England's green and pricey land

While Britain's residential property market remains full of doom and gloom, the price of farmland is rising at a record pace.

It's all doom and gloom in the British residential property market. By contrast, farmland values are rocketing at a record pace. In 2007 for example, prices rose by a whopping 25.3%, according to estate agency Knight Frank, posting the second-highest annual rise on record. As a result, an acre of farmland that only cost £3,000 three years ago can now fetch around £7,000, according to James Laing of Strutt & Parker. 

But why has farmland traditionally a money pit suddenly soared in value? The obvious reason is the rising price of what is grown on it, including soft commodities such as wheat and corn. In addition, Irish and Danish farmers have helped to push prices up by buying British land in place of their own, which has now become too expensive. Irish buyers, for example, represented 4.8% of all buyers in 2007 up from 2.5% the previous year while Danish buyers accounted for 10.3% of purchases, compared to 9.3% in 2006. Many British farmers are also getting in on the act by expanding acreage to achieve economies of scale. This is hardly surprising when a tractor costs more than a top-of-the-range Mercedes.

Then there are the rich City workers who have been buying farmland partly as an investment, partly as a lifestyle choice and, in some cases, as a way to avoid tax farmland owned at least two years after the purchase date escapes inheritance tax, provided it is still used for agricultural purposes. So, "it seems there has never been a better time to become a gentleman farmer'", says Emma Simon in The Daily Telegraph. 

The trouble is, the best time to buy land cheaply may have passed by now. With crop prices on the up as the world clamours for food, farmers are in no hurry to exit the proportion selling fell from 62.3% in 2006 to 58% in 2007. Farmland enthusiasts might, therefore, be best off in a broader agriculture fund, such as CF Eclectica Agriculture, or an ETF such as LSE:AGAP

A week in the property market

The Royal Institute of Chartered Surveyors (RICS) has predicted that house prices will fall by 7% this year, while sales will plunge by 40% if the mortgage shortage doesn't ease.

Savills, the estate agent, thinks house prices may drop by 25% over the next two years unless the Government intervenes.

Estate agents now have an average of 73 unsold properties on their books the highest number Rightmove has ever recorded.

Rightmove announced that asking prices rose by 1.2% this month, taking the annual price rise to 2.20%, with an average house now costing £242,500. But Rightmove also conceded that this month's figures are skewed by "discretionary spring sellers" of large homes, which actually "mask year-on-year falls in six out of ten regions".

The latest housebuilding figures from the UK Statistics Authority show that housing starts new homes being built fell 21% in the last quarter and are 24% lower than the first quarter of 2007.  Completions are down 18% compared to the same period last year.

"Nowadays, there is no money in it at allwe were completely shafted," said home inspector Nick Cowley, quoted in The Sunday Times complaining about his fate, and that of his colleagues, after the Government delayed the full introduction of Hips.

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