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 strong but challenging year across the various enterprises in 2013.
A late spring caused considerable problems exacerbating the impact of the fodder shortage that emerged in 2012 with high inputs including feed and fertilizer.
Tillage yields for major crops were above normal in 2013, but a large global harvest triggered a steep drop in prices and consequently margins fluctuated between different crops.
There are many changes ahead in the agricultural sector with the CAP reform and abolition of milk quotas in 2015.
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.
Overall these factors have limited the progressive farmer’s ability to find land and expand at affordable prices particularly where they are coming to the market with no development monies and are partially financing a purchase
Next week we look at the key market features .
THE LAND MARKET:
The agricultural land market has built on the recovery of 2012 with prices rising and improved activity. We noted considerably more enquiries, bidders and competition between different purchaser types for all land offered for sale. Having sold over 2000 acres throughout the year we have identified some key market features.
- Quantum and quality of land being offered remain 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.
- Many of those parties who received development or Compulsory Purchase Order (CPO) monies during the boom years are now more active than at anytime before. They continue to drive the market and the prices being obtained with cash on hand and no finance required. They remain in a stronger position than someone with partial bank funding where their limit is set. We estimate that of our land sales this year 90% of purchasers were coming from this position of having cash at hand.
- The variation in price is considerable and depends on a number of key factors as already outlined. We sold land from less than €10,000 per acre up to €30,000 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 unless they are exceptional.
- 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 have turned to land as a place to ‘park money’ while either farming it in the interim or leasing the land.
- The relief from Capital Gains Tax for the first 7 years of ownership for properties purchased between 7 December 2011 and 31 December 2013 also helped stimulate demand, particularly where it was felt that land could be bought at a reasonable level and held over the period. The budget 2013 extended this by one year until the end of 2014 and this will likely continue to have some impact on land sales especially where people are putting cash deposits.
- The reform of the CAP payments and the fact that 2014 will be the base year has driven many farmers to try and expand their holdings.
- The impending removal of the milk quota system is also acting as a driver for growth in land values with recent Co – op surveys predicting an increase of 20 – 60 pc in milk supply and the food harvest 2020 report targeting a 50pc increase in dairy output. Banks are offering dairy expansion loans and dairy farmers are actively looking for land to increase their holding, particularly if it is adjoining them, often bidding in excess of market value to secure additional land.
- The sale of farmland remains dependent on the goodwill of the owner. With a large amount of financially distressed assets owned by the bank and in some instances secured on land unless the owner / farmer is prepared to willingly sell, then the community remains very close and will not purchase or negotiate on land where the farmer is being seen to be ‘sold out’.
- The market for land sold which was zoned for development or with some hope value was still dominated by farmers albeit those with cash in hand. There was no evidence of speculators or investors in the market which continues to highlight the financial restrictions on these parties and the fact that they are likely to be under considerable strain and unwilling to re enter the market even where opportunities exist.
THE OUTLOOK 2014
Predicting values heading into 2014 is difficult but we envisage continued strong demand for good quality land and plenty of activity. 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.
The presence of development monies and cash is still driving the price of land and overall demand. The question of what the value of land is without these purchasers is an importantconsideration and their presence in the market is certainly helping to drive prices up.
Agricultural land in Ireland will always be traded and in demand due to our emotional affiliationand 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.
The agricultural sector is one of the shining lights of the economy, farmers remain hugely ambitious, prepared to work whatever hours needed to make ventures viable but informed, 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 10 years and works directly with Paddy Jordan. He can be contacted in the office on 045 – 433550 or firstname.lastname@example.org