Hobby farmers retreat while commercial farmers bounce back

Demand for rural retreats from lifestyle buyers remains in decline, but commercial farmers are being tempted back to the market, says RICS Rural Market Survey.

The net balance of Chartered Surveyors reporting a decrease in demand for residential farmland remained in negative territory for the first half of this year, with 30 percent more surveyors reporting a fall than a rise. Demand for residential farmland has been in decline since the start of 2008; however it has rebounded slightly from the low of -64 at the end of last year.

In contrast, demand in the commercial sector has been strong, with 22 percent more surveyors reporting a rise than a fall, as large scale commercial farmers return to the market looking to expand their production. Evidence suggests that interest is localised and foreign demand, particularly from Irish farmers, is in decline.

Despite this improvement prices continue to fall, albeit modestly. The RICS opinion based measure for current farmland prices for bare land recorded a relatively modest fall of 1 percent, with the weighted average falling from £12,336 per hectare to £12,172. Arable land fell 1 percent to £13,085 per hectare from £13,182 and pasture land saw a fall of 2 percent, from £11,490 to £11,260 per hectare. Falling supply levels are providing some support for prices.

Reflecting the drop off in demand for residential land, the RICS transaction based measure for farmland prices, which includes residential farmland, shows a greater fall in prices, with the weighted average price of farmland falling 7.5 percent from £16,342 per hectare to £15,114.

Unsurprisingly the outlook for prices is mixed, with the non-residential sector turning positive (15 percent more surveyors expect price rises than falls, up from -42). In contrast, 9 percent more surveyors are still expecting prices to fall in the residential sector; however this is a significant improvement on the extreme lows in the second half of 2008, when 79 percent more surveyors were expecting falling prices.

RICS spokesperson, Julian Sayers said: "While the economic climate remains so uncertain, it is improbable that we will see demand for rural retreats return to pre-recession levels. As a result, residential land prices look likely to remain depressed for some time to come. The improvement in commercial land is encouraging, however, with the downward pressure on arable prices we are currently seeing and the lack of foreign demand there is a risk that this more favourable trend could run out of steam."