Is land a trophy asset or a factor of production?

If the valuation of land was based solely upon the rate of return achievable through income with land just regarded as a factor of production, then it would be a very simple process and values would not be where they are today.

In reality there are many factors which influence a buyers decision to buy and for many it is not the immediate return on capital which drives that decision.

As we approach the mid-way of 2022, and the conclusion of the spring selling season, as a firm we currently have nearly 900 acres under offer from parcels of amenity land to whole farms and from 9 acres to 190 acres in size.  The range of types of buyer is enormous and the number of buyers in the market place is significantly higher than it was 3 years ago.  In certain locations this is causing the values of land to increase as local competition competes with amenity and investment buyers who are frustrated by the lack of opportunities available on the market.  There is nothing to indicate that the supply of land and farms to the market will increase substantially in the near future although the three Ds of death, debt and divorce, will always create some supply.

Many farming buyers, buoyed by an increase in commodity prices, appear to have put aside any concerns over the phasing out of the Basic Payment Scheme and have the confidence to expand and take advantage of relatively modest long term interest rates.  Fuelled by money from inherited wealth and from development land sales which have continued unabated, this can cause certain hotspots in the market.  In certain locations a rural property or a block of land has come to the market where neighbours have looked enviously over the hedge for a number of years at the quality of the position or of the land. Such a trophy asset can currently achieve figures which defy strict commercial valuation techniques and like a piece of fine art the value is driven by pride and the depth of pocket.

In conclusion, whether land is a trophy asset or a factor of production depends almost entirely upon its location as well as its quality.  For those who are investing in land for its capital growth, and as a hedge against inflation, it is important to remember that land is a long term investment. Whilst land values have increased by 500% since 1982, the Retail Price Index has increased by 400% over the same period.  However from the period 1982 to 1992 when the Retail Price Index increased by 68%, land values remained almost static.

If you are a potential seller of land and are looking to hit the top of the market, this is probably as difficult a decision at the present time as knowing when to sell your corn to hit the top of the market.

Rod Cordingley

Tel: 01904 489731


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