Decisions regarding any type of land or real estate investment should always be based on extensive research. All investment opportunities attach risks, which must be carefully considered before going ahead.
Even so, investors occasionally find themselves presented with what appears to be a bullet-proof investment opportunity; the kind of investment that pretty much guarantees healthy returns and should be taken full advantage of as quickly as possible.
A current example of this is UK farmland. Considered by many to be one of the safest of all havens for investments right now, farmland has been a safe and secure bet for some time. Year-on-year yields for farmland investments tend to be relatively low, but the potential for long-term appreciation is huge.
In addition, investors who purchase farmland benefit from the kinds of attractive tax incentives that do not apply to most conventional investments.
All of which has resulted in a major spike in demand for agricultural land over recent years. Across England and Wales, the first quarter of 2022 brought the biggest year-on-year increase in demand since 2016. Importantly, the sector is showing no signs whatsoever of slowing down in the near future.
Why Invest In Farmland Now?
Rising demand has inevitably triggered price increases for available farmland. Even so, many established investors believe that there has never been a better time to invest in agricultural land in the UK.
Particularly as average bridging loans continue to hover at all-time lows, boosting the affordability of such investments.
Meanwhile, inflation continues to hover at its highest level in four decades, and chronic food shortages are contributing to the country’s unprecedented living-cost crisis.
The government is keen to see as much available UK farmland as possible put to the best possible use, which is one of the reasons why agricultural land is 100% exempt from inheritance tax.
In addition, it is also possible to benefit from capital gains tax relief when purchasing agricultural land, subject to meeting the specified criteria.
Even so, the biggest point of appeal with agricultural land investments today is the near-certainty of long-term gains. Estimates vary, but research generally shows that agricultural land costs will increase on average by around 2.5% per year for the next five years at least.
This may not be quite as explosive as with some other types of real estate investments, but must be considered alongside the potential tax advantages.
In addition, the market for agricultural land is rarely (if ever) anything like the broader real estate sector in terms of volatility. It tends to be much easier to predict the mid- and long-term future of the farmland market than any national or regional property market.
Hence, investors targeting slow but steady and almost guaranteed returns (albeit of a comparatively modest nature) are setting their sights on agricultural land.
How Difficult Is It To Obtain Planning Permission For Agricultural Land?
National and local government offices alike are committed to protecting the UK’s farming industries and open green spaces. But as the country’s housing crisis intensifies, some local authorities have been forced to reconsider their rigid approach to planning permission restrictions.
Securing planning permission for developments on agricultural land is not easy, but it is by no means impossible. But if this is your sole aim when looking to invest in agricultural land in the first place, you will need to ensure you have a very convincing case prepared.
The Risks Of Investing In Farmland
Even so, agricultural land investments bring their own unique risks into the picture. Just a few examples of which include the following:
- Farmland is not a particularly liquid asset, and can be difficult to sell on in a hurry should the need arise.
- Short-term returns on agricultural land are typically quite modest, making farmland a more suitable investment vehicle for generating long-term returns.
- A wide variety of uncontrollable factors can impact the profitability of a farmland investment, such as climate change, and demand for certain types of crops.
- Government legislation amendments can happen at any time and new laws can be introduced, affecting how agricultural land can be bought, sold and used.
Before investing in agricultural land for the first time, it is important to seek independent expert advice. Farmland investments have the potential to be profitable, but like all other investments are not without their downsides.
For more information on any of the above or to discuss the benefits of the financial services we offer in more detail, contact a member of the team at bridgingloans.co.uk today, we are more than happy to talk with you!
