Gold, one of the few mainstream investments to have outperformed farmland this decade, has, however, lost some of its lustre, increasing in value by 1% over the past 12 months.
Although investors fed up of poor returns seem to be moving away from low-yielding (or zero-yielding in the case of gold) "safe-haven" investments such as AAA-rated government bonds, there continues to be strong interest in farmland. Knight Frank expects values to increase by a further 4% to 5% over the next 12 months.
Tom Raynham from Knight Frank’s Farms & Estates team said: "Farmland still has a valuable role to play in investment portfolios. Even though stocks and shares are back in favour, the markets remain volatile.
"Land offers something more tangible, yet still has the potential to provide good capital appreciation. For private investors it also offers significant tax and amenity advantages. This combination of benefits has seen increased activity in Lincolnshire, the UK’s arable heartland, with some large blocks of good arable land recently making over £10,000/acre."
Despite the continuing weather problems, demand also remains strong from farmers who are prepared to pay a premium to secure land adjoining, or close to, their existing units.
James Prewett, Head of Regional Farm Sales at Knight Frank, said: "There is still a shortage of supply and, while more marginal land may have a lost a little of its value, demand remains strong for commercial units."
More land could come up for sale over the next few seasons as some farmers decide they have had enough of the weather – for many, 2013 could be the third successive difficult harvest – and look to take advantage of current strong land prices.
However, UK agriculture still has a very strong balance sheet overall with liabilities well under 10% of the sector’s capital value. This means there is unlikely to be a huge increase in the number of disposals. If it appears an over-supply is causing values to weaken, potential vendors may well decide to sit tight until the market firms again.
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