Farm Ireland

Saturday 24 February 2018

Buying land is in our blood but more is at play in market surge

Agricultural consultant, Mike Brady.
Agricultural consultant, Mike Brady.
Mike Brady

Mike Brady

Historically, Irish people have had an interesting relationship with land.

The latest survey of land sold by public auction in the State shows a whopping 32pc increase in the price paid per acre of land in the first six months of 2017.

The average price paid nationally in the period was €11,123 per acre – but why has the price of land risen and who is buying?

The first reason for the increase is supply and demand – as the quantity of land offered for sale continues to fall.

There was a 48pc decrease in the number of acres sold by auction in the first six months of 2017 when compared to 2015.

In Ireland, an acre of land comes for sale once in every 400 years, therefore care is needed when analysing land sale surveys as once-in-a-lifetime opportunities are grabbed by those with deep pockets, or those years in waiting, which can significantly increase or decrease average prices.

The boom in dairy farming since the removal of milk quotas, and the significant recovery in milk prices this year, has certainly made the dairy farmer more competitive in the market.

However, a lot of their cash is being invested in facilities such as new milking parlours, livestock housing and pollution control – therefore their ability to buy land is often overstated.

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Dairy farmers will pull out all the stops to buy land adjoining the home farm, or in the grazing platform, as it is known in the industry.

This is the land they make most money from as it allows them to milk more cows and feed the cheapest feed, grazed grass.

Dairy farmers are certainly active in the market when such opportunities arise.

Another factor is that the hobby farmer is back purchasing, particularly for smaller parcels of land.

As the economy recovers, there will inevitably be those who make money.

It is a very Irish trait to demonstrate your wealth by buying a piece of land, whether it is to build the dream home, have sites for the family, keep horses for the children, speculate on future development or simply to hobby farm.

The non-farmer is certainly a factor in the land price increase.

Land is an excellent vehicle to transfer wealth to the next generation, capital acquisition tax (CAT) reliefs such as agricultural relief and business asset relief allow the value of land to be reduced to 10pc of its value for taxation purposes. So a farm of €1m is reduced to €100,000 for taxation purposes if the transferee qualifies for these reliefs.

The taxation threshold for a son or daughter is €310,000, therefore by transferring €1m worth of land instead of cash, a potential CAT bill of €227,000 is reduced to zero.

This brings cash-rich buyers to the land market who would otherwise not be there.

Finally, cash windfalls from the sale of development land and the compulsory purchase of land had a big influence on land values during the boom years of 2000-2006.

This has not happened again, as the recovery is only gathering pace – however there is some evidence of speculative purchases around major towns and cities which will increase the price paid.

Having had a period of relatively stable land prices since 2009, it may be that we are in for another period of land price inflation.

But the Irish psyche with respect to land will ensure land price is never easy to predict.

Mike Brady is an agricultural consultant and land agent at Brady Group. He works with farmers and landowners nationwide.

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