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?
As 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?
Pasture 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%.
Forestry 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.