We will never know how much of the £40 million that Savills have bid for rival land agents Smiths Gore they earned through buying land for Sir James Dyson.
But if you assume that the 25,000 acres that Dyson now owns (making him a bigger landowner in England than the Queen) was bought for an average £10,000 per acre with Savills charging a buying commission of, say, 1.6% then it does happen to come to exactly £40 million.
That doesn’t prove very much except what a crazy world the farmland market has become with the involvement of buyers like Dyson making an already overheated land price even more so. Feed wheat in store on any of Mr Dyson’s Lincolnshire farms is currently worth barely £110 per tonne – less than the cost of producing it and less than what wheat was worth 30 years ago.
And yet, since 1985, we have seen the price of prime arable land rise from barely £1,000 per acre to more than £8,000 per acre (and by 14.9% last year alone against a background of a catastrophic fall in wheat prices).
It is often said that most farmland changes hands for tax reasons. For many years in the early part of the twentieth century it was often swingeing death duty taxes that forced land sales as those who inherited land were forced to sell off a lot of it to pay the taxman. But for most of the past 50 years the position has been reversed. The farmland market is now driven by those seeking all sorts of special tax advantages from owning farmland – like an exemption from inheritance tax.
These tax breaks have made life very difficult for anyone trying to get a foothold in our industry. Aspiring young farmers are priced right out of the land market and then forced to compete against each other for rare tenanted opportunities. This has been the case for many years but rents are now being driven higher by the endless rise in land values. Land agents feel justified in demanding high rents to reflect the capital tied up in the land.
I was talking recently to a frustrated farmer with several children who want to go farming. He complained bitterly about one of his sons having been rejected by an interview panel for a tenanted farm. Apparently the panel didn’t like the projected budgets that his son had prepared as part of the tender process because it showed that he would have to “rely heavily on financial support from his parents.” As he put it to me: “At the rent that was being asked what the hell did they expect!”
The tax breaks available to owners of farmland have created a ridiculous position where few can afford to sell and only the already very wealthy can afford to buy. Even land agents are starting to see the dangers of ever rising land prices as the supply of land for sale – and therefore their commissions – starts to dry up. In 1960, more than 700,000 acres of land were traded in England whereas last year the amount of land traded publicly was barely 100,000 acres.
Savills’ purchase of Smiths Gore can be seen as a symptom of a land agency boom. Or could it be the start of a number of takeovers because there are now simply too many land agents chasing too few opportunities to buy and sell land?
