Brown And Beautiful?

24th August 2011

The good people of the North East are unlikely to be brown and beautiful if they have been holidaying at home this summer, but a good bit of Northumbrian dirt has come up trumps over the last few years.

Last week, the RICS announced that average land prices (that’s farmland) in the North East jumped 14% in the first six months of this year – a bigger increase than anywhere else in the UK. That news, of course, comes on the back of the past two weeks which have seen equities fall up to 4.5% since July 2011.

So why the hike in values in the North East? In essence, we now have one of the last bastions of true rural living where there are genuine farm businesses. Many areas in England have become urbanised or transformed into commuter country. There is an inbuilt resistance to moving north of the border which crystallises a 10% – 20% discount on values, due to political uncertainty, potentially higher taxes and also perhaps a healthy historical mistrust of border raiding! The average price in the North East of £5,500 per acre covers a multitude of sins – from the top of Cheviot down to the productive soil of the Bamburgh coastal plain – where values may top out at over £8,000 per acre.

The fundamentals underlying investor interest in farmland remain unchanged, but look more compelling in uncertain times:

  • Tangibility – it is still there on Monday morning having walked over it on Friday afternoon.
  • The ability to own and control the asset as an individual without the need to participate in expensive fund management.
  • The huge Income Tax and Inheritance Tax reliefs that are available. £1 million invested in farmland is potentially a £400k saving for the children.
  • Climate change is likely to make the North East more productive with plenty of water whereas other parts of the world will suffer from climate extremes.
  • The basic demand for food from a rapidly growing world population.
  • The ability to “haul up the drawbridge” live on site, grow you own food and gather your own fuel.

It does perhaps sound too easy and attractive, but there are, of course, a whole host of elephant traps ready to catch you out and you must be careful not to be duped. Flooding, subsidence, urban blight and conservation designation are just some examples of factors that reduce earning potential and, therefore, capital value. You need to be “savvy” about your purchase. So where will prices go? The old adage “they don’t make it any more” will inevitably mean that the long term trend for the right type of land is upwards. You just need to make sure that you invest wisely.

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