By Andrew Bounds in Brussels
Published: April 24 2008 03:00 | Last updated: April 24
2008 03:00
With prices of commercial and
residential property falling, investors are increasingly turning to a more
traditional asset: farmland. Long seen as a declining industry, farming has
received a fillip in the last few months as global demand for food has increased.
As a result, the cost of agricultural holdings across the European Union has
risen to record levels.
In response several funds have recently
been set up to buy farmland. In particular the UK, where prices have risen 40
per cent over the last year, has been active. Braemar, a fund manager, is one
example. The Manchester-based group has been swamped with offers since it
launched a fund this year.
"We closed the fund in two weeks
but we are going to reopen it," said Marc Duschenes, chief executive. He would
not reveal how much had been raised from wealthy individuals but said the fund
would buy its first 200 acres soon. The land will be run by contract farmers so
there could be revenue as well as capital gains.
While Braemar faced stiff opposition
from farmers looking to expand, he said many were also looking to cash out
after 20 years of flat land prices.
Braemar has also opened an offshore
open-ended investment fund in Guernsey. "We have everyone from pensioners
looking to avoid inheritance tax to stockbrokers looking for a secure
investment," said Mr Duschenes.
Andrew Shirley, head of rural research
at Knight Frank, a property company that is establishing its own agricultural
investment fund, said land prices were rising across Europe.
"It is not only UK land values
that are increasing sharply, the global commodities boom means investment funds
are looking further afield for cheap land and this is helping to drive prices
up, particularly in eastern Europe and the former Soviet bloc where there are
vast tracts of underutilised and potentially very productive land," he
said.
In Lithuania a hectare of agricultural
land cost €734 ($1,167, £589) in 2006 compared with €164,340 in Luxembourg, the
most expensive country.
In Poland the US embassy reports that
average prices rose 60 per cent between 2003 and 2006.
In neighbouring Ukraine - not an EU
member - prices for the best land are forecast to double from $3,500 per
hectare this year as investment funds pile in, Mr Shirley said.
Even Serbia, another non-EU country,
has seen a steep increase. Real estate analysts estimate arable land prices
this year in Serbia's agriculturally rich northern region, Vojvodina, at
roughly €7,000-€8,000 per hectare this year, up sharply from €5,000 last year.
Foreigners cannot buy land in Poland
until 2016, while other countries have also slapped on shorter bans to stop
outsiders from cashing in.
However, it is simple for investors to
set up a local company to bypass the rules.
Countries with sales restrictions, such
as France, are cheapest. Land is about €6,000 a hectare there because it must
be offered first to young local farmers. However, land prices are still 50 per
cent up on 2003.
Farmers say that stricter environmental
rules are also causing higher prices.
"You need more land to produce the
same amount," said Peter Gemaelke, head of the Danish farmers' union. He
said a recent reduction in the amount of nitrogen that could be used per
hectare had lowered yields.
However, as investors eye the prospect
of harvesting good returns, some observers caution against too much euphoria.
Mark McAndrew, from Strutt &
Parker, a UK-based property agency, said: "Until there is greater clarity
about the depth of the problems facing the economy, one must add a note of
caution.".