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Demand for residential farmland plummeted in the second half of 2008, as life-style buyers all but disappeared, says RICS Rural Market Survey.

The net balance of Chartered Surveyors reporting a decrease in demand for residential farmland fell from - 3 percent to -64 percent in the second half of 2008. Demand has fallen drastically since last year when the net balance was a positive 50 percent. The net balance of surveyors expecting price rises in residential farmland fell from -25 percent to -79 percent. There is an expectation that lifestyle buyers will continue to retreat while the challenging financial climate persists.

However, demand in the commercial sector has fared better with the net balance falling slightly into negative territory. UK banks have become more willing to lend to the agricultural sector over the past year but anecdotal evidence suggests that both Danish and Irish investors have withdrawn from the market and a reversal in commodity prices have been a factor in the drop in demand.

The RICS opinion based measure for current farmland prices for bare land fell by five percent with the weighted average price falling from £12,965 per hectare to £12,336. Arable land fell by nine percent from £14,453 per hectare to £13,182, while the price of pasture land fell marginally from £11,477 per hectare to £11,490. However, the RICS transaction based measure for farmland prices (including residential farmland) suggests that the weighted average price rose from £15,825 per hectare to £16,318. Historically, the opinion based measure has tended to turn sooner than the transaction based measure, which exhibits a degree of inertia due to the time lags involved in the sale process.

Consequently, surveyors have turned pessimistic about the outlook for farmland prices. In the non-residential sector, 42 percent more Chartered Surveyors expect prices to fall rather than rise - the lowest recorded level since H1 2003. In the residential sector, the net balance reached the lowest level in the survey’s history with 79 percent more Chartered Surveyors expecting prices to fall.

RICS spokesperson, Sue Steer said:

“The downturn in the economy has made many from the financial services sector re-think their
life-style priorities, putting an end to city expansion into rural areas. Prices for farmland peaked in the first half of 2008 and lower commodity prices and an uncertain financial climate could push prices lower in the first half of 2009.”