South: RICS report indicates drop in demand for rural land

According to the RICS/RAU Rural Land Market Survey for the first half of 2016, demand for rural land has fallen sharply in the past six months, particularly in the South East where the net balance has been -43%.

Prices are expected to fall, once again particularly across the South East, where 57% of respondents expect a further decline in values for commercial farmland.

The outlook for mixed residential land has also turned visibly negative in the half year, with a net balance of 43% more surveyors expecting prices to fall rather than rise over the following year in the region.

Anecdotal evidence from respondents suggests that several factors are combining to dampen sentiment in the market which include increased uncertainty due to the EU Referendum, subsequent confusion over the future of CAP payments, and low commodity prices.

The survey also shows that national average arable-land rents fell by 8.8% in the half year, and by 3.1% over the year as a whole. The national average pasture-land rents fell correspondingly by 6.7% and 7.3%. 

Although uncertainty is currently weighing on the market, members’ comments suggest that over the longer term farmland is still seen as a safe asset and desirable to investors with rollover money, and this recognition is continuing to underpin demand.

Jeff Matsu, RICS senior economist, said: “Going forward, at least some encouragement can be taken from the potential for the Bank of England’s monetary policy stimulus to support activity. In addition, the fall in sterling should prove beneficial to agricultural exporters and farmlands’ safe-haven status may attract long term investors, particularly for prime holdings.”

Jeremy Blackburn, RICS head of policy, added: “EU subsidies play a role in propping up the profitability of many UK farmers and landowners, and anecdotal comments from survey respondents have highlighted the impact that uncertainty surrounding CAP related payments has had on the market. 

"The chancellor’s announcement last weekend that the Common Agricultural Policy (CAP Pillar 1) will be upheld until 2020, and agri-environment schemes agreed before the autumn statement will be protected, will be welcomed. The Government’s two or three-year safety net was announced after our survey was closed, and, it remains to be seen how the rural land market will perform in the light of these medium-term measures.”

Richard Greasby, from Butler Sherborn in Cirencester, commented: “Supply is still limited and demand is still strong for land in the right location. Price is the variable with a wide range being achieved.”