'Only stayers buy land and it is never overpriced afterwards.' A winged statement with a grain of truth. At the same time, land also has to do with economic laws. Periods of economic boom and bust alternate. Rising interest and repayment costs are putting pressure on earning capacity. Does this make land too expensive or can it never be expensive enough?
When there is scarcity, prices rise. An economic rule that also applies to agricultural land. In the last twenty years, an average of more than 7.000 hectares per year has been withdrawn from the sector. That is more than 1% of the total area. The pricing shows how scarce this means of production is. In 1980 the average price was €17.000 per hectare of arable land. Twenty years later that was €35.000. The most recent figures from the Land Registry amount to €84.500 per hectare. This means that we can roughly say that the land price doubles every twenty years.
Land price to €338.000?
If we continue this line, the average price for a hectare of arable land will be €2040 in 148.200 and even €296.400 in 2060! Please note: we are talking about averages here. A bubble burst in the 70s and late 90s. The land market fell sharply. This will also remain possible in the future. The current Land Registry figures show a provincial spread of more than one tonne per hectare. For example, the 2040 scenario is already below what is currently paid on average in Flevoland.
You may now be thinking: I will never live to see 2060 as a farmer. An agricultural entrepreneur in the Netherlands is on average 58 years old, according to recent research. We wish you a healthy old age at the age of 94, but the chance that you will still be doing business is nil. It is different for your daughter or son. In 2060 it will be the same age as you are today on average. Assuming that remunerative milk and potato prices will continue to be the case in forty years' time - buyers have no choice but to include the higher land costs in their price agreements - a number of questions arise. How much financing costs can I incur on an annual basis? And: do I want to own that 'expensive' land?
Financing scope
Partly due to pressure from international legislation and regulations, banks are applying increasingly strict requirements when granting loans. As a landowner, you are obliged to repay a minimum percentage annually. With ever-increasing land prices, the financial space is severely limited. In other words: only companies with sufficient financing capacity are sustainable for the future. Entrepreneurs with an additional income stream have a strong advantage in this regard. Think of wind turbines, trading and processing activities, income from a position elsewhere or from the partner. An exception to this is of course relocated companies or companies with partial sales for, for example, residential construction. They have much larger financial reserves.
Without these sources, is it no longer possible to grow? This becomes more difficult via the traditional route. And yes, it appears to be possible in practice for top entrepreneurs. At the same time, there are and will remain active investors who are interested in land and want to lease or lease it out. Anyone who wants to be a farmer in 2040 or 2060 must therefore look more broadly and possibly be financed in a different way. This does not directly require money, but a willingness to change. Not buying and therefore not growing is also a choice, just as selling is one. Given the current interest rate developments and land prices, we see that entrepreneurs with vision and a healthy dose of courage continue to act on the land market. As history teaches us: growers are stayers.
Farmers Funding & Advice takes care of business, business economics, tax and legal matters and realizes the most suitable financing.