Farmland prices rebound as pace of demand outstrips supply

Farmland prices rose in the second half of 2009 as land once again became an attractive investment, and landowners' reluctance to sell pushed supply to exceptionally low levels, says the latest RICS rural market survey.

Thirty-one percent more chartered surveyors saw demand for commercial farmland rise rather than fall in the six months to December last year. This was up from 22 percent in the previous half year and demonstrates the growing appeal of land as an asset class. Demand for residential farmland also started to pick up, with one percent more surveyors reporting it rising rather than falling, in stark contrast to the first half of the year when 30 percent more reported it to be falling.

Demand is coming from investors who view farmland as a stable venture, reflecting the fact that prices have remained resilient throughout the recession. Established farmers are also looking to capitalise on rising livestock prices and greater optimism surrounding the prospects for agriculture by acquiring land close by so that they can expand their existing operations.

Meanwhile, those with land are keen to hold on to it and as such very little is coming on to the market, which is helping to drive up prices further. The net balance of surveyors reporting falling rather than rising availability of land stands at 40 percent for commercial land and 43 percent for residential farmland.

Bare land prices, which are based on the opinions of respondents to the survey, rose by four percent in the six months to December last year and now stands at £12,715 per hectare (up from £12,172). Over the same period, the transaction based measure for land which includes a residential component rose by 7.8 percent and now stands at £16,381 per hectare (up from £15,199).

RICS spokesperson, Sue Steer said: "When prices were rising two years ago it was mainly being fuelled by hobby farmers, buying up rural retreats with city bonus money and inflating the market. However these latest results indicate that it is now farmers looking to expand and investors who see it as a viable business or investment class that are fuelling the rise in demand.

"Those with land are loath to dispose of it, and those without, or with a limited supply, are keen to get into the market and capitalise on its rising value. Couple this with the fact that farmers are increasingly optimistic about the outlook for agriculture and suddenly an investment in either pasture or arable land is a very attractive prospect."