No better time to buy an estate
7 November 2013
There has never been a better time to buy a country estate. And by this I mean a traditional country house with at least 500 mixed acres, modern and period farm buildings and a few cottages.
According to Savills research in the first half of 2013 prime arable land rose by 6% with the national average now over £8,000 an acre. An impressive statistic given that ten years ago the average was just £2,250 an acre. Burgeoning land prices have been in inverse proportion to the money markets with many buyers seeing land as a safe haven for their capital, a classic contra-cylical investment like gold. But as stock markets have rallied and the proposed review of CAP and the way subsidies are paid many are wondering whether there will be a downturn in investment in land.
We think quite the opposite. But to understand this we need to look at who has been buying commercial farmland in recent years. By and large it is made up of two groups – the neighbouring farmer and new money in the form of investors and family trusts.
For the farmer, although prices for their products have gone up their margins remain under pressure because the costs of essential items such as feed, seed and fertiliser have also increased. Given that the lion’s share of the fixed costs on top of this are labour and machinery the obvious way to increase profit is to farm more acres with the same man and tractor, especially whilst borrowing costs are low.
For investors and family trusts, land has been recognised as a long term hedge against inflation and, under current tax legislation, an efficient vehicle to pass wealth on to the next generation. Land ownership is part of our national psyche and looked on as something that can also be enjoyed. Some investment funds might sell if price growth and yields slow but most of the new buyers are in it for the long term. Savills research indicates that supply of land for sale will continue to constrict (in some regions it is as much as 30% down on previous years) and this in itself is likely to underpin the market particularly with demand on the increase.
The real answer to “is it a good time to buy” lies in the value of the bricks and mortar on the estate and the perceived marriage value, or premium, between them and the land. The appetite amongst buyers for large country houses which are costly to run has probably never been lower. Average values for them are down nearly 15% post Lehmann’s and Savills estimates that the marriage value for the whole estate has decreased by a massive 42% signifying an unwillingness amongst buyers to pay anything other than the aggregate value of the individual elements of an estate. However there is now real evidence that residential values are recovering and our prediction is that in an increasingly competitive market, in which supply remains constricted, buyers will pay premiums. Our prediction, therefore, is that the overall value of the estate is likely to see significant growth over the next few years and buyers will start having to pay a premium.
So it would appear that now seems like a good moment to be thinking of buying an estate. They should always be seen as homes first but for the right estate they are also an asset that is likely to see good prospects for capital growth.