English farmland prices rose on average by 3.7 per cent in the second quarter of 2012 taking it to £6,295 per acre, a new record high.
This takes 12 month growth to 2.3 per cent following a marginal increase in the first quarter of the year and a drop of two per cent in the second half of 2011, according to the latest Knight Frank Farmland Index. This is almost £140 above the previous record high of £6,156/acre reached in summer 2011.
It points out that over the past 60 years farmland has often performed well in times of economic crisis.
James Prewett, head of regional farm sales in central and western England, said that farmland is attracting buyers from increasingly further afield.
“I am now starting to see genuine bids from private Chinese investors. They tend to already own property in London, so are starting to feel more confident about buying other assets here. Part of the attraction is lifestyle, but investment seems to be the main driver,” he explained.
Tom Raynham, head of farm sales in Knight Frank’s London office, said that private investors who were previously just looking now seem to have made up their minds to get on with things.
“With no clear end in sight to the problems affecting a number of the European Union’s economies there is a strong desire to get money into something solid,” he explained.
“Funds are also looking, but they tend to be more numbers driven. Farmland’s potential for capital appreciation and its low risk profile come at a price, which is a relatively low annual yield. Rents, however, are starting to increase so I think it is possible to achieve higher yields with careful management,” he added.
Farmers remain the most active buyers, with some sales making over £10,000 per acre.
“Farmers continue to take a long term view and will pay strong prices for the right land. There were some worries that the current system of agricultural subsidies could be under threat as part of the on-going reform of the Common Agricultural Policy (CAP), but it appears the reforms will not be that radical,” said Andrew Shirley, head of rural research at Knight Frank.
“Despite this, the market does remain price sensitive and blocks of poorer land with less local interest will struggle to sell unless priced sensibly. Looking forward, we expect average values to continue to firm with further growth of around four per cent over the rest of the year,” he pointed out.