Irish Agricultural Land Market Review

Transcription

1 Irish Agricultural Land Market Review Q Irish Agricultural Land Market Review 1

2 2 Irish Agricultural Land Market Review

3 Irish Agricultural Land Market Review All Farmland Prices in the Irish agricultural land market continued on an upward trajectory in the first half of 2015, however, the pace of growth moderated. According to the Sherry FitzGerald Land Price Index, the average value of all farmland nationwide stood at approximately 9,770 per acre at the end of the second quarter, declining marginally by 0.5% in the three month period. However, this followed growth of 1% in the first quarter, bringing overall growth in the year to date to 0.5%. Interestingly, values also fell modestly in the second quarter last year, perhaps a reflection of a seasonal quarter two trend. Meanwhile, growth in agricultural land values in the twelve months to June 2015 stood at 1.9%. More specifically, lands in the west of Ireland experienced the strongest level of price growth Price in quarter two. The West region grew by 1.6% in inflation the second quarter, bringing growth in the year maintained in to date to 2.8%, while the South-West region the Irish farmland experienced growth of 0.6% in the quarter and market in first 0.9% in the year to date. The average value of half of 2015 farmland in the South-West stood at 10,650 per acre at the end of quarter two, up 3.8% on the corresponding period in Land values in the Midlands region improved also, rising by 0.7% in the three month period, however, this growth stems from a significant rise in marginal grassland prices in the region, which grew by 4.9% in the quarter, albeit from a low base. Overall growth in the Midlands in the twelve months to June stood at 2.8%. All Farmland - Price Performance Meanwhile, the Mid-East region experienced the largest fall in agricultural land values this year, declining by 2.2% in the quarter and recording a year on year fall of 1.5%. Moreover, the South-East and Border regions also experienced marginal falls in agricultural land values in the quarter, down 0.7% and 1.5% respectively. That said, on an annual basis, the South-East is the strongest performing region, up 3.9% in the twelve month period. Dublin remains the region with the highest average value of agricultural land and remained stable in the quarter at approximately 12,650 per acre. Furthermore, it is important to note that while pure agricultural land sales in the Dublin region remain relatively stable at present, activity is likely to rise in the year ahead for agricultural land with development potential leading to upward price inflation and a resultant aboveaverage price per acre. Source: Sherry FitzGerald Research It appears that demand for all types of land was slightly back this quarter. Following solid growth in the opening quarter for prime arable land and prime grassland, price performance was slow in the three months to June. For marginal grassland values, the overall trend remains relatively stable. It is worth noting that results are similar to that of the same quarter last year. Irish Agricultural Land Market Review 3

4 Irish Agricultural Land Market Review Prime Arable Land Despite a modest reduction in prime arable land values in the second quarter of 2015, prices rose by 0.8% in the six month period to June and by 1.9% year on year. This brings the average price of prime arable land in Ireland to approximately 11,650 per acre. When examining the regional breakdown, the West region had the largest increase in prime arable land values in the quarter, up 2.1%, followed by the South-West, up 0.7%. This brings annual growth to 2.6% and 4.0% in these locations respectively. In contrast, following a year of steady growth in 2014 in the Mid-East for prime arable land with values rising by 5.3% in the year, prices have dropped back in the opening half of 2015, with a decline of 2.5% recorded in the six month period driven primarily by land price falls in Co. Meath. Grassland While the average value of mainstream grassland in Ireland fell slightly by 0.6% in second quarter of the year, the figure was 2.0% higher on an annual basis, rising to almost 11,000 per acre from 10,750 per acre recorded at the same period last year. Marginal Grassland A stabilisation in marginal grassland prices nationwide has materialised over the past year, with the average price per acre standing at approximately 6,700, a reflection of a more temperate demand compared to the better quality grassland. However, a mixed performance is taking place across the regions, with price falls in some regions counteracting price inflation in others. On the one hand, marginal grassland in the Midlands region is up 5.3% on an annual basis, and is the main driver of any rise in marginal grassland values at present, while in the Border region, the average price per acre is down by 3.7% annually. That said, the latter could perhaps be a reflection of dampening prices in the location in general, rather than specifically in marginal land. A more moderate growth rate was witnessed in the South-West, up 0.7% in the quarter and 2.1% year on year. It is noteworthy that mainstream grassland is the only land type in which Dublin is not the most expensive location; land prices in the South-West have risen above the Capital in the past six months with the average price per acre standing at approximately 12,300. This figure represents a 0.4% rise in the quarter and growth in the twelve months to June 2015 of 4.6%. Similar to other land types, grassland in the West region performed well, with values rising by 1.7% in the quarter and by a notable 5.5% year on year. The Midlands and South-East regions also performed strongly in the twelve months to June Grassland - Price Per Acre 4 Irish Agricultural Land Market Review Source: Sherry FitzGerald Research

5 Land Values - Price Per Acre Source: Sherry FitzGerald Research Large parcels - Residential & Non-Residential Anecdotal evidence would suggest that large parcels of 100+ acres of land appear to be the strongest in demand at present, particularly in the West region; the value of said parcel in the West which includes a residence increased by 4.9% in the quarter, while the same parcel without a house increased by 5.9% in the three month period. That said, the West continues to be the region with the lowest average value of farmland nationwide, while Dublin remains the most expensive. The same parcel of 100+ acres, both including and excluding a residence, remained relatively stable in all other regions in the quarter, with only modest declines in such locations as the Border and the Mid-East. That said, strong growth throughout 2014 in the Mid-East has resulted in year on year growth of 3-4% for both residential and non-residential parcels of land. Irish Agricultural Land Market Review 5

6 Irish Agricultural Land Market Review Supply Levels The results from the quarterly Sherry FitzGerald sentiment survey for the three month period to June 2015 revealed that activity levels in the agricultural land market remained stable in the quarter according to 54% of respondents. A further 26% said activity had increased while the remaining 20% reported a decrease - a notable change from just 8% of respondents last quarter who reported a decrease in activity levels, and perhaps goes somewhat towards explaining the dip in prices, as demand appears to have tapered in the quarter. Meanwhile, buyer sentiment in the land market appears to have contracted, with just 35% of responding agents reporting an increase in buyer sentiment compared with almost half of those surveyed last quarter, whereas 52% said that sentiment remained stable in the three months to June When commenting on land supply levels, the majority of respondents, 61%, believed that supply levels stabilised in quarter two with very little additional land coming to the market. A further 22% described the market as having decreased supply levels, however, the remaining 17% reported an increase. There may be myriad of reasons for this slowdown in activity and sentiment levels in quarter two. These could include the seasonality effect of the market and a further drop in milk prices of almost 24% in the year to May 2015, according to the CSO, which leads to a fall in dairy margins. However, subsidies by dairy processors and a weaker euro to keep Irish exports competitive could offset, or at least minimise, the effect of such milk price falls. That said, it is worth noting that the largest of milk processors in Ireland reported that milk supplies were up significantly by almost 18% in the year to June, according to a survey by the Irish Farmers Journal. This combined with good weather and exceptional grazing conditions brings confidence to the dairy industry. However, it s still very unclear how much milk production will increase in 2015 as a result of the abolishment of milk quotas. Moreover, perhaps a lack of available finance due to a combination of ongoing lending restrictions and difficulties in trying to secure loan approval within a short space of time could further hamper the demand for land. That said, it is envisaged that up to 200 million worth of affordable loans will be made available to Irish farmers through the Rural Development Programme (RDP) and the European Investment Bank (EIB) in the autumn which could enhance the confidence of buyers with regard to purchasing extra land. Outlook While steadily improving, the agricultural land market in the three months to June failed to gather the same speed witnessed in the opening quarter. Furthermore, a clear variation between the regions for land prices is visible, with the West, South-West and Midlands regions being the strongest performers in the second quarter. It is possible that the slowdown in agricultural land price growth may be a temporary glitch in an otherwise generally improving market. Anecdotal evidence of a positive industry points to land price inflation in the latter half of 2015, albeit moderate, as farmers remain cautious and super levy payments fall due in September. It is difficult to predict the market for agricultural land for the remainder of the year. On the one hand, there does appear to be confidence amongst farmers, and a reformed CAP (Common Agricultural Policy) with many encouraging incentives combined with a strong performing year 2014 means that the outlook for farming is positive. However, there is no doubt that short-term volatility is still evident in terms of prices and overall activity levels, and the immediate outlook is somewhat uncertain. Following steady price performance in the opening quarter of the year, overall farmland values grew by approximately 2% over the twelve month period. That said, quarterly fluctuations are still evident. David Ashmore Director, Head of Country Homes, Farms and Estates, Sherry FitzGerald 6 Irish Agricultural Land Market Review

7 Market Definitions CSO Nuts 3 Statistical Regions Border Region West Region Midlands Region Mid-East Region Dublin Region South-East Region South-West Region Mid-West Region Cavan, Donegal, Leitrim, Louth, Monaghan, Sligo Galway, Mayo, Roscommon Laois, Longford, Offaly, Westmeath Kildare, Meath, Wicklow Dublin County Carlow, Kilkenny, South Tipperary, Waterford, Wexford Cork, Kerry Clare, Limerick, North Tipperary Methodology A total of 53 Sherry FitzGerald Countrywide members provided values for different farmland types, namely Prime Arable Cropping Land, Mainstream Grassland, Marginal Grassland and Mature Forestry. These values were based on actual sales, or likely achievable sales, in their area in the given quarter. The standardised price for each land type is based on the average price for the base period, Quarter The sample residential farm consists of a parcel comprising 100+ acres which includes a 3,500 sq ft residential property. Land Types For the purpose of this report, land defined as all farmland combines the activity of prime arable land, mainstream grassland and marginal grassland. Prime Arable Land - High quality lands suited to tillage or dairying. Mainstream Grassland - High quality permanent pasture. Marginal Grassland - Summer grazing quality or poor quality grassland. Irish Agricultural Land Market Review 7

8 CONTACT Marian Finnegan Chief Economist, Director Research +353 (0) marian.finnegan@sherryfitz.ie Deirdre O Reilly Researcher +353 (0) deirdre.oreilly@sherryfitz.ie David ashmore Head of Country Homes & Estates +353 (0) david.ashmore@sherryfitz.ie 2015 sherryfitz.ie dtz.ie This report should not be relied upon as a basis for entering transactionswithout seeking specific, qualified, professional advice. It is intended as a general guide only. This report has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While reasonable care has been taken in the preparation of the report, neither Sherry FitzGerald nor any of directors, employees or affiliates guarantees the accuracy or completeness of the information contained in the report. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. No warranty or representation, express or implied, is or will be provided by Sherry FitzGerald, its directors, employees or affiliates, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based. Information contained in this report should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to Sherry FitzGerald.