Farmland prices soar as demand strengthens

The rate of growth of average farmland prices has trebled in the UK, reaching the highest levels in the history of the Royal Institution of Chartered Surveyors (RICS) rural land market survey.

The rate of growth of average farmland prices has trebled in the UK, reaching the highest levels in the history of the Royal Institution of Chartered Surveyors (RICS) rural land market survey.

The farmland market strengthened rapidly in the second half of the year, with prices rising by 18% compared to 6% in the first half of the year.

Competition between City fuelled "life-style" buyers and farmers, keen to expand production and exploit higher commodity prices, has resulted in demand rising at the fastest pace in the survey's history.

Demand is far exceeding supply of available land.

In North-East England, prices grew by around 15% in the second half of 2006, compared to the same period in 2005.

RICS spokesman David Coulson, a rural chartered surveyor working in the region, said: "North-East farmland and farms have been slow to come to the market and demand still far exceeds supply. So the few farms and parcels of land to be sold have seen a steep rise in price."

He said most land on the North-East market is priced at levels of £3,000 per acre (£7,413 per hectare) with small lots frequently achieving prices of £8,000 to £10,000 per acre.

Mr Coulson, based in Crook, County Durham, added: "There is a particularly strong demand for whole farms as supply is short due to many being subdivided when placed on the market. Farmers are keen to purchase bare grassland as accommodation land and, in lower parts of Teesdale, prices of around £4,000 per acre (£9,884 per hectare) have been realised." While most demand in the region is from existing farmers, there has been significant activity from non-farming purchasers, including City-based high earners who see land as an inheritance tax shelter and people switching from low-performing pensions to farmland.

Chartered surveyors further south also report that foreign farmers - particularly those from Denmark and Ireland - are also seeking to purchase land due to the high price levels in their homeland markets. Little evidence has been seen of this in the North-East.

The UK survey figures show the weighted average price of farmland rose to £8,164 per hectare, up from £7,219 in H1 2006.

The level of sales in 2006 finished at the highest level recorded in four years, with activity 50% higher than in 2004, and surveyors' confidence, for both commercial and residential farmland prices, rose to the record levels.

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