Few people are surprised when urban and rural property markets move at different speeds, but something unusual is happening in the normally synchronised UK countryside: while its farmland prices are soaring, its country house values are now dropping away. The reason why the two sides of the rural real estate coin should perform so differently is down to a single word: confidence.
“Over recent years UK farmland has been seen as undervalued compared to Ireland and Denmark, its benchmark comparisons, so investors have been confident enough to buy. At the same time, disastrous wheat harvests in Russia and Canada have meant some UK farm commodity prices have gone through the roof,” explains Edward Sugden at search agency Property Vision. “On top of that, there are substantial grants and tax breaks for farming and farmland, which have helped turn it into a safe haven, performing well against almost every other asset class except gold,” he says.
By contrast, country house buyers see no reason to act. “The market has fallen very flat. Buyers of high-end country properties certainly still have money in their pockets, but they lack confidence that values will hold up. If they believe a home will be cheaper tomorrow, why should they buy today? Vendors are not distressed, so many do not cut their prices significantly, therefore transactions are dropping in number,” Sugden says.
Figures bear out Sugden’s analysis. The latest farmland survey by the Royal Institution of Chartered Surveyors, for the period up to the end of June 2011, shows arable land is now valued at an average of £6,681 an acre across Britain, with pasture land now worth £5,549 an acre – both about double their average values in 2005. “Surveyors note that commercial farmers remain keen to expand production in order to capitalise on elevated commodity prices,” reports the survey.
These prices are drawing in serious investors who previously regarded farmland as too eccentric, or not producing good enough returns, to complete with bricks and mortar. The farming division of Strutt & Parker estate agency says that, as recently as late 2010, only six per cent of its land sales were to private or institutional investors. By summer 2011, the figure hit 15 per cent.
“Land that attracts competitive bidding due to location or quality is still achieving strong values. In the Cotswolds we sold land this year for around £11,000 per acre,” reports Clive Hopkins, head of Knight Frank’s farms and estates sales team. There are substantial differences between regions, with Savills reporting that East Anglia has seen the strongest growth in arable values this year, with the south-west of England seeing the largest growth in pasture prices.
Anecdotal evidence suggests more farmland may now be coming on to the market as farmers realise the worth of their asset; commodity prices may also be becoming more volatile. So is the land bubble at an end? No, at least according to agricultural analysts. “Our farmland model indicates value growth of 7 per cent for both 2012 and 2013. This is based on the continuing imbalance of demand and supply,” says Giles Wordsworth of Smiths Gore, a rural estate consultancy managing more than two million acres of farmland across the UK.
This heady atmosphere contrasts sharply with the UK country house market where prices – not very buoyant in recent years anyway – are now slipping down.
Lucian Cook, head of research at Savills, explains: “Buyers of south-east England country houses relocating out of London typically account for just under one in four purchases. In the nine months to late September the number of those buyers was 32 per cent less than the same period of 2010.” In turn, fewer buyers from the south-east then move elsewhere.
“Consequently, regional markets are increasingly reliant on local buyers who typically have lower budgets. It isn’t clear that sellers have woken up to this,” notes Cook. Even so, Savills reports some anxious vendors are now cutting asking prices to prevent their properties sticking on the market over the traditionally slow autumn and Christmas periods.
Knight Frank says average country house values dropped 1.2 per cent in the third quarter of 2011, making it a year-on-year fall of 1.7 per cent and meaning typical prices for these farmhouses, converted barns and cottages have risen just 5 per cent in the past 30 months.
“Despite the fact that buyers and sellers tend to be wealthier and far more equity rich than the average UK buyer, domestic concerns are the key influences,” says Liam Bailey, head of Knight Frank’s residential research team. “With the economy struggling and wealth creation under pressure, vendors are having to compete keenly on price – anything other than an absolutely perfect property cannot be priced ambitiously.”
His agency’s sales books vividly demonstrate the problem. Knight Frank is marketing Woodcote Manor in Hampshire, a Grade II* listed house with six bedrooms, plus two self-contained flats in the main property and a three-bedroom cottage in the 101 acres of grounds. It went on sale in May for £7.75m and is now reduced to £6.9m.
In Wiltshire, the 10-bedroom Old Rectory at Biddestone is the kind of property that used to sell through search agents, without advertising, in pre-downturn days. In May it went on the market for £3.5m, yet by August it was reduced to £2.5m and has yet to find a buyer.
Even part of the more expensive country estate market, characterised by large amounts of land surrounding a farmhouse or mansion, and relatively immune from the downturn until recently, is now in trouble. “The residential market has impacted heavily on the value of those estates with a significant residential proportion. However, estates which are made up of good-quality farmland have kept buoyant,” says Alex Lawson of Savills.
“The overall value of a typical rural estate has risen 16.2 per cent over the past five years. The main house and the cottage components show growth of only 3.3 per cent and 0.4 per cent but by contrast the agricultural land component has risen by 85 per cent,” he explains.
Yet there is one part of the country house market doing well, suggests the search agency Property Vision – the area immediately around Greater London, where houses have a golden combination of relatively easy access to the capital and high-quality local schools. That ring around London, especially to the west, has been buoyed by the story of Park Place, a refurbished 30,000 sq ft country house in Oxfordshire. Along with 200 acres of parkland and cottages, it sold for £140m in August, becoming Britain’s most expensive home.
“That was extraordinary,” says Property Vision’s Edward Sugden. “It certainly provided a shot in the arm for the country house market in the home counties within an hour of London, but it’s not indicative of the market as a whole. It was a special house, rarely on the market with nothing else like it anywhere. As such, it set its own price. The same cannot be said for many other homes that come on the market, nor does it reflect any London ripple-effect.”
Russell Hill of buying agency Harringtons UK says that those relatively few Londoners who do move to the country to live, do so with more constrained budgets than before.
“Typically a first-time commuter would sell in London for £2m to £2.5m and spend in Surrey between £3m and £4m. What’s now happening is they sell around £2.25m, shed the mortgage, put £250,000 aside for school fees and buy for £1.5m. It explains why vendors sitting on unsold houses for £2m to £4m find life tougher than they used to,” claims Hill.
A particular weakness in the country house sector is the poor performance of high-end holiday homes; once these were seen as highly desirable but very few have been sold in recent years, according to Property Vision. No formal records are kept on the numbers of holiday homes purchased within the UK but estate agents report a significant fall since 2008.
Further away from London in the once-popular coastal towns and estuary ports of south-west England, “the inflated second homes market has collapsed,” according to Gideon Sumption of buying agency Stacks Property Search. Selling agents in northern areas such as the Lake District say large high-end properties are still selling to downsizing owner-occupiers but not to holiday home purchasers.
“It’s difficult to know when holiday homes will return as a force, given our fragile economy. They won’t be back in the very near future, I anticipate,” says Sugden.
Such pessimism infuses the country home market. For once, it seems, the farmers are getting one over on the lords of the manor.
See Daniel Thomas’s report on the rise of the lifestyle farmer