Stable prices disguise a growing divide between purely commercial farms and those with residential or amenity appeal, says the Royal Institution of Chartered Surveyors (RICS) in its latest quarterly survey of the agricultural land market in England and Wales.

The survey shows the average price of farmland - which hurdled the £7,000 barrier over two years ago - has now stabilised at £7,400 per hectare. This average conceals a two-tier market, with purely commercial farms seeing the biggest reductions in value while residential farms with good amenity and sporting potential are still very desirable. Respondents in the South and Midlands report a shortage of farms to satisfy demand while commentators in the North indicate a clear move away from the farmer-led market except for the very best quality land.

As expected, the market for beef and sheep farms reflects falling profits. In the survey between 83 and 87 per cent of chartered surveyor land agents expect beef/sheep farms as well as dairy and arable units to decline in value over the next six months, while 40 per cent think that residential farms will increase in price. The value of cereal growing land is beginning to decline as demand falls by between 10 and 20 per cent since last autumn.

RICS rural market spokesman Anthony Mayell said: "Our report shows that falling farm incomes and uncertainty surrounding CAP reform is instilling a sense of caution in farmer-buyers. But this is only one factor in a market buoyed up a strong residential element - borne out by reports from areas such as Devon where a predominantly residential farm market is still very active. Let's not forget that bare arable land is still showing a five per cent return thanks to historically low interest rates, and versatile land - capable of growing cereals and roots - continues to hold its value."

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