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British land prices drop 2.6pc

The price of farmland in Britain has fallen by 2.6pc in the first quarter of 2009, as the downturn on commodity prices hits the market.

However, a study by leading British estate agents Knight Frank shows the rate of decline has slowed significantly since the final three months of 2008 when values dropped by 5.2pc.

The company's Farmland Index puts the average price of English farmland at £4,673/ac (€5,311/ac).

Values have now fallen in three consecutive quarters, the first time since 2000.

But Knight Frank's head of rural land research Andrew Shirley said the slide needed to be put into context.

Prices are still up slightly on an annual basis (1.1pc) following exceptionally strong growth in the first half of 2008 and the agricultural land market remains more resilient than other property sectors.

Average farmhouse values, for example, have fallen by almost 20pc in the same period.

In fact, Mr Shirley says the farmland market is quite strong, despite commodity prices halving and lifestyle and investor buyers fleeing the market.

The volume of farmland advertised in the UK dropped by one-third in the first quarter.

Mr Shirley predicts forced farm sales this year. "These will mainly be farming businesses that have over-extended themselves by diversifying outside core agriculture. The majority of farmers are well used to weathering periods of poor prices and there is unlikely to be a glut of land for sale this year," he says.

"Prices may weaken marginally next quarter, but investors, farmers and a small number of residential buyers will return to the market by the end of the year and this extra demand should ensure values level off again," he adds.

"If commodity markets improve, prices could start to rise again as early as the final quarter of this year."

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