South American and Central Europe top farm land growth, new index shows
01-08-2012
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Growth has been most significant in Brazil, Argentina, Poland, Romania, and Hungary according to the data from 14 countries from 2002 to 2010. In Romania for example, land values increased by 1817% (US$ per hectare) between 2002 and 2010.
Farmland values in the South American countries of Brazil and Argentina have also strengthened significantly during the Index timeframe, albeit from a low base. In 2002 about US$800 could buy a hectare of land in Brazil which in 2010 cost US$5,200. Legislation introduced to limit the scope of foreign investment has moderated growth rates recently but they continue the trend upwards.
For the Central European countries this growth is explained by entry into the European Union which has reduced but not yet fully removed the restrictions on foreign ownership and access to EU farm payments and capital improvement grants, Savills said.
In contrast, there has been more variation in the mature markets included in the index. Overall growth over the period has been more muted in Germany, the US, France, Denmark, Ireland, and Canada.
However, this masks the period of accelerated growth and following correction in Northern Ireland, Ireland and Denmark. Although political and economic uncertainty is low across Western Europe, the markets in Denmark and France are still restrictive to foreign ownership and in Ireland large scale farming opportunities are rare, hence these countries will not feature high on an investor’s shopping list.
The UK has behaved differently and values continued to rise with significant growth of 17% taking place between 2007 and 2010 and eight year growth of over 200%. Likewise in the US average cropland values increased by 75% between 2002 and 2010. The UK and the US still represent good places for farmland investment, although the UK proposition is weakened by farm scale and low turnover.
Australia and New Zealand both outperformed the US and the UK over the eight years recording rates of growth of 300% and 262% respectively. The opportunity for large scale farming is a key driver, especially in Australia, but location is critical with the best opportunities requiring adequate rainfall/water, good soils, and infrastructure. Australia also scores well in terms of political and economic stability and there is a good volume of land traded annually.
The available evidence suggests that Africa is a continent with high growth potential in the agricultural sector, where long term underinvestment offers exciting opportunities. However, the risks and challenges are high, which at a practical level include land tenure and poor infrastructure.
‘Capital growth is rarely the only determining factor for farmland investment and while significant growth rates have been recorded in many of the emerging markets these need to be set in the context of the opportunities to maximise income return,’ said Ken Jones director of International Farmland Markets at Savills.
‘In more developed economic areas yields range annually between 1.5 to 4% but in emerging investment areas 5 to 8% is more typical. Farmland continues to outperform residential and commercial property investments in many places across the globe and in mature markets has a good track record of being a safe and reliable investment over the past 30 years, which we expect to continue,' he added.
