INTRODUCTION:
The start of a new year always brings with it an
abundance of economic reports, outlooks and projections on future demand,
supply, prices and trends. This will be evident across the entire property
market including agricultural land over the next number of months and with
headline grabbing prices and broad averages it can often be difficult to determine
the real market fundamentals as to what is actually happening.
In Jordan Auctioneers our practice is primarily based
in the Leinster Region and there are obvious variations in the price of land
from County to County. Applying an average rate across an entire region can be very
simplistic and although it can be referred to as a benchmark the variations on
same can be substantial.
Overall the agricultural sector had a challenging year
across the various enterprises. It was a positive year for the Irish dairy
sector with a dramatic recovery in the milk price leading to an increase in
national production of 8%. Finished cattle prices marginally increased in 2017
but the industry remains very vulnerable to fluctuations while Cereal prices
remained at historically low levels even though there was a general increase in
yields and some reduced input costs. Poor weather was a factor across all
sectors with July, August and September extremely wet putting added pressure on
farmers, particularly tillage operators.
The Brexit referendum result and depreciation of the
Pound Sterling against the Euro has created an immediate competiveness challenge
for the Irish agricultural sector and this is unlikely to be resolved in the
short term until further progress in made in negotiations between the various
sides.
Obviously confidence within an industry is an
important factor in lands sales and prices but this is less so in Ireland than other
European Countries. In Ireland
there are many other emotive and additional factors that affect the price of
land and serve to keep it at a relatively high base value. One of these is
obviously the limited supply of agricultural land traded on a yearly basis
(0.5% of total land area). An interesting statistic is that the average field
in Ireland gets sold once
every 400 years outside of a family compared to once every 70 years in France! The
historical obsession with land ownership in Ireland and the limited supply has
always kept a floor on prices even when the industry is going through difficult
times.
THE LAND MARKET:
2017 proved a successful year in Jordan Town & Country Estate
Agents with agricultural sales and acquisitions across a wide spectrum and
totaling about 2,000 acres. Prices
ranged from €6,000 to €20,000 per acre. This is where the application of an
average becomes difficult. Each property has its own strengths and limitations
which impact on the price achieved. Some notable features of the market and key
determinants of price were:
§ Quantum and quality of land being offered
remains a key factors in any sale. Large land holdings are more in demand than
smaller parcels unless you have a number of adjoining farmers who are looking
to expand and willing to bid against each other. Quality is always a key
ingredient with land and considering the number of bad winters and summers
experienced in recent times selling poor or marginal land is very difficult.
§ This is the first year we noted more land
being purchased with bank lending. Up to now a lot of holdings had been bought
by the remains of development or Compulsory Purchase monies. While lending
terms and conditions tend to be strict there has been a freeing up of capital
for land purchases by farmers assuming they have a good track record, strong
business plan and plenty of security.
§ The variation in price is considerable and
depends on a number of key factors as already outlined. We sold land from less
than €6,000 per acre up to €20,000 per acre. The application of an average can
be dangerous and the specific characteristics of the property are of fundamental
importance as to where the value range lies.
§ Buildings, either houses or yards are not
adding considerably to the value being achieved. Land is being priced by
purchasers on a per acre basis and while buildings may complete a package and
increase its attractiveness they do not necessarily add to the end value.
§ 2017 saw the return of the ‘hobby farmer’
for smaller holdings and this is likely a result of improved economic factors
with many companies and business people doing better within their own industry.
In many instances these people come from a farming background and are looking
to have a house, yard and some land for their own interests.
§ The perception of land as a ‘safe haven’
for cash considering the experience of the collapse of the Celtic Tiger and the
investment markets has meant many people earning low interest rates on money
and subject to DIRT tax and bank charges continue to see land as a safe place
to ‘park money’ while either farming it in the interim or leasing.
§ Some farmers bought lands in the recession
on the edge of Towns and Villages which are now zoned for development. An
important consideration for anyone in this category is the new Vacant Site Levy
which is coming into force this year and will impose a 3% charge of the market value
of the lands in year 1 rising to 7% in year 2. Further investigation is
recommended by any owners affected.
THE OUTLOOK 2018
Predicting values heading into 2018 is difficult but
we envisage continued strong demand for good quality land and plenty of
activity. Confidence in the dairy sector is high at present and therefore lands
close to a number of strong operators is likely to command good interest.
The re-emergence into the market of the hobby farmer
for smaller holdings, particularly where there is a residence and yard could
act as a driving force for this type of asset especially where they are close
to good transport links and have accessibility to the main employment hubs.
Values in our opinion will be specific to the property
itself and therefore good advice whether buying or selling remains very
important so there are no false aspirations or misconceptions as to what might
be achieved.
Brexit does create uncertainty but for many farmers
they are not prepared to wait or put plans on hold particularly if they have
the financial means to purchase and land comes for sale close to them. The rise
in prices across the dairy sector has resulted in a considerable investment in
new parlours, sheds and facilities. Although this could create financial
pressures for some it also indicates a confidence and determination to try and
develop their business through more efficient practices and expansion.
Agricultural land in Ireland will always be traded and
in demand due to our emotional affiliation and inbuilt desire to acquire it.
The market is certainly one of the most stable assets classes within the
property market, assuming of course that it is bought at realistic levels. The
added bonus that land is a finite resource and unlike other investment products
cannot be wiped out by external factors will mean that it will continue to be
perceived as a safe haven for money even if the return is minimal. Farmers
remain hugely ambitious, prepared to work whatever hours needed to make
ventures viable but informed and sensible decision making is still a key
ingredient for success.
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 14 years and works directly with Paddy
Jordan. He can be contacted in the office on 045 – 433550 or clive@jordancs.ie
