Farmland prices rose at the fastest rate ever in the second half of 2007 according to The Royal Institute of Chartered Surveyors (RICS). Prices rose by the unprecedented amount of 27.9% compared to 22.6% in the first half of the year, partly driven by the lack of supply and record City bonuses from lifestyle buyers.

Conditions are expected to change slightly in 2008 as supply of residential land could increase when some owners sell up before the implementation of changes to capital gains tax, although non-residential farmland is more unlikely to be sold in coming months because prices for commodities like wheat and cereals remain healthy, and the outlook on interest rates is favourable.

‘2007 has seen a dramatic increase in the value of commercial farmland in the south west,’ said James Baker from Strutt and Parker in Exeter. ‘Strong demand by investment buyers, farming business and the ever increasing lifestyle buyer has meant that supply has been met with healthy demand. With recent cereal prices rising, arable farms are extremely popular with land prices exceeding £5,000/acre on large areas of land. Stock farms will feel the pinch with rising feed prices, and more stock farmers will take advantage of the strong demand and sell in 2008 pre Capital Gains Tax change.’

In addition to this RICS suggests that he real discrepancy in coming months will be between the residential and non-residential farmland markets considering the impact of the credit crunch on the housing market for this year: ‘With the residential sector’s fortunes tied more closely with the credit crunch than with the world commodity markets, a possible decoupling in terms of price growth between the residential and non-residential farmland markets may be on the cards for 2008,’ the report states.

*Don’t miss this week’s COUNTRY LIFE, out Thursday February 14, which covers everything a buyer needs to know about the 2008 gold rush for farmland.