Short-term fall in farmland prices could be on the cards

Farmland prices could fall 9% by the start of 2009, as more land comes onto the market, the latest Smiths Gore Farmland Market Model has predicted (see table below).

Agricultural land prices rose throughout the first half of 2008 to a peak of around £8,400/acre, but more farmers selling land meant they were forecast to drop back to £7300/acre by the start of next year.

But, head of research, Jason Beedell, said prices should increase again in 2009, as the long-term upward trend was resumed. “The short-term fall in prices will be caught up within a few years and will be back to 2008 levels during 2011.”

The five-year forecast to 2012 suggested annual price growth would be just 1%, significantly lower than the previous forecast of 6% per annum.

The model takes into account house prices, Bank of England base rate, average earnings, farm incomes, share prices and inflation. The recent fall in house prices, coupled with a rise in farm incomes – which historically result in more land sales – are therefore thought to have had a deflationary effect on land prices.