassland and arable land,” says Mr McAndrew.

“To the farmer, these would be his personal requirements and the earning capacity of each, but to the investor or lifestyle purchaser, there will be instances where grass could be more attractive if flanking a principal residence.

I question whether we will be talking about arable and grassland values in two years’ time, using farmland values instead.”

Some consultants predict it will not be worth growing winter wheat on land that cannot produce 10t/ha (4t/acre).

This has led to worries that poorer-grade land in the commercial areas of eastern England, which are not supported by residential or amenity assets, could come under pressure.

But so far there has been limited evidence of this in 2005, although, according to Strutt & Parker, the region had the lowest level of successful sales in the UK, with only 30% of land launched during the year sold.

But an additional 40% was also under offer, suggesting that perhaps deals were taking longer to wrap up because of the importance of SFP entitlements.

“It is in the eastern counties that we find England’s most commercial farms,” says Mr McAndrew.

“It is here that the market is dominated by farmers.

If a residential purchaser continues to pursue farms in the south-east and south-west, the knock-on will be that the eastern counties’ image as a farming centre of excellence will grow.

“There is no doubt that over the last 12 months, some farm sales in these counties have taken longer to achieve.

Perhaps this is understandable when you are relying on farmers driving the market whose incomes have been so depressed in recent years.”