Farm land prices may have reached new highs but according to Charles Dudgeon, Edinburgh-based director of Savills, there are three major factors which could slow down the current boom.
“The first is the number of acres for sale, which could increase; the second is the effect of CAP reform; and the third is uncertainty over the referendum on independence,” he said.
“Not all categories of farm have been selling well recently, but the general feeling is that we are breaking new ground.
“That is right in terms of today’s prices, with the average price per acre having risen by 250% in the last 11 years.
“In terms of percentage terms and periods of uninterrupted growth, however, we have seen this before. For example, in the 13 years from 1960 to 1973 prices rose by a massive 680%.
“There was slight dip just as we joined the EU, then there was a nine-year run from 1975 to 1984 where prices rose by 240%.
“The 1980s were more up and down, but the four good farming years from 1993 to 1997 saw a 91% increase,” he said.
The supply of farm land for sale has helped sharpen the market, with only 43,000 acres publicly marketed in Scotland in 2013. This may well be 9% up on the year but is far less than the 100,000 acres on offer in 2000 or the 120,000 acres typically advertised annually pre 1990.
“It is this lack of supply in an era when owning tangible assets, like land, is desirable, that is producing fierce competition especially for quality farms,” he added.
But market activity could increase considerably once CAP reform is implemented. Mr Dudgeon believed there are farmers who were waiting to see how they would be affected before making a decision to sell.
They might feel their support payments would be so low they would be better to sell up.
He had seen the same effect with the MacSharry reforms in 1991 and 1992, and the CAP mid-term reforms in 2004 and 2005 with land sales on hold.
If anything, the uncertainty was lasting for longer at the moment because the CAP reform process was taking so long.
Mr Dudgeon said he had been encouraged at Monday evening’s NFU Scotland independence debate to hear Nicola Sturgeon and Richard Lochhead confirm that in the event of an independent Scotland not gaining entry to the EU it would pay farm support from its own resources at the same level as the CAP.
He noted that when England made the move to area-based payments in the last round of reforms it triggered an increase in the number of mixed stock farms put up for sale, especially in the north of England. These are the sort of farms which are proving harder to sell.
Prime arable farms were in demand as never before, and the gap between best quality arable and permanent grassland had risen by 60% between 1995 and 2013. It now stood at £4,600, with prime arable at £8,600 and grassland at £4,000.
Mr Dudgeon added: “Best arable land suitable for potatoes and capable of growing four tonnes per acre of wheat is making anything from £8,000 per acre to more than £10,000 per acre; secondary quality arable is in the £5,000 to £7,000 range; and good pasture is making £3,500 to £5,000 per acre.
“Secondary pasture is worth £1,500 to £3,000 per acre.
“Interestingly, especially with good quality farms, the market has still not differentiated between farms with good buildings and those without. Given the cost of building a potato cold store, that is surprising.
“Also, when it comes to farmhouses, the 23% drop in residential values since 2008 seems to have been ignored.”
Next to top quality arable units Mr Dudgeon noted large hill and upland farms as being in most demand.
“These farms stand to be winners in CAP reform because of their area, but their value is being underwritten by four aspects. They have scale for livestock production, afforestation potential, renewable energy potential and sporting value. At the moment all four of these legs are standing firm,” he said.
The independence referendum was having an effect on the land market, but to varying degrees.
Scottish-based individuals including farmers were not being deterred, and neither were expats returning home having earned their fortunes abroad.
European would-be purchasers were also discounting the independence effect as they sought to buy into their dreams.
English or, more specifically, London-based purchasers were taking a “wait and see” approach and hanging back until after September 18.
There was nonetheless a noteworthy return of non-farming individuals buying lifestyle properties. They had been absent since the crash of 2008, but the gap between London property prices and Scottish prices had now opened to the extent that prestigious small estates with very good houses looked very good value.
A 169-acre property in Perthshire with a mansion house and policies offered for £2.5m fell into this category.
“In some cases pounds, shillings and pence overtakes politics,” Mr Dudgeon concluded.