Tenanted farmland outstrips other investments

Tenanted farmland outperformed residential property, shares and bonds last year, according to the latest figures from investment analyst IPD.

The total return from the organisation’s rural property investment index, which used data covering 620,000 acres of let land managed by Carter Jonas, Cluttons, Savills and Smiths Gore, was 17.6%. This was almost double its return in 2005 .

The only asset class to outperform it was commercial property, which returned 18.1%.

Equities proved best

Let land also performed well in the medium term, beating all other investments over a five-year period.

Longer-term, however, equities have still proved the best home for investor’s money with a 14% return over the past 26 years, compared with 8.6% for land.

 “Increasing capital values are outstripping rental increases.”

Dr Jason Beedell, Smiths Gore

Despite the healthy return, long-term holders of let land hoping for extra cash in their pockets from their holdings will be disappointed.

‘Feeble returns’

The majority of the performance was down to an increase in the underlying capital value of the land, which grew by 15.2%.

Income return from rents was only 2%, the lowest level since the index began in 1981.

“The returns look feebler and feebler,” said Smiths Gore’s head of research Jason Beedell. “Increasing capital values are outstripping rental increases.”

But Dr Beedell said there were still plenty of investors prepared to buy let land even though yields were poor.

‘Returns likely to increase’

Most estates also had some sort of angle that could be exploited, he added.

Even though very few whole tenanted estates were sold last year, part sales, including small plots of land for development, totaled 12% of the £1.65bn value of the 226 estates in the survey.

Total returns were likely to increase further in 2007 as tenanted land tracked the overall land market, which some analysts reckon has already grown by over 11% this year, said Dr Beedell. “I’d be very surprised if growth was below 10%.”

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