Value in agricultural land

Hi,

Hope this is the appropriate forum for this question as it doesnt really sit under "property investment".
A substantial amount of Agricultural land has come up for sale very near where I live and I've been being trying to decide whether or not it would be a good investment. Im hoping to get some pointers around how I go about determing the true value of this land and what would make it a good investment. Consensus opinion is that land is over valued at the moment but it still seems to be selling so somebody see's value in it.

Im not a farmer myself so I wouldnt be farming it, I would either rent it out or have a relative farm it (the details of that agreement Id have to figure out). Im from a farming background so I wouldnt rule out the possibiity that I could farm it some day on a part time basis. WRT to the possibility using some of the land for house sites I wouldnt see it as an immediate possibility but I guess planning policy is fickle and may change at some point in the future. I dont know how much the land will be selling for or what rent you could get for it but I suspect the rent wont cover the repayments on the loan.

Also I have a broader query around what the future holds for land use in this country. Small to medium size farmers are completely dependent on EU payments (and has been for a long time), money made from actual farming activities would not cover the mimimum wage, and these EU payments may not go on forever. What happens then. Will we see a situation where only superfarms (for arguments sake the size of a smaller parishes) are sustainable and smaller farmers sell out. What does this future mean for current land values?

Anyway any pointers you could give me around this are would help. Ignore for now whether this is a
suitable investment for me personally, Im more interested in the criteria that would be used to make such a decision.

Cheers,
Warren

Warren said:

Hope this is the appropriate forum for this question as it doesnt really sit under "property investment".

Click to expand...

Land investment is close enough to property investment so I have moved the thread.

in my experience development land values are going down but agri land is still going up.

If you can readily let it out and that will cover your holding costs then I would say that its a good investment

ydontu said:

in my experience development land values are going down but agri land is still going up.

If you can readily let it out and that will cover your holding costs then I would say that its a good investment

Click to expand...

Can you elaborate on that ydontu?

Are you saying that agricultural land is a good investment purely because it is bucking property-value trends at the moment, or are you aware of another reason?

There is no way that the money recieved for rental will cover the repayment costs eg. 20 acres €400000 repayments 50k/year over 20 years, rent €200/acre= €4000/year. Did you ever think of investing in land in USA or Canada? land is cheap there at the moment €1250/acre.

the consensus is that irish farmland is overvalued and has been for quite some time, the valuations were driven by the property market which saw ireland having the most expensive farmland in europe, not for its agriultural potential but because of its development potential, farmland values have gone down over the last year but it has not been hit to the same extent as housing, you said yourself that a substantial amount of land has come on the market near you, this is a nationwide trend an awful lot of land has now come on the market because people sense that land is going to fall, during the boom very little came on the market because of its rising value people preferred to sit on it, the clever farmers have been buying land in england which did not rise until recently due to the fact that planning in britain is strict therefore its value was based purely on its agricultural potential, due to the rising cost of food farmland in britain hass risen considerably over the last year, as for canada or US, you need to be a farmer and migrate there before you can buy farmland there, in fact most countries restrict buying of farmland by foreigners

you might be better off investing in agriculture companies, as always in farming farmers have very little producer power, therefore as soon as money comes into the sector the big agricultural multinationals raise their profits and margins, the prices of all farming inputs have rocketed in the last year, it is the fertiliser and pesticide companies like monsanto and bayer that make the money, it is also astonishing that some of the biggest agricultural companies in the world like cargill in the US are actually private and not publicly quoted companies, these companies have enormous power and have very little competition

Long term view-

There is one major difference between farmland and development property: no-one is making any more of it (Ok.. I know the Dutch did it...), and if predictions for sea levels turn out to be true, there'll be less of it.

Add ever increasing suburbs (long-term), new roads, latest EU/Dept Agriculture directives curtailing fertiliser use (and therefore output per acre), ongoing coastal erosion, and a rising global population with a healthy appetite. The laws of supply and demand will be very much in operation in this case.

In my view, if you're thinking long-term, and can afford to buy it and sit on it, it's a very good investment. The question is, as always, "Is now the right time to buy?"

In the interest of fair play, I will point out that I am a farmer and therefore own land, so it's in my interest to see values rise. But... that's my honest opinion.

To begin to answer that question I think you need to look at the current yield that the investment will produce.

From what I have own investigation agricultural land is yielding less than 1% so to be it sounds like one of the worst possible investments out there.
A low initial yield, very little if any chance of increased revenue meaning the only way yields can return to "normal levels" is through significant capital depreciation.
Not an investment I would pick but I could be very wrong