Rural Property Strengthens In 2009
Date of Article
Jun 22 2010

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The IPD UK Rural Property Index for the year to 31 December 2009, sponsored by Carter Jonas and Smiths Gore, was launched on Tuesday 22 June at The Ritz Hotel. The Index measures ungeared total return to direct investments in a sample of tenanted farmlands. In 2009 the sample consisted of some 515,000 acres of land on 223 estates with a capital value of £2bn.

In 2009 the total return stood at 8.2% which was an improvement on the 2008 result of 1.7%. However, this result needs to be put in the context of the results on a three and five year basis, of 11.4% and 12.3%. The underlying trend is therefore showing a recovery from the difficulties of 2008 which were mirrored in the other property sectors of residential and commercial.

The rural sector fared better in 2008 against the other sectors where the return of 1.7% stood as a beacon of hope against residential property at -15.3% and commercial property at -22.1%. The other two sectors have also improved in 2009 showing a total return of 11% and 3.5% respectively.

Richard Liddiard head of Rural Agency at Carter Jonas believes the results reinforce the recent flight to safety offered by rural property, often linked with gold as a ‘secure haven’. The economic storm clouds circling the World Economies will only heighten this sentiment, as governments tighten their belts and face up to the reality of reducing the crippling levels of sovereign debt.

Whilst the Rural Property includes a basket of assets including residential and commercial property, the land element forms a significant proportion. The value of vacant possession land is continuing to strengthen and this will inevitably increase the land investment value as a consequence.

Richard comments: “2010 is once again proving that the demand for rural property and in particular land is increasing with a further reduction in supply into the market. This scarcity is likely to continue in the medium to long term as investors seek safety and in reality who would willingly convert rural property into cash with the risk of where to invest the proceeds?

The big question is when will land values peak and at what level. Whilst some agents believe values are already high enough, the sentiment in the market indicates there is still further to go. However we also need to acknowledge and reflect that all property sectors are cyclical and markets do and will move in both directions. Whilst analysts point to commodity prices/input costs/energy costs/subsidies/interest rates as market shapers the biggest and key influence has to be scarcity. Once again the supply and demand theories expressed by Keynes in his economic analysis at the time of the 1930 crash are coming home to roost!‘’