Is Irish farmland overvalued?

J

joe sod

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Farmland in ireland has risen an awful lot in the last 10 years driven mainly i think by the property boom. The average price of farmland in ireland is now at least 16,000 euros an acre, the most expensive in europe. However farmland values wordwide have been rising since 2000 although at a much slower rate than ireland's, they now seem to be underpinned by rising commodities. If the housing bubble bursts and if there is a credit crunch do people think that this will cause farmland values in ireland to be adversely affected, or will they continue to be buoyed by rising farmland values worldwide and commodities, despite a potential bursting housing bubble.
 
Re: is irish farmland overvalued

I think that it is ridiculous what people are prepared to pay for land in Ireland if you look at farms as a business. The people buying are mostly looking at it differently and just want land at any price. I would not expect to see it come down because anyone who wants to get out will have done so while the going was good and the rest will not care what the value is because they have made a fortune selling their little farm to the developers before buying this one.
 
Re: is Irish farmland overvalued

The value of farmland in Ireland has a lot to do with 'hope value' in relation to alternative use; i.e. residential. Rental yields are poor for agricultural land maybe someone in the industry can provide an idea of the average rental achievable per acre. Farmland in the UK is half the price of that in Ireland, due in the main to the absence of hope value.
 
There is a lot of distortion in these numbers.

For instance, some speculators / investors are buying potential development land or residential houses but calling them farm land to avoid stamp duty.

Under the young farmer scheme you can sign up for an approved 8 week course and then not have to pay stamp duty on a purchase. Then if you want to buy a house on say a 5 acre site you can call it a "small farm" and not pay any stamp duty. The scheme works for anyone under 35.

I'm not encouraging anyone to do this, nor am I saying it is legal, but I do know that it is happening.
 
John G,
This is legal under the 2006 finance bill. However you any land purchased using this exemption for young trained farmers must remain in your hands as agricultural land for a period of 5 years to avoid clawback of the stamp duty. This is quite a long time for those who are young trained farmers buying land with 'potential'. The (high) capital investment must be carried for that period by the (low) yearly farming returns. In my experience this scheme is used by farmers only. I am confident that, outside my experience, there may be those who qualify as
1/ young(under 35)
2/ Trained (180 hours)
3/ Farmers (qualify for herd number etc...)
who are also involved in property speculation in their own name, ie not through a limited company, who may benifit from the exemption. Good luck to them if that is their side-line, or indeed the very best of good luck if that is a main occupation as an unlimited sole trader. That exemption is designed for farmers to facilitate the handing on of farms from one generation to another and in most instances this is what it is used for.
 
Hi Beaky,

All I am saying is that it is easy to qualify as a young trained farmer (the 180 hours training can be covered in 8 weeks on a part-time basis). If the financial rewards are good then it is not a big sacrafice.

Then you can buy a €500k house on 5 acres, or a nice 20 acre field near the local village that may bacome very valuable in the next 5 years while paying no stamp duty.

Obviously this loop hole is only available to a minority. By the way - I understand the legimit use of this law for real young farmers. However I do think it should be limited to purchases for less than €5k per acre (or other reasonable level to prove that it is really for agri use)

John
 
JohnG said:
However I do think it should be limited to purchases for less than €5k per acre John
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Where can you get land for €5K per acre. I want some of that. Last I heard was that it is at €15K.
 
Forgot to mention, in order to qualify farming must be your principal occupation and spend 50% of working time farming the land. A 5 acre site cannot then qualify you as having a small farm unless you have virtually no other income. So I would have to disagree, its not that easy to qualify, unless of course you are in fact a young trained farmer.

The 5k limit would seem unrealistic. Agree 15k would be more normal agri-value. The proof of real agri use is the 5 year requirement befor no claw-back applies. Perhaps this should be lengthened if the purchase price was over 15k/ac but 'thems the rules' as they stand.
 
When browsing today I found that the average price of farmland sold in 2005 was nearly 25000 euros per acre. This is truly an astonishing figure. The rise in value is especially noticeable over the last few years. On the same site I found that the average price of farmland as recentely as 1999 was just 4000 pounds per acre. Does anyone expect a serious correction in farmlad values. It has risen more than houses.
 
The answer is simple land is going to get dearer because God is making no more of it.
 
That was also true 10 years ago but farmland in ireland and worldwide went into a slump in the eighties, farmland in ireland was alot cheaper in 1990 than it was in 1978. In the 70s farmland was driven by high commodity prices and big EU supports for agriculture. The question really is how much irish farmland prices are affected by the housing boom.
 
http://www.independent.ie/opinion/a...-the-irish-plantation-of-england-1053712.html

on the same topic david mcwilliams has an interesting article on it, basically he is saying irish farmland is 3 to 4 times more expensive than in britain due to its development potential, british farmland is zoned strictly agricultural and this is more or less set in stone. It will be interesting to see what changes the greens make as they are now over the environment portfolio. I read that they have already rescinded monaghan county councils rezonings.
 
Re: is Irish farmland overvalued

Duplex said:
The value of farmland in Ireland has a lot to do with 'hope value' in relation to alternative use; i.e. residential. Rental yields are poor for agricultural land maybe someone in the industry can provide an idea of the average rental achievable per acre. Farmland in the UK is half the price of that in Ireland, due in the main to the absence of hope value.
Click to expand...

This is true in many cases but it still does not explain why land with absolutely no development potential (eg landlocked farms with little or no road frontage) can still command serious prices. Read the Farming Indo each Tuesday and you will see plenty of examples of this.
 
I am involved in the agricultural industry both as a farmer and as an agricultural consultant.
Its a well understood fact by all farmers that the price of 'farmland' bears no relation to the potential income that can be derived from it by farming the land. This however does not stop farmers from buying it and paying on average last year almost €25,000 per acre.

In my opinion, the reasons for this are
  • There are an increasing number of part time farmers whose main income is derived from off-farm activities and these are then used to fund the purchase of land for what essentially has become a hobby for them i.e. the practice of farming
  • For those full-time farmers, the scale of the business has become critical in determining whether the farm is a viable business to be able to generate enough income to support a farmer and his family. There is an increasing need to increase scale i.e. more cows, more beef cattle, more acres of cereal crops and therefore more land is needed to run the business effectively. Thus whenever a parcel of land comes up alongside other existing farms there is normally a lot of interest.
  • The housing boom & infrastructure developments have driven some of the land-price inflation not really due to the amount of land that has been taken up with building but because whenever a farmer sells a site, land for development or land for road building he then has his hands on a substantial pot of money which he can then use to buy more land to expand his farming business. All you need is two farmers in this situation to bid on a piece of land and watch the price go skyward!
  • The amount of land changing hands every year is very small - only 0.5%. There may be many reasons for this but I think that in general Irish farmers do NOT like selling land but they have no problem in buying it! It could be back to the old Irish 'need' to own there own property.
  • There is a rental market for land but again prices of €150- €400 per acre are common depending on land quality and location ( loaction is important here - land for rent within 50 miles of big cities is often snapped up by vegetable growers to supply city population demands for veg).
  • Some of the existing schemes such as the REPS scheme (the Rural Environmental Protection Scheme) pay farmers a certain amount per acre to take initiatives to improve the farms environmental status - maintain hedges, wildlife habitats etc. While this is in no doubt important it encourages some farmers to hold onto land (ie not rent or indeed sell it) to avail of the REPS payment. This prevents other farmers who might want to avail of this land for production from getting access to it.
It's hard to see land falling in value by any substantial amount in the future. I don't think we'll see the same rapid rise we have seen but as long as the economy keeps ticking along OK I think the demand-supply factor (High demand and poor supply) will still keep land values high relative to farming returns.
 
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that was a very informative posting, i think in the next few years the planning system especially now that the greens are in power will be tightened up. Therefore money from selling land for housing will be alot less. I also agree that there probably wont be big drops in land prices because farmland unlike housing was not bought with big mortgages therefore it is alot less sensitive to interest rates. Farmland prices dropped in the 1980s due to the fact some farmers had borrowed alot in the 1970s to expand and were unable to service the debt in the 1980s.
 
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