Rural property is the “safest haven” for investors, according to new research.
The IPD Rural Property Investment Index finds that land has becoming an increasingly safe investment, with demand for agricultural land strengthening throughout 2011 as investors continue their “flight to safety” amid eurozone economic turmoil.
The restriction in the amount of land available and the weight of money moving in has led to considerable pressure on prices. Smiths Gore estimates that 127,000 acres were traded in 2011, while in the late 1980s over 300,000 acres were turned over each year.
ichard Liddiard, head of rural agency at Carter Jonas, comments, “Agricultural land has continued to remain in high demand from a widening array of investors. The ongoing period of macro-economic uncertainty and turmoil has underpinned the need for safe havens for investment, and land has been a beneficiary of this trend.
With limited stock levels available on the open market, prices have risen throughout 2011. Prime farmland values are forecast to continue to rise although at a slower pace than witnessed last year as the amount of land for sale remains relatively low. However, there is increasing evidence of a two tier market appearing with values of poorer quality farmland forecast to witness a decline.
The significant tax advantages in holding agricultural land, for investors and individuals, have further reinforced its performance compared with alternative asset classes. The powerful tax advantages of holding land means there is little incentive to bring to the market, ensuring supply remains scarce, which will underpin current values.
Gerald Fitzgerald, head of valuations and investments at Smiths Gore, remarks, “Despite a significant increase in agricultural rents, of more than 20 per cent on average, income returns remained low, at 1.6 per cent, offset by the huge rise in capital values. Capital growth was 14.2 per cent which, as always, is the main driver behind the total return of 15.9 per cent. So the sector remains very much a capital hold, rather than an income producing asset class.