NEW LAND MARKET WILL EMERGE BUT LANDLORDS MAY GET 'NAKED ACRES'

A new market in rented rural land will emerge over the next 12 months when agricultural subsidies paid to English farmers are split from the land and become tradeable as separate commodities says RICS .

The introduction of an EU Single Payment Scheme Entitlement means that farmers will no longer need to grow a crop or keep an animal to receive a subsidy. The imminent rules are complex and have introduced a high level of uncertainty in the rental land market. A new market will emerge once Entitlements have been awarded after May 2005.

If an occupier leaves land, taking the subsidy with them, landlords are left with 'naked acres' - land stripped of subsidy, which is less valuable to them as a rentable asset.

The impact of the Single Payment Scheme Entitlement is currently having little effect on capital land values as lack of supply and the continued demand from non - farmer 'lifestyle' buyers is keeping the market at an all time high.

RICS rural market spokesman, Hugh Fell who chairs a panel of rural chartered surveyors who have looked at this issue, says:

'It used to be that a farmer who grew an acre of cereal on arable land was eligible for a subsidy. In the future their entitlement to subsidy will be divorced from the land and attached to the person or company, which we expect to have a significant impact on rental values.



Capital values

· The availability or otherwise of SPS entitlement is having a remarkably small impact on values.  The stronger force of lack of supply is maintaining values to a higher level than would otherwise have been expected
· From May 2005 onwards the market will treat land and SPS entitlement as two separately tradeable commodities
· The availability of entitlement to purchase alongside land will be less important on high quality vegetable cropping soils and in the lifestyle market
· The availability of entitlement will be an important factor on commercial cereal land and large scale grassland areas
· Trying to work out the capital value of the SPS entitlement will be complex.  There will be 7 types of entitlement and in the early years the extent of the historic payment will dramatically affect the value of an
individual entitlement, particularly where it cross references back to livestock production

Rental values

Agricultural Holdings Act 1986

· It is not anticipated that there will be any short term impact on AHA 86 tenancies due to general inactivity as a result of the "wait and see" syndrome

Farm Business Tenancies

· FBT rentals on cereal land have fallen although the difficult trading conditions have also been a contributory factor
· Prospective tenants will be extremely cautious on short term FBTs in order to avoid diluting the historic element of their entitlement
· A different market will evolve from May 2005 onwards once entitlements have been registered
· The rental value will depend upon contractual terms particularly relating to the length of the tenancy and the ability or otherwise to obtain compensation for the entitlement upon termination
· It is anticipated that the rental value of grassland outside the main livestock producing areas may, in the short term, fall and in some cases become negative because of the requirement to comply with existing
environmental schemes and GAEC
· The market will increasingly reflect the underlying productivity of the land and the presence of commercial farmers in a locality.  If the entitlement is included within the tenancy then this will be directly reflected in the rental and could be separately identified

         
About RICS

RICS is the mark of property professionalism worldwide. It covers all aspects of real estate, property, construction and associated environmental issues. RICS has 110,000 members globally and represents, regulates and promotes the work of property professionals throughout 120 countries.

(7/12/04)