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Farmland prices soar despite credit crunch
THE price of farmland is still increasing and many farms are not even making it on to the open market owing to strong demand and restricted supply.
In contrast with its residential counterpart, farmland market values remain largely unaffected by the global credit crunch with overseas and institutional investors keen to invest and high net worth individuals seeking farms as the latest "must have" fashion accessory.
According to research undertaken by Smith's Gore, land prices have increased by 7% in the South West region in the last year and the average price of equipped farmland locally is now £8,749 per acre, compared with £8,152 per acre in 2007.
The scarcity of agricultural land is a primary factor behind the huge increase in market value; however there are other important dynamics to consider.
Simon Derby, partner at Smiths Gore's Taunton office said: "Agriculture is considered to be an increasingly profitable sector, the financial forecasts remain strong and subsequently there is a ready supply of investors keen to get a foothold in the market.
"Also with the escalating demand for grain from developing countries, healthy commodity prices and the rising prices of sheep and cattle in the last quarter, lenders expect profitability to remain strong within the agricultural sector".
Banks view agriculture and loans to farming and land-based businesses as prime, secure lending. Historically, the agricultural sector also has a low level of bad debt and lenders expect this to continue.
In respect of agricultural lending, none of the banks are expected to change their criteria other than to be more competitive for the highest quality borrowers.
The forecast over the next 12 months for the South West remains optimistic despite the anticipation that City bonuses and top end salaries will feel the grip of the global credit crunch. International buyers, high net worth individuals and individual farmers are all predicted to remain the dominant purchasers thus ensuring the buoyancy of value in agricultural land.
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