In this article, we examine the changing opportunities offered by land ownership and assess:
- the different types of land that a buyer may be interested in, including arable land, pasture land and development land
- the rural outlook
- who is buying land
- what to bear in mind when considering a purchase
To find out more about land as a property type, dive in!
Diverse opportunities
Land ownership offers an increasing range of options and a widening spectrum of people are interested in making such a purchase. While the majority of farmland sales are still made to farmers, non-farming buyers are seeking land for a variety of reasons including forestry, the implementation of environmental conservation schemes, enjoyment of outdoor space, lifestyle and of course, privacy.
Development land is also in the spotlight due to the number of houses which need to be built to meet government targets. Alongside these reasons exists an elemental desire in many people to own land for its own sake; the attributes of permanence and tangibility along with the feeling that it a safer option than investing in potentially riskier stock market investments is a strong driver for many purchasers.
Land comes in many different categories, including:
- Land with outline planning consent or full planning permission granted for residential purposes, which obviously commands some of the highest prices.
- Land without planning permission but with `hope value,’ being located in an area which may be expected to get future planning consent.
- Land zoned for likely development; this may be subject to option and promotion agreements which will be exercised when planning permission is achieved.
Alongside these, the nature of sites can vary and include:
- Developed land or brownfield sites occupied by former industrial buildings, which may include land ripe for alternative uses, depending on the circumstances and location.
- Town centre sites that may benefit from specific rules allowing retail and commercial premises which are no longer operating to be changed into residential sites.
- Strategic sites near to improved transport links may attract investment for commercial or logistical reasons.
- Agricultural land; the price range varies according to its potential use, location and quality; any bare land purchased may involve a variety of checks including tree and habitat assessments.
- Woodland and forestry sites. The appetite for land with forestry is currently exceeding supply; forests and woodland for sale are selling above asking prices. Trees are high on the environmental agenda in terms of sustainability and there is a high demand for timber. Corporations are showing interest in buying forests to help them reach carbon negativity targets and there are attractive tax advantages in ownership.
- Building plots which can vary in price according to location, size and desirability and are especially attractive to self-builders and small developers.
The rural outlook
The UK countryside is undergoing significant changes and financial support for rural landowners is also altering. The Basic Payment Scheme is reducing the payments made to farmers between the 2021-2024 term and it remains to be seen whether this will affect their appetite for land purchase. Environmental Land Management (ELM) schemes are to be introduced, offering rewards for benefiting species conservation and the landscape, reducing the focus on maximising production from farmland.
The Government intends to make the concept of `public money for public goods’ a reality through ELM schemes aimed at improving air, water and habitat quality, alongside greater access to the countryside. Increasing environmental concerns are demanding changes aimed at a commitment to reaching net zero emissions by 2050 at the latest.
The market for farmland
Following 2020 which saw a lack of land coming for sale due to Covid-19, the market has picked up, with values holding steady. According to The Farmers’ Weekly land tracker, acreage on the farmland open market is 76% up on the same period last year; 2020’s acreage for sale was 65% lower than in 2019. The supply peaked in early May 2021 when it was up by 370% on 2020, but the amount of land currently on the market remains around the average for the last five years.
There are high levels of interest for efficient farms in the country’s more desirable locations including Northern Ireland, and for farms offering diversified assets or Natural Capital opportunities. While the market is still adjusting from Brexit, there is interest in every region and more viewings are taking place per property due to the pent-up demand.
Knight Frank’s Farmland Index shows average values remained flat for the past year at just under £7,000 an acre but prices for bare land rose by 2% in the second quarter of 2021, to reach an average of £7,065 per acre, being the first increase recorded by the index over the past five years. The rise in value is created by a combination of low supply and strong demand.
New buyers include those interested in rewilding schemes, regenerative agriculture, carbon credits and renewable energy schemes and there is also interest from institutional buyers; however, the slow growth of carbon trading schemes to date in the UK means that it is early days for this market. There is also keen interest from buyers looking to roll-over their potential liability for Capital Gains Tax following the disposal of other land destined for development. Strong commodity prices for livestock and arable have tempered concerns created by Brexit, at least until the ELM scheme details are clarified.
The market for development land
The first quarter of 2021 saw a shortage of residential development land with strong demand leading to price increases. However, fewer houses were built in this period and still more sites are needed to come to market. The current signs of economic recovery and a strong housing market are encouraging to developers along with increased investment in the Government-backed Build to Rent scheme, all resulting in increased demand for development land. According to land and property consultant Savills, house prices are expected to grow by 5% in 2022.
The next round of Homes England’s strategic partnerships is set to further fuel the demand for land: around £7bn in funding is available to support 130,000 new homes outside London between 2021-2026.
Strong demand
Richard Saunders, managing director of land agency services Land Rich, commented that land market activity has been buoyant, mirror-imaging the construction and property markets. He commented:
“Activity has been driven by successful sales of new homes, fired by the Stamp Duty holiday and competitive tension in turn allowing developers to move onto new projects within a shorter timescale, enhancing cashflow situations, thus intensifying demand.”
“Although new homes values have risen, land values did not see a substantial, confident increase. Due to building material shortages and general build cost increases (including labour) it has not allowed land prices to increase as much as growing gross development values would have indicated. Another contributor to limited growth on land values has been build contingency budgets, which have been raised from 5% to 10% if using developer finance.”
“Grade ‘A’ sites (normally 50 units and above) in premium locations result in buyers being willing to pay a premium even during uncertain times, which is what has been evident during the last year. Sites held up in planning have also resulted in a shortage of land, creating further demand. Taking into consideration all contributory factors (such as material and labour costs), lack of readily available sites has kept land prices fairly grounded. A typical planning decision is made within 8-13 weeks in normal circumstances, however, recently we have seen examples taking in excess of 50 weeks and counting.”
Mr Saunders added that the future land market is currently uncertain; a surge of sites may come onto the market once they receive planning consent, which will advantage buyers rather than sellers, and once the global situation stabilises, land values could grow as gross development values should maintain gradual increases and building costs steadily plateau.
Who is buying land?
The move to remote working brought about by the pandemic, along with an increased appreciation of outdoor space, mean that a rural lifestyle has become desirable and achievable for more people. The number of roll-over buyers who make effective use of Capital Gains Tax relief by buying farmland after selling land for development, is set to increase as development levels expand in line with Government house-building targets.
The potential for farmland to play a role in addressing the climate and biodiversity crises is leading to interest from buyers attracted by Natural Capital based schemes such as carbon sequestration; developers and major industries having to neutralise their carbon footprint may also be obliged to take up Biodiversity Net Gain opportunities.
Private off-market sales are continuing and are common between farmers, offering the advantage of discretion, saving money and time. Other buyers include speculative investors buying for the next generation and creating an income from the land; those buying to take advantage of current benevolent reliefs regarding IHT when land is used in a certain manner; those wanting to use land for business and private purpose combined; and those with cash or the borrowing capacity who can make a financial assessment to make the purchase viable.
When buying land, consider:
- Getting professional advice from legal, accounting and other related specialists. For ecological surveys such as tree or protected species reports, contact the specialist consultants at https://arbtech.co.uk/contact-us/
- Matters which may blight or influence its value or attractiveness, e.g., nearby developed land, road schemes, HS2, areas of local pollution.
- Opportunities for agri-support schemes.
- Rights of Way, footpaths or easements over the land.
- Entitlements attached to the land.
- Environmental designations such as Site of Special Scientific Interest or Area of Outstanding Natural Beauty.
- Restrictive covenants or legal restrictions.
- Overage, or claw-back arrangements with the previous owner relating to any increase in the land value through a future sale for development. Consider the term of any such agreement.
Finding land to purchase:
Land can be sold by private treaty, by informal tender or at a property auction by estate agents. Various types of land in a wide price range are advertised for sale on local estate agent’s and land agent’s websites. For a comprehensive UK listing of land for sale, visit https://addland.com/
References
Knight Frank. 2021. Residential development land index. Research Q2 2021. [Online]. Available from: https://content.knightfrank.com/research/161/documents/en/uk-res-dev-land-index-q2-2021-8300 (Accessed 23rd September 2021)
Farmers Weekly. 2021. Land markets. [Online]. Available from: https://www.fwi.co.uk/business/markets-and-trends/land-markets/7-things-we-know-about-the-2021-farmland-market (Accessed 8th October 2021)
Farmers Weekly. 2021. Markets and trends. [Online]. Available from: https://www.fwi.co.uk/business/markets-and-trends/land-markets/find-out-average-farmland-prices-where-you-live (Accessed 24th September 2021)
AHDB. 2012. Land and rent prices. [Online]. Available from: https://ahdb.org.uk/land-and-rent-prices (Accessed 24th September 2021)
Savills. 2012. Market in minutes: residential development land. Online. Available from: https://www.savills.co.uk/research_articles/229130/313444-0 (Accessed 23rd September 2021)
