40 acres at Kilmead, which was sold by Jordan's last year
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 in-built 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 firstname.lastname@example.org
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