Farm Ireland
Independent.ie

Thursday 8 December 2016

Opportunities are there if we want to invest

Joe Barry

Published 09/02/2010 | 05:00

According to a recent report, the price of farmland has fallen by 50pc on average. Given the small numbers of sales, it is, of course, very difficult to find a true average and this can be distorted by factors such as location, quality of soil, road frontage and buildings. One thing is clear, however, the silly prices we saw two years ago are long gone and will not return in the foreseeable future.

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When land last became the target of speculation in the 1970s, it rose from an average of £700/ac to a peak of around £3,000/ac, and a few choice properties made in excess of £4,500/ac. I remember one farm that was sold in the mid-1970s for £2,600/ac and was re-bought by the original vendor a few years later for £750/ac. That was perhaps exceptional, but clearly shows how land had become over-valued and how far it then fell in price once reality kicked in.

The situation then was in many ways similar to today but with one big difference. Inflation in the late 1970s was rampant and overdraft and term loan interest rates exceeded 20pc in the 1980s.

These historically high rates then continued after inflation began to fall and placed a huge burden on all borrowers. Land did not begin to recover in price until the late 1990s, a gap of 20 years. Poorer land in isolated areas could be bought for a few hundred euros an acre in the mid-1990s, but the introduction and improvements of the afforestation schemes then raised prices rapidly.

There is little point in discussing house prices here because the statistics seem to indicate higher prices than are actually obtained, and estate agents and homeowners are reluctant to divulge the final price for private house sales. It is also hard to place a value on a house in a rural location if it does not have an immediate use as a rental property, and while rental values continue to decline, one cannot put a floor on it just yet.

All of the above makes for very gloomy reading, but surely it also represents an opportunity for people who may have savings to invest or who are still on good terms with their banks and are keen to work.

During an economic boom the majority of property owners do not sell. Because their farms and homes are worth inflated prices they feel they themselves are wealthy and are therefore inclined to spend more rather than save. It is a strange form of behaviour and highlights our tendency to follow the herd.

When times are good and property is costly we try to buy it, regardless of the real income that can be earned from it, and when the reverse occurs we try to sell. I recall four years ago being criticised for suggesting that it might be prudent for landowners to sell off unused old buildings or small sections of outlying land and thereby reducing or maybe eliminating borrowings while the chance was there. Few took this option and now there are for sale signs everywhere.

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In other European nations, such as France and Britain, farmland tends to remain available at a relatively low cost, perhaps because of a more realistic appraisal of its worth. Now that land, housing and commercial property are returning to somewhere closer to their real values we should be looking for the bargains that will undoubtedly appear.

People looking for accommodation can rent or buy for far less than was the case during the boom. Land and commercial premises can also be rented at a substantial reduction on former rates. This situation provides possibilities for new enterprises or for the expansion of existing ones.

Several farmers own woodland that they are not interested in managing or are unable to do so. There must be plenty of young people with drive and enthusiasm who would love the opportunity of leasing it on a long-term basis.

If given access and security of tenure they could invest and produce wood fuel, stakes and other saleable products while ensuring the long-term viability of the woods and providing a rental income or a share in the profits for the owner.

The lives of people like Rex Patterson, who started with nothing in the 1920s and built up a farming empire over a few decades, are well worth studying. Because of the depressed values of the times they farmed in they were able to rent land cheaply and build hugely successful careers in farming. They did so when credit was virtually unobtainable yet they managed to prosper.

Credit is tight right now but, if you can get it, interest rates are extremely low. The opportunities are under our noses if we can just stop complaining and go look for them.

Irish Independent



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