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Has there ever been a better time to sell a farm?
Agricultural land vs Cryptocurrency
With farmland supply at an all-time low, basic economics would dictate that now, is undoubtedly the best time to offer a farm for sale. Demand for rural properties has surged on the back of the first COVID-19 lockdown and, even with the stamp duty holiday end imminent, rural buyers remain optimistic about the future regardless of unemployment forecasts, stalling returns from agriculture, or additional paperwork requirements when exporting goods.
With pent up demand being left unsatisfied and with the continued de-linking of farm subsidies, now is surely the optimum time to sell agricultural property. With a one-off payment being offered to allow farmers to capitalise BPS payments and retire, it would appear that an ageing farming population is gearing up to throw in the towel.
However, economists would point out that buying a farm over the last 15 years has not made financial sense compared to other options. Returns on capital might be in the region of 2-3% but factoring in borrowing costs means that, at best, this process becomes cash neutral. A year’s work, every year, with nothing to show. To sell this vision to a London trader would be preposterous. Imagine the proposal on the ‘Dragon’s Den’.
Therefore, buying land must be viewed as a long-term purchase of a piece of the UK upon which, crops can be grown, livestock grazed, trees planted, wildlife encouraged. At the end of the year, all being well, a small profit might show. The land is a tangible asset which can be walked on, farmed and enjoyed.
Stock market or stock yard
If anything, comparing the values of farmland in the UK to world stock exchanges might be more appropriate. Bitcoin, for example, appears to make daily headlines with strong upward growth, recently bolstered by Elon Musk, part owner of Tesla and one of the world’s wealthiest individuals, who recently purchased Bitcoins worth $1.5 billion. Tesla too, is a prime example of a company showing strong upward growth, but which has only recently posted its first profit since it was founded in 2003. And yet, since the company first offered shares on the stock market in 2010, its share price has gone from $17 to $850, an increase of 5,000%.
When it comes to land, sentiment is the key and as a land agent who started selling farms in 2006, the idea of buying something based on its intrinsic value is, quite frankly, terrifying, and relies heavily on trading outlook rather than actual returns or capital growth. Purchasing shares on the belief that they will increase in value seems rather risky when the underlying value is close to or near zero. A million Bitcoins, if no one wants them, is worth zero. They can’t be ploughed, planted or let. They can’t grow a crop, feed livestock or harbour wildlife.
Obviously, this is a somewhat simplistic view of global stock markets, but I use these examples to highlight a continued drive from investors, keen to turnover a quick profit without a long-term plan in place.
Having now endured almost 12 months of lockdowns with varying degrees of restriction, the public is ready to spend. Spending our way out of lockdown means that those with something to sell, need to have it looking at its best, ready for sale and offered with the prospect of a rapid turnaround. Not since the end of the Second World War have we been so eager to throw caution to the wind, to reminisce about the glory days and to embrace life after COVID-19.
To put the forecast spending spree into context; if arable land had kept pace with Tesla and increased in value by a factor of 50, since 2010, we would be looking at values in the region of £250,000 per acre today. Imagine the rate of return at that kind of level, even with wheat over £200/tonne, it doesn’t work. Whilst land values have steadily increased, they still represent a sound investment with small rates of return and an asset which continues to appreciate in value. Its primary function continues to be the production of food. The world cannot function without food. I wonder whether it could survive without cryptocurrencies.
If the pandemic has shown us anything, it has been the importance of Team GB. Home grown produce has never been more in demand and with a new Agriculture Bill on the horizon, those who do not wish to gamble on how environmentally-focussed the new ELMS scheme will be, would be well advised to consider the possibility of selling in 2021. With stubbornly low interest rates, cheap agricultural finance continues to tempt younger generations hungry for expansion.
Whilst local demand dictates sale values, the continued increase of former urban dwellers moving into more rural locations will underpin land values, irrespective of (and in spite of) associated returns. Combine this trend with that of a hungry marketplace, overflowing with optimism and keen to spend, we may yet be at the start of a period of growth, regardless of the Brexit effect.
Being well informed and in receipt of the best advice is crucial, irrespective of whether you are buying or selling. Stephensons Rural and BoultonCooper have been providing expert advice to landowners throughout Yorkshire since 1801.
Stewart Hamilton, Senior Rural Surveyor
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