Rural property increases in price by 9.9% in 2012

Rural property delivered another year of strong growth for investors, even outpacing London.

Rural property just missing out on a second year of double-digit returns, according to Carter Jonas and Smiths Gore, sponsors of the IPD Rural Property Index 2012.

Total returns of 9.9% in 2012 outpaced those of commercial and residential property. 

The main driver of growth has been from capital value increases, which was 8.2% during 2012 – higher than residential property which had 5.9% capital growth, and prime commercial property, which saw capital values fall 2.2% over the same period.

 "Rural property has continued to stand out as an attractive capital hold since the downturn. While values for commercial property almost halved in some areas and the volatility of equities deterred risk-averse investors, rural property values only dropped 0.4 per cent in 2008 and have risen by an average of 7 per cent per year since the start of the recession in 2008," comments Richard Liddiard, head of Rural Agency at Carter Jonas.

Over the last five years, rural property has returned 8.9 per cent per annum, against 0.7 per cent from commercial property, 4.6 per cent from residential, 2.1 per cent from equities and 8.8 per cent from bonds. (IPD UK Annual Property Index, IPD UK Annual Residential Index, MSCI UK and JP Morgan UK 7-10 year).
Many also seek to take advantage of the beneficial tax status afforded to rural holdings.

Reasons for growth

Iprovements in the economic drives of the UK’s agricultural sector have underpinnsoed this growth, as well as the increasing potential for alternative use.

Common Agricultural Policy (CAP) reform, which had led to fears about the reduction of financial assistance to farmers, will be more benign than originally thought. It continues to support the financial viability of UK farms, while growth in demand for UK farm commodities and food has similarly helped.

The horse meat scandal and other domestic issues have increased the demand for UK-grown and reared produce, while long-term fears about global food supplies continue to support UK food production.

Potential alternative use of land for renewable energy production is also an incentive. Although wind farms have proven divisive and planning permission can be tricky to obtain, solar farms and hydro-power are alternatives that are more accepted by the general public and are growing fast. And with long-term government-backed financial support and growing pressure from the EU to meet strict green targets, the potential to produce renewable energy is huge.

Phil Tily, Managing Director of IPD for the UK and Ireland, said: "A growing awareness of rural land has emerged in the last five years, as large and small investors are increasingly thinking outside the box to diversify their returns. For its diversification potential and capital hold characteristics the sector is hard to beat, and with improvements in the economic fundamentals underpinning the sector, rural land will continue to look attractive as an asset."