According to the latest RICS/RAU Rural Land Market Survey, respondents are highlighting uncertainty over Brexit and insecurities over future subsidies, as well as low commodity prices as the key factors hindering the market.
Alongside the decline in demand, the amount of land available for sale has also decreased across Great Britain for the first time since 2014, with 19% more respondents noting a decline in availability (rather than an increase).
The lack of demand for rural land is impacting prices with the transaction-based price index falling for a second consecutive quarter. Farmland prices have dropped to £10,233 per acre in H2 2016 — this is down 7% from last year.
The slowing of the market is also predicted to lead to a further decline in prices over the next 12 months. 17% more respondents expect prices for land with a residential component to fall rather than rise, and the price outlook is even weaker for commercial farmland, with a net balance of 31% of respondents expecting values to decline over the next twelve months.
Yields on investment land have also continued to drift lower, edging down to 1.5% from 1.6% previously. During H2, 63% of buyers were individual farmers while ‘lifestyle’ buyers continue to account for just under one quarter of purchases. This composition has remained more or less unchanged over the past two years, following a significant decline in lifestyle buyers just before the onset of the global financial crisis.
Coupled with continued declining agricultural profitability, the uncertainty caused by Brexit, and concerns regarding levels of agricultural support post-2020, greater caution is being exercised by both buyers and sellers, RICS said. This is combined with a stronger divergence between land values based on quality and location. Demand, supply and average land values have fallen and price predictions going forward suggest further declines. However, as always, the right land in the right place should sell.
“ Our survey shows that demand is continuing to slow for land, with very localised markets playing a key role; at the same time lower commodity prices and higher costs are biting,” said Jeremy Blackburn, RICS Head of UK Policy. “Brexit is then an overarching sense of uncertainty.
“Government’s guarantee of payments out till 2020 gives land based businesses certainty, but also gives the sector the chance to work with Ministers to craft this new system. Government need to modernise the systems of land classification/capability for agriculture and review permitted development rights to enable more conservation-related activities reflecting the ever increasing demands on UK land for a myriad of uses.”