How will Covid-19 impact upon land sales and prices?
The coronavirus (Covid-19) pandemic is covering the globe and creating considerable market volatility across all sectors including agriculture. How this will impact on land sales and prices is a key question for everyone involved in the business.
Following on from this, in a statement to AgriLand, Clive Kavanagh of Jordan Auctioneers discussed the potential impact Covid-19 will have on the agricultural land market.
According to Clive: “It seems only a brief time has passed since we were reviewing the land market in 2019 and venturing our opinions as to how it would develop in 2020.Also Read: Average price of an acre without a residence nationally in 2019 was €8,823 – report
“Within the space of a short time period all past analysis and projections now seem largely irrelevant, or are they?”
‘Lengthen the traditional selling season’
Usually at this time of the year there is a noticeable pickup in properties offered for sale, particularly farms and country properties.
Spring and early summer is generally one of the most strategic times to bring such assets to the market taking advantage of the longer evenings, improvement in ground conditions and a more general upbeat mood after a long winter.
It is the opinion of Jordan Auctioneers that if by the end of May business activity is up and running, then that will enable plans to be made for a sale this year. Furthermore, it may in effect “lengthen the traditional selling season due to a later-than-normal commencement of advertising”.
Once the matter of timing is clearer, the next key question is where values stand and what demand will be like.
With regards to the current market, Clive commented on this, saying: “There is no doubt that the economy is going to take a hit; returns from different farming enterprises have been affected due to decreased demand and confidence is generally shaken, but the land market has been relatively stable over the last decade.”
Factors impacting land prices
There is little doubt that the economic climate has some impact on general land prices and sales, but “our experience has shown that this is minimal and far different to those at force within other segments of the property market”, said Clive in a statement.
Land trades off factors outside those of value and return which keeps it at a base level. Below is an outline of what these briefly include.
A tiny percentage of land is sold each year (0.5% of the total land area). This scarcity means the opportunity for many farmers to buy land comes only once a lifetime and therefore the question is not what the land is worth but what they can afford to pay.
Emotion regardless of economic factors
Emotions run strong in Ireland’s farming community when it comes to land purchase and, in many situations, it is seen as an heirloom – not an asset to be sold with no particular focus on return but rather a view that “it will make the farm up in time if it can be purchased now”.
With the increased demand for forestry land and operators generally paying a base price of €3,000-4,000/ac for suitable holdings, this has in effect created a floor on land values.
Due to the fragmented nature of many holdings in Ireland, when good-quality land is offered for sale adjacent to a farmer who has ambitions to expand, they will generally try everything within their powers to purchase same.
This is particularity so for those in the dairy business where additional land adjacent to the main yard or milking platform is generally of increased value. In some instances, they may dispose of an out-farm to facilitate the purchase.
Safe place for money
Land is a finite resource and unlike other investment products cannot be wiped out by external factors such as those we have suddenly experienced. This will mean that it will “continue to be perceived as a safe haven for money even if the return is minimal”.
There will be headlines over the next few months of properties not being sold or withdrawn at auction, but every year that is the situation with a certain volume of stock and, while it may feed into a certain newsfeed, all decisions will need to be carefully made with proper advice.
According to Clive: “It is our opinion that values will generally remain at a relatively stable level throughout 2020.
Some vendors will hold off selling due to lack of market confidence and that will further reduce supply and result in good prices for those that are offered for sale. A key issue will be access to finance and the various lending institutions remaining active.
“Agricultural land in Ireland will always be traded and in demand due to our emotional affiliation and inbuilt desire to acquire it.Also Read: Farm sale: ‘Investing in land is still a sure bet…in these uncertain times’
“Farmers remain hugely ambitious to make ventures viable and to expand their enterprises where possible and the famous line of ‘they can’t make any more of it’ springs to mind as we wait with bated breath to see how the year develops,” Clive concluded.