Agricultural investment: another string to your investment portfolio?

Agricultural investment: another string to your investment portfolio?

Hitherto Poland's Warsaw-centric real estate community has focused almost exclusively on urban investments. By and large these office, retail and warehouse schemes have served investors well. As returns drop, however, could investment in agricultural property offer additional opportunities to complement urban real estate?

In established property markets investment in agricultural property has historically been considered a safe bet by institutional investors. ,In Western Europe agricultural land is one of the most sought after commodities for investors as their prices seldom fall," says Giles Peberdy of land agency consultancy Anglo-Agri. In Poland to date, how-ever, agricultural investment has hardly been considered at all. As one German investment fund commented, ,Investment in agriculture is not on our radar screen". This response, which was fairly representative, Peberdy claims not to be surprised about. ,Here in Poland, institutional investors have not been in the market long enough to diversify their portfolios to include agricultural investment, particularly as little in-house knowledge on rural land management is available. However we are seeing keen interest from foreign based institutions who are more familiar with this type of investment". Adam Oliver of UK-based agency Brown & Co, which opened an office in Torun in 1999, agrees. ,Institutional investors have long taken an active role in Western European agricultural property markets, viewing investments in the sector as providing long-term growth and stability with reasonable yields, as well as balancing their investment portfolios. I'm always conscious of not wanting to model Poland on entirely different countries, but we expect agricultural investment to develop in Poland.
That's one reason why we're out here. To what extent it develops, however, depends on how freely the market here is allowed to progress", he said, adding that Polish and German insurance companies have already been making serious enquiries.

Agricultural land in Poland at 15% of EU average value With agricultural land in Poland currently only c. 15% of the average value in Western Europe (see chart), potential is certainly not being ignored at a non-institutional level, however. ,Clearly a number of clients and individuals are looking at Poland's EU accession and after to see how capital develops," says Oliver. Many of those interested are farmers from all across Europe, who are coming to Poland to take advantage of lower capital and running costs. It is these farmers who will be make up the bulk of product for potential purchases by institutional investors in due course. Already, however, their numbers are substantial. Official government figures state that 125,000 hectares are under foreign tenancy in Poland, but according to the Dutch consulate in this country, 200,000 hectares are tenanted by Dutch farmers alone. The total figure for all foreigners could be as high as 2 million hectares, according to one source.

Land prices unlikely to rise dramatically on EU accession To what extent land prices in Poland increase on accession to the EU remains an open question. Some analysts saw the recent failure of Polish property investment fund Skarbiec's failure to raise its capital target as down to the fact that it planned to invest in land. Collectively the arguments against a dramatic rise in land prices are that Poland will be one of a number of countries joining the EU at the same time, thereby blunting its impact, and that Poland's likely EU entry has already had its effect on land prices.
One uncertainty out of the way, however, is a resolution to Poland's negotiations with the EU concerning the purchase of land by foreigners. The Polish government has negotiated a 12-year exclusion period for foreigners wishing to buy land, a period which is reduced to 7 years for those already renting in the north and west of the country and 3 years to those renting in the south and east.
To what extent institutional investment in agricultural property becomes a force in Poland's commercial investment remains to be seen, but, if Western Europe is anything to go by, it will be a reasonably sized force.