Thursday, February 19, 2015

The Real Farmers Market - The Real Growth

Worth more than gold
Much has been written about the property boom in London and other cities but less about the riches to be made in the countryside. Prices have risen partly because last year the amount of farmland for sale fell to the lowest level since records began.  Andrew Fallows, head of national farms at Carter Jonas estate agents, says the 2007 financial crisis drove people to invest in what was seen as a safe asset but he also believes farmland had been undervalued.
“Agricultural land tends to be counter-cyclical to the rest of economy, so there was a rush to land, which was seen as a haven, in much the same way as gold,” he says.

Farmland also offers generous tax breaks on inheritance and capital gains tax. It qualifies for agricultural property and business property relief, which means land is exempt from inheritance tax after two years, as long as it is actively farmed. Rollover relief allows the sale of a farming asset to be rolled into a new farming business and capital gains tax is deferred until the sale of the new asset.

The price of prime arable land, concentrated mainly in eastern England, especially East Anglia, rose almost fourfold, by 277 per cent, in the decade to 2014, according to figures from Savills, the estate agency, on Wednesday. In the decade from 1994-2004, prices grew just 41 per cent. The price of bare land — without a big house on it — increased last year by 15 per cent to an average of £8,000 an acre, according to the 2014 farmland index published by Knight Frank.

These price rises beat other assets, including prime London property, up 127 per cent during the past decade, the FTSE All-Share index and even gold, says Savills.

Hampshire, Berkshire and Oxfordshire, appeal particularly to “lifestyle buyers” — those attracted more by the prospect of breeding horses, hunting or a large house than by farming.

The scarcity of supply is part of a trend. As Peter Pereira Gray, the Wellcome Trust’s managing director of investments, said at the time of the Co-Op land acquisition: “Mark Twain’s remark that ‘they are not making any more land’ is a good underpinning reason why farmland is attractive.”
“A lot less than 1 per cent of farmland is sold each year — in the 1970s, it was 3-4 per cent,” says Jason Beedell, head of research at Smiths Gore, a rural estate and management agency. “There are few forced sales and since the tax treatment is benign, people hold on as long as they can.” However, the main driver of higher prices has been demand. Farmers account for the majority of buyers, but they are competing against growing numbers of private investors and institutional buyers. Mr Beedell says: “Although wealthy individuals only make up 25 per cent of farmland buyers, the prices they pay affect the whole market.”  Investors include Sir James Dyson, the billionaire inventor of the bagless vacuum cleaner, who bought swaths of land in Lincolnshire, in 2012. Wellcome Trust, the charitable foundation, paid £249m last year to acquire the 40,000-acre farms business of the Co-Operative Group.

Andrew Shirley, head of rural research at Knight Frank, says strong commodity prices and a desire to take advantage of long-term population trends have encouraged investment. The world’s population is expected to peak at 10bn mid-century, so food production will have to increase to feed an extra 3bn mouths.

We have a landed class in the UK that do nothing and get plenty. They receive tax breaks and are free of inheritance tax.  Only the most elite are prospering and making hay while the sun shines.

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