Martin Burda gave up managing $8.1 billion of securities at the Czech investment arm of Erste Group Bank AG for something that’s produced better returns than stocks and bonds: dirt.
Burda, 43, last month helped start Cesky Fond Pudy, the first investment company targeting Czech farmland. A second fund is raising money as soaring agricultural profits drive a surge in land values that contrasts with the country’s stagnant stock market and near-zero yields on government bonds.
"Czech farmland is among the least expensive in Europe and it offers a conservative investor something that’s very hard to come by these days: safety and a good yield," Burda said in an Aug. 8 interview in Prague. "Profitable farmers mean upward pressure on land prices."
Agricultural land values in the Czech Republic are rising after farming profits increased sixfold from 2009 to 2013, data from the statistics office in Prague show. The new farmland funds are predicting returns of 6 percent to 10 percent a year as consolidation of smaller plots makes land management more profitable and the gap in prices closes with wealthier neighbors like Austria and Germany.
Avant Investicni Spolecnost AS, which oversees more than 10 billion koruna ($480 million) of assets, has set up a farmland fund with a target of raising 250 million koruna, said Ondrej Pieran, a money manager at the Prague-based company. Avant predicts an annual return of about 8 percent. Burda’s fund expects to attract more than 200 million koruna of investments by October, up from 140 million koruna now.
Risks to farmland investment include political actions like Russia’s decision this month to ban food imports from the European Union and the U.S. in retaliation for sanctions that had been imposed in connection with the crisis in Ukraine.
While farm purchases represent a fraction of the country’s $31 billion stock market and $64 billion of domestic government bonds, they ranked as the most attractive investment in a survey of 197 Czech and Slovak millionaires published by J&T Banka AS in June. Sovereign bonds, commodities and Czech stocks were among the least appealing, according to the poll conducted from February to April by J&T and the Perfect Crowd research company.
"It makes sense to invest in land in the Czech Republic as it’s relatively cheap and property taxes are quite low," Petr Nemecek, director of the real-estate department at Hypotecni Banka AS, the Czech mortgage unit of KBC Groep NV, said by phone on Aug. 7. "Land values are on the rise."
The price of Czech farmland climbed every year from 2004 to 2013, according to data compiled by Farmy.cz. The value of one hectare (2.5 acres) reached 4,596 euros in 2013, a 94 percent increase over the nine years, the appraiser and agricultural property broker said by e-mail.
Cesky Fond Pudy, which calculates values differently than Farmy.cz, puts the Czech price at 6,000 euros a hectare, compared with 7,500 euros in Poland, 24,294 euros in Germany and 35,000 euros in Austria.