Potential Impact of Covid-19 on the Agricultural Land Market

The coronavirus (COVID-19) pandemic is covering the globe and creating considerable market volatility across all sectors including agriculture. How this will impact on land sales and prices is a key question for everyone involved in the business.

It seems only a brief time has passed since we were reviewing the land market in 2019 and venturing our opinions as to how it would develop in 2020. Within the space of a short time period all past analysis and projections now seem largely irrelevant, or are they?

Usually at this time of the year there is a noticeable pickup in properties offered for sale, particularly farms and country properties. Spring and early summer is generally one of the most strategic times to bring such assets to the market taking advantage of the longer evenings, improvement in ground conditions and a more general upbeat mood after a long winter.

We have a good supply of land coming to the market in 2020 as have many of our colleagues in the business however since the restrictions came into effect vendors have been phoning us looking for our advice and opinion in terms of sales strategy and timing in view of the current situation.

It is our opinion that if by the end of May business activity is up and running, then that will enable plans to be made for a sale this year and it may in effect lengthen the traditional selling season due to a later than normal commencement of advertising.

Once the matter of timing is clearer the next key question is where values stand and what demand will be like. We have attempted to address these points below:

The Market:

There is no doubt that the economy is going to take a hit, returns from different farming enterprises have been affected due to decreased demand and confidence is generally shaken but the land market has been relatively stable over the last decade and when you actually chart the value of land as recorded by the Irish Farmers Journal in their Annual Land Report from 2010 - 2019 we can see that while there are some peaks and troughs the movement is nowhere as volatile as other investment mediums and this has been through some troubling times including Brexit, abolition of Milk Quotas, Greenhouse Gas Emissions Targets, General Elections etc. The rate of variance between 2010 – 2019 is merely €1,266 per acre.

Factors impacting Land Prices:

There is little doubt that the economic climate has some impact on general land prices and sales, but our experience has shown that this is minimal and far different to those at force within other segments of the property market.  Land trades off factors outside those of value and return which keeps it at a base level and briefly these include:

Ø  Limited supply: a tiny percentage of land is sold each year (0.5% of the total land area). This scarcity means the opportunity for many farmers to buy land comes only once a lifetime and therefore the question is not what the land is worth but what they can afford to pay.

Ø  Emotion regardless of economic factors: Emotions run strong in Irelands farming community when it comes to land purchase and in many situations, it is seen as an heirloom – not an asset to be sold with no particular focus on return but rather a view that ‘it will make the farm up in time if it can be purchased now’.

Ø  Forestry: With the increased demand for forestry land and operators generally paying a base price of €3,000 to €4,000 per acre for suitable holdings this has in effect created a floor on land values.

Ø  Farmers Expansion: Due to the fragmented nature of many holdings in Ireland when good quality land is offered for sale adjacent to a farmer who has ambitions to expand, they will generally try everything within their powers to purchase same. This is particularity so for those in the dairy business where additional land adjacent to the main yard or milking platform is generally of increased value. In some instances, they may dispose of an out-farm to facilitate the purchase.

Ø  Safe place for money: Land is a finite resource and unlike other investment products cannot be wiped out by external factors such as those we have suddenly experienced. This will mean that it will continue to be perceived as a safe haven for money even if the return is minimal.

Conclusion:

There will be headlines over the next few months of properties not being sold or withdrawn at Auction but every year that is the situation with a certain volume of stock and while it may feed into a certain newsfeed all decisions will need to be carefully made with proper advice.

It is our opinion that values will generally remain in line with the above graph and at a relatively stable level throughout 2020. Some vendors will hold off selling due to lack of market confidence and that will further reduce supply and result in good prices for those that are offered for sale. A key issue will be access to finance and the various lending institutions remaining active.

Agricultural land in Ireland will always be traded and in demand due to our emotional affiliation and inbuilt desire to acquire it. Farmers remain hugely ambitious to make ventures viable and to expand their enterprises where possible and the famous line of ‘they can’t make any more of it’ springs to mind as we wait with bated breath to see how the year develops.

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 17 years. Clive can be contacted on 086-3818697 or clive@jordancs.ie