New Year New chances. So goes the saying. Of course, many hope for a year in which the coronavirus disappears from the scene again. The global pandemic is also one of the reasons that land prices fell in 2020. For 2021, the expectations are opposite. 4 reasons why the land price may rise this year.
In the spring of 2020, after the start of the corona pandemic, the land market worldwide came to a standstill. Both buyers and sellers withdrew due to the uncertainty. In the Netherlands the land price is up to and including the third quarter dropped to €60.700 per hectare. In the United States, the price in the second quarter amounted to €24.000 to €28.000 per hectare. Prices have been on the rise again since November, mainly as a result of the announcement regarding global vaccination programs. Located in the Netherlands the price in that month at more than €63.000 per hectare. Many analysts expect the increase in land prices to continue in 2021.
Limited supply and low interest rates
One of the reasons for the expected price increase is government support for farmers. This includes, for example, the support that governments have granted in the context of corona. The American 'Coronavirus Food Assistance Program (CFAP)' paid out more than €8,5 billion in support to agricultural companies in the United States at the end of October. Many of the agricultural entrepreneurs in the United States now have sufficient capital to purchase land. This increasing interest can lead to a higher price, because the supply of land is limited.
The fact that there is little supply is not only noticeable in the United States. Also in, among other things Flevoland en Noord-Brabant the supply of land is limited. This is because farmers prefer renting their agricultural land to selling the land. Why? Because cash currently yields too little. The need to sell is therefore seen as low. In the United States, the interest rate for loans on agricultural real estate is also low (4,24% to 4,85%). In short: the combination of more demand (both due to more money and low interest rates on loans) and limited supply could push prices up in 2021.
Investors are interested
A fourth reason for a possibly higher land price is the fact that more and more investors see agricultural land as a stable and safe way to create more returns. The Dutch Association for Real Estate Agents (NVM) also reported this a few months ago: "In 2015, approximately 62% of the farms offered were purchased by an agricultural entrepreneur. That percentage has dropped to 2020% in 51. In 2020, 16 % of companies purchased by a private individual." These parties often have more to spend and thus drive up the price of land.
If we combine the 4 reasons above: higher income, limited supply, low interest rates and investor interest, then according to American analysts it is likely that a higher price will have to be paid for agricultural land in 1.