U.K. farmland, which for years has rivaled gold as a place for investors to park money in, is starting to lose its allure because of Brexit.
Farmland prices, which began falling in late 2015, should drop or at best stagnate in the next six to 12 months on concern about the industry’s future as the U.K. prepares to exit the European Union, said Simon Gooderham, who focuses on rural property at estate agent Cheffins. Many won’t risk buying land due to uncertainty over trade and EU subsidies farmers depend on, he said.
English farmland prices had more than quadrupled this century to a record toward the end of last year, beating a rally in gold. They then began retreating amid cheaper crops and the run-up to the U.K. referendum, according to estate agent Knight Frank. The government estimates farm income slid 29 percent last year, hurting returns for producers and landowners who can make money by collecting a share of harvest earnings.
“Land values traditionally have done well in turbulent times,” Gooderham said by phone last week from Cambridge, England. “But we’ve never had a combination of such turbulent financial times and so much uncertainty in the farming sector.”
Securing new agricultural trade agreements with the EU may be a lengthy process, with Britain getting two years to negotiate its exit after officially triggering the process, something that may not happen before year-end. Another uncertainty is whether farmers will get similar subsidies: they receive about 3 billion pounds ($3.9 billion) a year from the EU, money that has kept many afloat amid plunging grain, livestock and dairy prices.
Even though the campaign to leave the EU had pledged to maintain agriculture funding through 2020, farmers had leaned toward remaining in the bloc, according to National Farm Research Unit and National Farmers’ Union polls conducted before the vote.
Agricultural land prices tracked by Knight Frank fell 6.4 percent in the past three quarters to an average 7,773 pounds an acre in the three months through June, the lowest in almost two years. After dropping in the previous three years, gold has rebounded 27 percent in 2016 as investors sought a haven amid Brexit-related concerns and the outlook for low U.S. interest rates.
Still, the pound’s decline since the June 23 vote may spur some interest from foreign investors in the short term as land becomes cheaper for buyers using other currencies, said Andrew Shirley, head of rural research at Knight Frank in London. With the Bank of England pledging more monetary easing, that may also encourage purchases, he said.
“There are still a few twists and turns to come out of the whole Brexit debate,” Shirley said by phone on Monday. “The entire industry is struggling to work out what this will mean for agriculture.”