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Property Insight – December 2016
Investing in Land
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The Search Partnership
3 Foundry Yard
New Row
Boroughbridge
North Yorkshire
YO51 9AX
info@thesearchpartnership.co.uk
www.thesearchpartnership.co.uk
saperator

Owning land has a huge range of benefits; personal, amenity, sporting, investment as well as tax related.  Whatever the reason for the decision to buy land, one of the main questions in the mind of buyers is, “what type of land should I buy?”

To answer this question, we have carried out research relating to the differing land types, by sending a questionnaire to a range of rural professionals.  The Search Partnership operates mainly in England and accordingly, the following research is limited to this country only. 

BUY ARABLE LAND?

downloadAs shown on the graphic below, arable land remains the most expensive per acre and has performed strongly over the last 10 years with growth of around 220%.  Current statistics show the long upward trend has now come to an end and arable land prices have fallen about 10% since the end of 2015.  However, the prediction of 9% growth in the next 5 years is the average of respondents. 

To own arable land a buyer generally needs to have some involvement in the management of the land which can be seen as an attraction or a detraction depending on the buyers outlook on life, but either way arable farms are labour intensive and the profitability is hugely dependent on subsidies, input costs and the widely fluctuating prices of the crops grown.  If the annual rotation of sowing and harvesting is an attraction and a buyer wishes to get involved in a farming enterprise, arable land has been a steady performer and seems very likely to continue to be so, but perhaps not as much as some alternatives…

BUY PASTURE LAND?

downloadPasture land is land laid to grass for grazing.  Historically this land has been slightly more affordable than arable land and slightly less profitable.  It is likely that this will continue to be the case but when meat prices increase, pasture land can be profitable.  Input costs are generally lower than in arable farming so increases in prices of fertiliser, seeds and sprays do not reduce profitability quite as much as with arable farming.  BPS (Basic Payment Scheme) payments remain relatively favourable so the income peaks and troughs of farming pasture do not tend to be as dramatic as those in arable farming. 

As with arable land, managing pasture land is also time consuming and the skill set can only be learnt over a long period of time.

Perhaps unsurprisingly, respondents consider that capital growth over the next 5 years will be similar to arable land at 8%.

BUY FORESTRY?

downloadForestry has the second best 10 year increase in capital values (194%), just behind arable land but the last 12 months have also shown a reduction in this fast rate of increase.  A forestry investor needs to think in the long term.  Even the newest Sitka varieties still require over 30 years to grow to full height but with the increased demand for thinnings, income can be taken from a forest before the crop is harvested. 

When income from land is affected, capital values normally follow suit which is the main reason behind the lack of confidence in the future of farmland, as a result of us leaving the EU and how subsidies may change thereafter.  However with forestry, subsidies are not available, in the main, and accordingly those questioned are considerably more confident about the future of forest values.  A 35% increase is the average predicted over the next 5 years, greater than all the other land types.

With a far more limited management requirement (mainly limited to fence repairs, ditch clearance, vermin control and thinning) the attraction of forestry ownership is clear to see.  The tax benefits are also hard to ignore; income generated from the sale of timber is exempt from Income Tax and Corporation Tax, making forestry an effective means of converting capital into tax free income. Commercial forestry also qualifies for 100% Business Property Relief once held for two years, so that if held at death there is no Inheritance Tax payable on the total value of the land and trees.

BUY MOORLAND?

downloadMoorland is found in upland areas and is characterised by acidic soils and limited growth of low level vegetation.  High levels of rainfall prevail and winters can be harsh.  Mainly due to low productivity, moorland is by far the cheapest of the land types covered by this research and therefore, if enjoying the outdoors is part of your reason for purchase, a purchaser can buy a greater land area for their level of investment.  It may not be the only advantage; with the ongoing focus upon conservation and wildlife enhancement, the biodiversity of moorland areas does currently attract relatively high subsidies, especially within the Countryside Stewardship Scheme.  After the exit from the EU, these payments will be reviewed but it is our expectation that these poorer areas of land with high conservation values may well carry higher subsidies in future, rather than lower.  If this is proved to be the case, the value of the land is also likely to increase.

Management of moorland requires a specialist skill set but if there is an opportunity of creating a covering of heather moorland, the presence of red grouse for shooting on the land can increase value exponentially.

SUMMARY

download

If a buyer of land wants to immerse themselves in the day to day management of their holding, arable and pasture land will invariably remain popular and are likely to continue to make up the majority of land transactions.  However, whilst uncertainty remains over subsidy payments on arable and pasture land, forestry seems likely to yield higher rates of capital growth over the next 5 years.  Moorland values remain low and if subsidy payments lean in favour of conservation and wildlife encouragement, values of moorland are set to rise.

Acknowledgements;

With thanks to rural professionals from Strutt & Parker, Savills and George F White for their input and responses to the questionnaire. 

saperator
About The Search Partnership
To view a selection of our recently acquired properties click here

We are buying agents, otherwise known as property finders, specialising in finding and securing the most outstanding property in Yorkshire and the north of England for retained private clients. We buy houses, flats, farms, country and sporting estates as well as investment and development opportunities. We buy the best property in the best locations. We have an encyclopaedic knowledge of the area and an unrivalled network of contacts generated over a combined 30 years agency experience with both Strutt & Parker and Knight Frank.
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