“Gap between economic value and real estate price of agricultural land is becoming problematic”

Economic value half of the property value

Leyten concludes that the economic value is currently less than half of the real estate value. “That has changed significantly in recent years. In the early 2000s, both values ​​were still in line with each other, at 30,000 euros.” This large gap has an impact on acquisitions, among other things. This increases family tension. “If a farming family has three children and one child wants to take over the business, the other two children will assume the real estate value is on average 66,000 euros, while the buyer will argue that he can only pay the economic value because he can no longer earn on it. ”, explains Leyten.

It is not at all certain that the acquirer can raise the real estate value in the expectation that the land price will rise further. “The question is whether the price will rise further. The fact that this was the case in the past is no guarantee for the future.” In its policy vision, the bank states that the price could stabilize or even fall in the coming years. Higher interest rates will reduce investor interest and slow down the financing of agricultural land. In addition, due to numerous environmental, climate and animal welfare measures, the livestock population will probably decline, which may also reduce the demand for land.

Leyten also points to the aging of the agricultural sector. “Over the next ten years, many companies will close down and eventually sell at least some of their land. Partly due to the reduction of the livestock and higher investment costs, we do not expect a proportionate demand for land from new or existing companies with expansion plans.” As a result, the price of agricultural land could fall in the long term. In addition, KBC expects a further reduction in EU income support that is land-related, which could put additional pressure on land prices.

No further increase in the price of agricultural land

Developments in the financial market may also lead to a depreciation of agricultural land. For example, higher interest rates put a brake on the financing of agricultural land. “In addition, investor interest in purchasing agricultural land is decreasing due to rising interest rates and alternative investments that are becoming more interesting. The new lease legislation is also not really stimulating for investors,” says Leyten.

According to Leyten, the transition to more extensive livestock farming and the government’s greening objectives (nature development, afforestation) that the bank expects will be insufficient to drive demand for agricultural land.

The second reason why it is becoming increasingly difficult for farmers to buy land, although this has proven to be a good investment in the past given the price rise, is that KBC (like other Belgian banks) does not take the market value of the land into account when the provision of credit. “During the credit assessment, we look at the profitability of the company and the repayability of the loans and little or no attention to the underlying value,” says Leyten.

Risk of commercial mortgage

Due to the larger gap between the market value and the economic value of agricultural land, the bank is concerned about overfinancing. “Financing the purchase of agricultural land can seriously hamper the development of an agricultural company due to the high credit costs versus low returns,” says Leyten.