Farmland prices marching towards £10,000 an acre

INVESTORS seem to believe the old Mark Twain dictum, "invest in land, they are not making it any more" , if the buying interest reported by one leading estate agency is to be believed.

According to Savills, there is currently an estimated 7.5 billion of funds available to buy farms and estates – that's the tally from the firm's applicant register.

Accordingly, Savills says that before these funds are exhausted, more than one million acres of farmland at an average value of 7,500 per acre would have to change hands. That acreage equates to the total area of land publicly marketed since 2004.

Anna Thomas, head of Savills Agricultural Agency in Edinburgh, said yesterday that farmland was still seen as a safe haven in times of trouble.

"There are still useful tax benefits in both trading and owning land, quite apart from any potential windfalls from development in the future.

"Land also has obvious lifestyle attractions and an improvement in the amenity and country house markets in the second half of the year has reinforced the rises in farmland values since June."

The company forecasts that average farmland values will continue to rise in the medium term by about 6 per cent a year.

This inflation-busting growth is based on a model that takes into account the key variables that affect price such as farm incomes, wheat price and yield, subsidies and prime country house values.

Ian Bailey, head of Savills Rural Research, says: "Our model predicts that average grade 3 arable land values in England could reach 7,000 per acre and more than 5,000 per acre in Scotland. However, the current ranges in values achieved are wide, and applying our forecasts to the higher figures achieved could see the best land reaching 10,000 per acre well before 2015."

The company believes the supply of farmland at a national level is unlikely to increase to the point of saturation, which would have the potential to have an adverse effect on values.

In England, for example, the average annual supply of farmland between 2000 and 2009 was 123,000 acres and just 105,000 acres during 2009. The volume of supply would need to reach at least 130,000 acres for there to be any risk of saturation.

Bailey said he saw little reason for the annual supply to increase dramatically, save for unforeseen shocks.

"Debt levels, which are the biggest driver of supply, are not expected to change significantly on a national basis," he said.

"There might however be regional variations, including small livestock producers in the southwest and off-farm businesses in the south-east, which have succumbed to recessionary pressures."