By Gordon King, senior partner at DM Hall
Brexit is now a fact of life and the more phlegmatic elements in our society are turning their minds to how to deal with the consequences of this momentous decision, whether they are unfavourable – or quite the opposite.
The prophecies of doom have rung out loudly from all quarters, and on all subjects, and there is no doubt that confidence – the underpinning of all business activity – has taken a bit of a knock. Markets certainly will remain volatile for some time yet.
But from the rural viewpoint, the message has to be: Don’t panic. There is no immediate reason to believe that income or values in the countryside will be adversely affected by the decision to leave Europe, particularly in the short term.
This may seem to fly in the face of the received wisdom that rural businesses, and agri-businesses in particular, are inextricably linked with the EU and its long-standing subsidy regime through CAP, which is undoubtedly huge.
And there are justifiable concerns that the current UK government does not have the same ideological commitment to the concept of subsidising businesses – whether in the countryside or not – as the people in the corridors of Brussels.
However, there is no single formula which links CAP support, or any other profit variable, to land value. In fact, the arithmetical relationship between profit and land value is often very weak. A fall or rise in farm income of, say, 20% does not result in a 20% reduction or increase in value, for example.
Profit is also affected by input costs, seed, fertilisers, product demand, weather and disease. Exchange rates also have their role, although with the pound at its lowest level for decades, food and drink producers who export around the world can only benefit at the moment.
The role of Chartered Surveyors in such turbulent times is to reflect values on the evidence available, while taking into account market sentiment and the economic environment. At the moment we don’t know how the rural land market will react, and sales evidence is at pre referendum levels, although Surveyors will be alert to market sentiment in the days and months ahead.
We should also remember that not all rural land sales are to those dependent upon CAP subsidy. Sporting use, equestrian use, telecoms masts, wind turbines, hydro schemes, wildlife and conservation, forestry public access, tax benefits – not to mention the joy, honour and privacy of owning rural land in Scotland – are all drivers of demand and value.
The rise in values in the last few years is not necessarily down to rising profits or all down to low interest rates. Land, like gold, is often seen as a reliable asset class in times of uncertainty and the same might be true today.
Volatility in incomes to farm businesses may be more relevant to rents than to capital values. Many people think that the rural land market has become a bit full anyway following 10 years of growth, so a little value adjustment was due already in response to pre-referendum sentiment.
And there is a more fundamental point to be made. We may be separating from our neighbours on the continent, but we still live in a very desirable country – the envy of less happier lands, as Shakespeare’s John of Gaunt put it.
The UK is in a settled part of the world, peopled on the whole by mutually supportive, confident communities. Market sentiment responds more to this, and to stable, forward-thinking, well-advised governments than it ever will to CAP subsidy alone. Westminster and Holyrood take note.