The hedge fund manager who bought a farm Investors are buying a slice of the countryside to make the most of rising food prices From The Times February 1, 2008
The cost of farm property looks likely to soar as traditional British “lifestyle farmers” are joined by multimillion-pound investors hurriedly moving their wealth out of stocks and shares and into farmland. Across the world, hedge fund managers, property developers and other investors are turning their eyes to places such as Russia, Argentina and Uruguay, where farms are thought to be underdeveloped and provide an opportunity to profit from the rising prices of staples such as wheat, barley and oil-seed rape.
Britain is likely to feel the effects because our farmland is cheap by Western European standards. Marc Duschenes, of the property company Braemar, hopes that the surge in grain prices will persuade hard-pressed British farmers to sell their land. Braemar aims to raise £20 million for its agricultural land fund. “We are speculating that commodity prices will feed through into higher land prices,” says Duschenes. Carter Jonas is quoting forecasts of prices increases of 10-15 per cent this year.
At the same time lifestyle farmers - typically City high-fliers - have become the largest group involved in buying British farmland. According to Mark Ashbridge, of Savills Private Finance, 40 to 45 per cent of farm purchases are now made by lifestyle farmers. Knight Frank puts the figure at 38 per cent, with only 32 per cent of farm purchases by “genuine” farmers. Institutional investors (11 per cent), agribusiness (11 per cent) and developers (6 per cent) account for the rest of the purchases, Knight Frank says. This mounting interest, combined with a shortage of supply, has meant increases of up to 40 per cent in the price of UK farmland in 2007.
Nevertheless, now could be a good time to buy a farm, Ashbridge says. Although supply has tightened over the past few decades, he believes that an increasing number of farms could come on the market in the next few months. In April, the Chancellor is due to cut the rate of capital gains tax from 40 to 18 per cent and abolish the taper relief system under which people who had held assets for a long time could pay a capital gains tax bill of only 10 per cent. In addition, indexation relief is also to be abolished in April. “For someone who has owned their farm for many years, the changes could double their tax bill when they sell,” Ashbridge says.
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Background Biggest homes earn £26,000 a month for owners Country houses: then and now Going up country Where to spend it Related Links Top tips for turning from townie to farmer Steve Goodfellow, 36, and his wife, Sarah, 31, recently bought a farm in Pickering, North Yorkshire, which they run as a bed-and-breakfast, Barker Stakes Farm (www.barkerstakesfarm.com). They keep poultry and livestock and are considering growing cash crops, after giving up good jobs in retail in Newcastle upon Tyne. The Goodfellows, who have two young daughters, paid £795,000 for the 32-acre property, plus an additional £5,000 for fixtures and fittings. The purchase was financed with a business loan from Royal Bank of Scotland.
“We have converted a barn into two B&B rooms, rebuilt the car park and laid a new courtyard,” Mr Goodfellow says. “We have set out a vegetable patch ready for the spring, and a polytunnel is due to be erected so that we can be self-sufficient for vegetables - or at least that's the theory.” His advice is to have money left over after purchase: “Everything costs twice as much as you think it will, and there will be plenty of things that you haven't thought of.”
Country life will not suit everyone: farming is difficult and expensive. “You shouldn't expect to make money out of it,” says Andrew Wakely, a currency trader who has bought a £3 million farm in Gloucestershire. “In fact, you should expect to spend a great deal. And you should expect to make a lot of mistakes.”
The farms market is unlikely to be severely affected by the credit crunch, Ashbridge believes. “Land doesn't tend be highly geared, because it has limited income potential,” he says. Moreover, many lifestyle buyers are buying primarily with cash from “selling a £3-£4 million London home”.
There also are tax advantages. Farmhouses, cottages and buildings on working farms may be excluded from an estate for inheritance tax (IHT) purposes. Full agricultural property relief applies after two years' occupation, provided that you farm the land yourself or sign a contract with a farmer to do this, so long as you share in the profits and losses. If land is let to another farmer, tax relief applies only after seven years of ownership. HMRC is taking a firmer line on farmhouses, however. The interpretation of the rules for obtaining IHT tax relief on the farmhouse have been the subject of much litigation in recent years, with HMRC successfully challenging whether a farmhouse is eligible for relief, as well as the value of the house upon which relief is available.
Along with Gloucestershire, Cornwall has been the lifestyle buyers' destination of choice. But buyers are now being driven elsewhere. “Pembrokeshire is on the M4, it's roughly the same distance from London and it is possible to find very beautiful farms there,” Ashbridge says. Chris Boreham, head of the rural agency at Dreweatt Neate, says: “Berkshire and Hampshire are still proving to be very popular areas among City-type buyers because of the combination of vast acreages of farmland and excellent transport links to London.”
If you are buying a farmhouse with just a few acres, you would be able to find a standard residential mortgage. In most cases, however, you will need a commercial mortgage, and will pay rates of 1 to 2 per cent above the base rate. You will also suffer more restrictive terms: lenders will usually go no higher than 70 per cent loan-to-value. “You can do combination loans, where you purchase the farmhouse with a residential mortgage and the rest of the farm with a commercial loan,” Ashbridge says.
Fact file
Agricultural land began 2007 at £4,000 an acre, according to the Buying Solution. Large portfolios of land sold for £5,000 to £6,000 an acre. By the end of the year some smaller tracts (below 600 acres) were fetching £6,700 to £6,900 an acre (thebuyingsolution.co.uk).
Land is much less freely available today than 50 years ago. According to Savills Private Finance, the amount of publicly marketed land has fallen from about 600,000 acres a year in the 1960s to 125,000 acres a year today (spf.co.uk).
Foreign buyers account for about 15 per cent of UK farmland purchases, with most interest coming from Denmark and Ireland, where the price of agricultural land is significantly higher than in the UK.
Farmsearch is a national database of rural property for sale: farmsearch.co.uk
