The coronavirus (COVID-19) pandemic is covering the globe and
creating considerable market volatility across all sectors including
agriculture. How this will impact on land sales and prices is a key question
for everyone involved in the business.
It seems only a brief time has passed
since we were reviewing the land market in 2019 and venturing our opinions as
to how it would develop in 2020. Within the space of a short time period all
past analysis and projections now seem largely irrelevant, or are they?
Usually at this time of the year there
is a noticeable pickup in properties offered for sale, particularly farms and
country properties. Spring and early summer is generally one of the most
strategic times to bring such assets to the market taking advantage of the
longer evenings, improvement in ground conditions and a more general upbeat
mood after a long winter.
We have a good supply of land coming
to the market in 2020 as have many of our colleagues in the business however since
the restrictions came into effect vendors have been phoning us looking for our
advice and opinion in terms of sales strategy and timing in view of the current
situation.
It is our opinion that if by the end
of May business activity is up and running, then that will enable plans to be
made for a sale this year and it may in effect lengthen the traditional selling
season due to a later than normal commencement of advertising.
Once the matter of timing is clearer
the next key question is where values stand and what demand will be like. We
have attempted to address these points below:
The Market:
There is no doubt that the economy is
going to take a hit, returns from different farming enterprises have been
affected due to decreased demand and confidence is generally shaken but the
land market has been relatively stable over the last decade and when you
actually chart the value of land as recorded by the Irish Farmers Journal in
their Annual Land Report from 2010 - 2019 we can see that while there are some
peaks and troughs the movement is nowhere as volatile as other investment
mediums and this has been through some troubling times including Brexit,
abolition of Milk Quotas, Greenhouse Gas Emissions Targets, General Elections
etc. The rate of variance between 2010 – 2019 is merely €1,266 per acre.
Factors impacting Land Prices:
There is little doubt that the
economic climate has some impact on general land prices and sales, but our
experience has shown that this is minimal and far different to those at force within
other segments of the property market.
Land trades off factors outside those of value and return which keeps it
at a base level and briefly these include:
Ø Limited supply: a tiny percentage of land is sold each year
(0.5% of the total land area). This scarcity means the opportunity for many
farmers to buy land comes only once a lifetime and therefore the question is
not what the land is worth but what they can afford to pay.
Ø Emotion regardless of economic factors: Emotions
run strong in Irelands farming community when it comes to land purchase and in
many situations, it is seen as an heirloom – not an asset to be sold with no
particular focus on return but rather a view that ‘it will make the farm up
in time if it can be purchased now’.
Ø Forestry: With the increased demand for forestry land and
operators generally paying a base price of €3,000 to €4,000 per acre for
suitable holdings this has in effect created a floor on land values.
Ø Farmers Expansion: Due to the fragmented nature of many holdings
in Ireland when good
quality land is offered for sale adjacent to a farmer who has ambitions to expand,
they will generally try everything within their powers to purchase same. This
is particularity so for those in the dairy business where additional land adjacent
to the main yard or milking platform is generally of increased value. In some
instances, they may dispose of an out-farm to facilitate the purchase.
Ø Safe
place for money: Land is a finite resource and unlike
other investment products cannot be wiped out by external factors such as those
we have suddenly experienced. This will mean that it will continue to be
perceived as a safe haven for money even if the return is minimal.
Conclusion:
There will be headlines over the next few months of properties not being
sold or withdrawn at Auction but every year that is the situation with a
certain volume of stock and while it may feed into a certain newsfeed all
decisions will need to be carefully made with proper advice.
It is our opinion that values will
generally remain in line with the above graph and at a relatively stable level
throughout 2020. Some vendors will hold off selling due to lack of market
confidence and that will further reduce supply and result in good prices for
those that are offered for sale. A key issue will be access to finance and the
various lending institutions remaining active.
Agricultural land in Ireland will
always be traded and in demand due to our emotional affiliation and inbuilt
desire to acquire it. Farmers remain hugely ambitious to make ventures viable and to expand
their enterprises where possible and the famous line of ‘they can’t make any
more of it’ springs to mind as we wait with bated breath to see how the
year develops.
Clive Kavanagh, MSCSI, MRICS is a Director of Jordan
Auctioneers & Chartered Surveyors who has been involved in the sale of agricultural land and country
properties for the last 17 years. Clive can be contacted on 086-3818697 or clive@jordancs.ie
