Land prices rise 15% on lower supply

Farmers who wanted to sell land had another good year in 2021. It was less satisfactory for farmers looking to expand or for the many auctioneers with a list of farmer clients looking to acquire a suitable piece of ground.

Across the country as a whole, demand was up, supply was down and prices rose. That continues the broad trends of recent years.

There were interesting new developments. We saw non-farmers buying land for two new purposes, which we haven’t seen in any numbers before. One is to lease it out to an active farmer, the other is rewilding.

Also, more auctioneers held online and hybrid auctions for the first time, usually very successfully. We can expect the use of online auctions to grow.

One existing trend was again visible: dairy farmers chasing land high and low. It’s no coincidence that land prices rose in Cork, Kerry, Limerick and Tipperary. Even the cash-rich business buyers found the going hard in some of the dairy counties.

Turning to the figures, the number of farms offered on the market and included in the Irish Farmers Journal survey was 803, down 15% on 2020. The number of these holdings that sold was 606.

The average price of farmland sold in 2021 was €11,966/ac. That was an increase of 16% on the previous year.

The counties with the highest prices for farmland were Dublin, Meath, Kildare and Wexford, in that order. The counties with the lowest prices were Mayo, Leitrim, Galway and Roscommon, in that order. Average prices among the 26 counties ranged from a top of €20,065/ac down to €4,813/ac.

Last year actually got off to a relatively slow start. In-person auctions and viewings were curtailed in the first quarter because of COVID-19 restrictions. The number of auctions held in the opening months of the year was relatively low.

However, by mid-year, the most severe elements of the restrictions had lifted and the farmland market took off. By mid-year it was becoming clear that supply would be limited and that prices were buoyant. The second half of the year saw a high number of auctions.

In the following sections we will look at demand for farmland in 2021, the supply of land for sale and prices made for the country and key counties and large versus small holdings.

Demand for farmland was visibly strong in 2021 and a big influence on the year. It arose from several directions.

Dairy farmers were very active in the market, seeking acres on which to dilute cow numbers for Nitrates Derogation rules, or acres to expand herd numbers. Land was also bought by drystock farmers and non-farmers looking to enter dairying.

The priority target for all dairy farmers was – as always – the adjoining piece of land, over the hedge, offering easy access for stock. They usually targeted larger holdings and single blocks of land. They always favoured good grass growing ground.

It’s worth stating that the interest from dairy farmers is because of ongoing strong milk prices and decent family incomes, prompting interest from young people in taking over the farm, rather than going to work in the tech sector with all their peers.

But dairy farmers didn’t have the market to themselves, by any means. Improved prices for beef and cattle saw higher confidence and demand for land from drystock cattle farmers. This was particularly the case from the many cattle farmers and beef finishers who have off-farm money from one source or another in their bank account.

These buyers tend to target the smaller holdings – many haven’t the time to farm on a large scale. They often outbid the dairy farmer for these smaller parcels of land.

Pig farmers bought land in 2021 – they were coming off a period of high prices and were in a position to buy land for either growing feed grain or utilising slurry or both. Margins from pigs have since declined.

Forestry companies and similar investors were again very active in 2021, buying land for planting. They put an effective floor of about €4,000/ac or €5,000/ac under marginal farmland that can qualify for planting.

Their interest came despite the ongoing chaos in the forestry and timber sectors. It was triggered by knowledge that forestry planting will have to be ramped up to help abate climate change.

Forestry companies know that this means the current logjam in the licensing of forestry and felling will have to be cleared up eventually.

Once again, the broad category of non-farmer investors were a big force in the land market in 2021, frequently outbidding the full-time farmer. Among those buying land last year were Irish people living and working in the US, Middle East and other places, who plan to return home – they are from the parish.

We saw individuals with successful businesses buy farmland. In many cases, this was to farm it themselves. But other individuals were motivated to buy land because money in the bank was generating little interest or was subject to negative interest. They see land as a safe investment when they already have enough shares and investment funds, or other types of property. As in other recent years, a handful of wealthy individuals bought land as a tax-efficient way of transferring assets to the next generation.

But last year also saw a small number of non-farmer investors, who had cash on hand, buy land with the specific intention of leasing it out for five or more years to an active farmer and availing of tax relief on the lease income. Most of these individuals were rural-based and comfortable with the idea of owning land and leasing it out to a farmer neighbour. But, surprisingly, some more land that was bought-to-lease in 2021 was bought by farmers who saw this as a good investment. They didn’t plan to farm this land themselves.

The buy-to-lease idea does not seem to have attracted the financial professionals based in Dublin or elsewhere, no doubt because the yield on the investment is not as high as that expected from residential and commercial property.

Another new category of buyer that emerged into the light in 2021 was business people buying land with the intention of rewilding it, typically to help abate climate change and balance their use of diesel and electricity, ie to offset their carbon production.

Again, the numbers were fewer than half a dozen. But quite a few other auctioneers had enquiries. So perhaps such buyers will again feature in 2022. The individuals making enquiries and who purchased land in 2021 had significant funds. The early signs are that their interest is in marginal type land rather than high-quality productive land.

Rising prices for other types of property, in particular houses, was another factor that drove demand for farmland in 2021.

There was increased interest in small parcels of land with a house attached, including derelict houses. This was partly driven by the scarcity of houses for sale and by ongoing interest in living in rural areas.

The reported interest in remote working, ie living in rural areas while working remotely for an employer-based in Dublin or another city or town, was likely to have added further to interest in houses in rural areas.

It was a regular concern of auctioneers in most parts of the country that they did not have enough land for sale coming on to their books to satisfy demand. That is borne out in our survey, which found a decline in the number of holdings advertised for sale.

A number of factors are contributing to this decrease. EU direct payments mean that farmers reaching retirement age can remain on their farms and continue to have an income, even if they scale back the amount of active farming they carry out.

Some auctioneers believe the restrictions due to the COVID-19 pandemic discouraged aging farmers from selling land in 2021, as did low bank interest rates. For a small number of farmers, the difficulty and cost of buying an alternative house has made them reluctant to sell the farm they’re currently living on.

For farmers approaching retirement but reluctant to sell up, there is an excellent alternative – the long-term leasing incentive scheme. The current scheme has been in place since 2014 and is attracting increasing numbers of landowners each year.

The year gone by saw a significant number of leases expire after five and seven years and the land being put forward for a follow-up lease. Landowners were encouraged to do so by rising rents. Recent studies by the Irish Farmers Journal found rents to have risen in 2021 with rents over €300/ac now to be got for the best holdings, depending on location.

There were a number of other interesting features to the land market in 2021. The Irish Farmers Journal came across more cases of landowners selling directly to other farmers, without going on to the public market, usually but not always utilising the services of an auctioneer to agree a price. This tallies with observations from auctioneers in different parts of the country.

No doubt this is a sign of a buoyant land market. Among the reasons why a landowner would sell off-market can be a preference to give a trusted neighbour first refusal, ready knowledge of who, locally, is on the lookout for land and a desire for privacy.

These off-market sales are not confined to farmland – every year a number of high-end country properties change hands this way and the same happened in 2021.

Another change that could be seen last year was more forestry planting land being sold without being subject to planning and other licence approval. This has arisen because of the delays in getting clearance for planting which has delayed the sale of land and payment for the landowner.

A number of auctioneers actively advised landowner clients to go for straight sales.

The concern for landowners was that this would deter some buyers and result in a lower sale price. Some involved in the sector claim that price has been €1,000/ac lower where a sale was not subject to planning. However, the strong demand from forestry companies suggests that many sales achieved good prices, certainly for better sites with good access, etc.

The forestry companies have a lot of expertise in judging which sites in which counties are most likely to be granted planning for planting. They also have the patience and financial wherewithal to cope with the delays in planning and licensing.

Finally, among the observations about 2021, farmers from Northern Ireland were once again active in the land market in the Republic. They boosted demand for better quality land in border counties. Farmland in the Republic continues to be cheaper than prime land in parts of Northern Ireland. Also, Brexit has torn up some of the old rules on who wants to farm where.

Looking at supply first, last year 803 farms meeting the criteria of the Irish Farmers Journal analysis were advertised for sale on the Irish market, down from 943 in 2020. Our analysis looks at holdings over 10ac in size – we consider that smaller holdings would have additional site value. Development land, and similar types of commercial holdings are excluded, as are bog and commonage.

The farms offered for sale contained 40,545ac. This was 5,110ac fewer than the 45,655ac offered in 2020. It was a considerable reduction equal to 11%.

However, more of the land put on the market sold in 2021 than it did the year before. Last year, 28,260ac sold, which was just 70% of what went on the market. In 2020 just 27,124ac sold, which was just 60% of what was put up for sale.

We could surmise that more landowners were happy with the higher prices obtained in 2021.

The size of the 606 farms that sold last year reflects the nature of Irish farms. The majority – 93% – were under 99ac in size. It further broke down as over half (57%) under 40ac and another one-third being in the range of 40ac to 99ac.

It would be not be easy for any person or entity to build up a large farm holding in Ireland, such as operate in parts of the UK, eastern Europe and North and South America.

Just 36 of the farms sold here last year were in the 100ac to 200ac size range and only seven were over 200ac in size. This pattern was broadly similar to other years.

The current shortage of houses will not be solved via the farmland market. Of the 606 farms that sold last year, only a quarter (151) had a residence. Also, this figure includes derelict houses as well as those being lived in up to the time of sale. So three-quarters of land parcels sold had no house. Again, this pattern was broadly similar to other years.

Auctions returned with a bang in 2021, after being curtailed by COVID-19 restrictions the year before. Of the 803 holdings offered for sale last year, 299 or 37% were offered by auction and 501 or 62% were offered by private treaty. A handful of farms were offered for sale by tender. Looking at the 606 farms that sold, some 229 of them were sold by auction, again equal to 37%. Of these the majority – 80% – sold under the hammer with the remainder withdrawn and sold later.

Wexford and Westmeath had the highest proportion of farm sales made by auction. Auctions were also popular in Cork, Tipperary and Limerick. Many landowners chose to go for auction because the whole sale process is normally faster.

However, in some parts of the country, private treaty is the more accepted route to go, eg Connacht and Ulster. It offers the benefit of more privacy for seller and buyer, and more time to assess offers. Counties where private treaty was the preferred method of sale in 2021 included Leitrim, Monaghan, Mayo, Donegal, Cavan and Roscommon, Louth and, further south, Waterford.

The visible success of some auction sales in 2021 could encourage more landowners and their agents to go for auction in 2022.

The average price of farmland sold in 2021 was €11,966/ac, which compares with €10,316/ac in 2020. It was an increase of €1,650/ac or 16%.

The weighted average price of land sold in 2021 was €11,306/ac and this compares with €10,296/ac in 2002. This figure gives more weight to prices achieved in counties where more land was sold, eg Cork or Westmeath. So we can see that farmland prices rose broadly in line with house prices last year. This was the sixth year in a row in which land prices rose. It brings prices nearer to the last peak which was seen in 2008.

The analysis breaks down price for large and small farms, using 40ac as the threshold. As usual, buyers paid more per acre to buy the smaller holdings.

The average price for farms under 40ac in size was €12,330/ac. There were 348 of these farms. The average price for farms of over 40ac in 2021 was €11,474/ac.

Smaller holdings fetch more per acre because the sums involved are smaller and within the reach of more potential buyers, boosting competition.

For example, a 20ac holding with an asking price of €250,000 will be a realistic target for a good number of farmers in the vicinity.

An 80ac holding with an asking price of €900,000 will be out of reach of most of the same farmers, despite costing less per acre.

When it comes to share of farmland properties bought, the business category was the number one buyer, taking approximately 40% of the total sold. The category is made up of buyers with non-farming income and thus includes part time farmers, business people with an interest in farming and other investors not connected with farming.

This category was followed closely by the full-time farmers in, first, the dairy sector, then beef, mixed enterprise, sheep and finally tillage.

These are national trends and we would expect to see differences in active buyers in different counties. So it proves to be with dairy farmers actively buying in Munster counties and south Leinster. For example, they bought 58% of the holdings sold in Kerry, 45% of farms sold in Cork, 33% of farms sold in Limerick and Waterford, and also 33% of farms sold in Kilkenny.

In contrast, the beef farmers category were very active in counties such as Cavan, Donegal and Roscommon where they bought 42%, 35% and 25%, respectively, of all the holdings sold. Tillage farmers were active buyers in Carlow, purchasing 22% of all holdings sold.

However, the one group that bought consistently in all counties, right through 2021, was the business category. These individuals bought 80% of the farms sold in Dublin, 75% of the farms sold in Mayo and about 65% in Sligo and Wexford. They made 50% of purchases in Monaghan and 45% in Offaly.

In only a few counties, they were pushed down to lower figures, eg 21% in Kerry.

Leinster and Munster accounted for the biggest share of acres sold in 2021 and were neck and neck on land sold. Connacht was next, with Ulster seeing the lowest total of acres sold. Leinster and Munster also led on price and were significantly ahead of Connacht and Ulster. These patterns would be similar to those of other years.

The dearest land was in Leinster. The number of farms sold in the province in 2021 was 233 and the average price was €13,624/ac. In 2021, average price in Leinster for farms under 40ac in size was €14,275/ac. There were 130 of these farms. Average price for farms of over 40ac was €12,802/ac and there were 103 of these farms.

The next highest land prices were in Munster. There, a total of 225 holdings were sold and average price was €12,712/ac.

Of last year’s farms, 120 of them were under 40ac and average price for them was €13,162/ac. The remaining 105 farms were over 40ac and their average selling price was €12,197/ac.

Ulster was next on land price. Sixty-one farms sold there last year and land price averaged €9,496/ac.

The average price paid for smaller farms of under 40ac was €9,970/ac. There were 40 of these farms. The average price paid for larger farms of over 40ac was €8,592/ac and there were 21 of these farms.

The number of farms sold in Connacht was higher at 87, as would be expected given the size of the counties there. Average price for last year was €7,327/ac.

Farms in Connacht of under 40ac sold for €7,876/ac and there were 58 of these. Farms over 40ac averaged €6,231/ac and there were 29 of them.

The supply of farmland offered on to the market in 2021 fell by 11% or just over 5,100ac. However, there was variation between counties.

Supply increased in eight counties which were Donegal, Dublin, Kerry, Laois, Longford, Louth, Monaghan and Westmeath. Observers of the land market through the year won’t be surprised to learn that Westmeath showed the biggest increase in acreage terms. The total farmland offered for sale there increased by 1,552ac or 49% on the previous year. The total offered for sale in Kerry rose by 1,435ac, in Laois by 1,113ac and in Longford by 846ac. For these three counties, it was a more than doubling of the amount of land for sale.

All this meant that while Cork had the largest supply on offer – as usual – at 6,062ac, in second place last year was Westmeath with 4,710ac. It was followed by Tipperary with 3,151ac, Kerry with 2,693ac and Limerick with 2,193ac.

Supply fell in the other 18 counties which were Carlow, Cavan, Clare, Cork, Galway, Kildare, Kilkenny, Leitrim, Limerick, Mayo, Meath, Offaly, Roscommon, Sligo, Tipperary, Waterford, Wexford and Wicklow.

The biggest drop was in Mayo where supply on offer fell by 2,256ac. It fell by 1,577ac in Tipperary, 1,596ac in Meath, 1,364ac in Limerick and by 923ac in Cork.

The county with the lowest supply of farmland put up for sale in 2021 was Leitrim with just 310ac. It was followed by Dublin with 355ac, Wicklow with 444ac and then Louth with 453ac.

Farmland price rose in most counties in 2021. Average price was up in 21 counties. The most significant increases were seen in Clare, Dublin, Leitrim, Meath, Monaghan and Westmeath. Clare and Dublin were outliers with increases of 94% and 62%, respectively, on 2020 – relatively small sample sizes in these counties allowed for significant swings in average prices.

Dublin led the way on price – as it has before - with an average of €20,065/ac in 2021. It was followed by Meath at €18,721/ac, Kildare at €15,646/ac, Wexford at €15,233/ac and Laois at €13,984/ ac. Kerry, Killkenny, Cork and Carlow all had strong average farmland prices at over €13,000/ac in each case.

Average farmland price fell in five counties – Donegal, Kildare, Longford, Mayo and Waterford. The lowest average price was in Mayo at €4,813/ac. This was followed by Leitrim at €6,118/ac, then Galway at €7,264/ac and Roscommon at €7,968/ac. These counties swap position from year to year but regularly feature in the list of low prices.