A very good question if you don’t know…and you’re unlikely to as this is not a well known sector. However, as we like to do at Discover and Invest, we can prove to investors that this route offers a high level of secured income backed by some surprising macro-economic fundamentals. It is also a sector we know well and can fully manage for you. Allow me to explain….

The investment concept exists because of the need of many farmers for short-term funds. This is down to either expanding or restructuring their businesses, particularly in light of many new EU directives which require new and costly upgrades. Farmers, as is widely known, are cashflow poor but are extremely asset rich, an asset which can be used to generate an income. This asset is of course their farmland.

What many investors are unaware of is how robust farmland prices actually are. Documented evidence shows that since records began in 1945, UK farmland prices have remained steady in each of the recorded recessions and in many places have barely dropped at all in the last 2 years. Therefore it is important for investors to understand that UK farmland is not affected by economic cycles in the same way as residential or commercial property does. Evidence from a number of independent sources is available in our packs.

So why are farmland values so robust? It is a question of supply and demand. In the UK , farmland for sale is a rare occasion and an exceptional opportunity for a neighbouring farmer to expand his business. In 1945, 1m acres per year were recorded as transacted. The numbers since then have steadily decreased to only 100,00 acres, a huge 90% drop in supply. This has been in the main because farmers have moved from tenants to actually owning their own land. Farms are passed down the generations and in order to succeed, the farmer needs to expand not contract. Therefore a chronic lack of available-for-sale supply coupled with a farmer’s ongoing expansion requirements ensure that values remain robust, regardless of lifestyle buyers. What this means to investors is that farmland, as part of a farm, is a robust product when protecting capital that also produces an ongoing income.

With the lack of funding available from banks, farmers are prepared to enter into leaseback style agreements for their farmland with private investors for an agreed timeframe of typically 2,5 or 10 years. The investor buys a portion of the farmland (usually not the property) at between 50-70% of today’s market value and rents it back to the farmer at around 8% per annum; a very competitive rate in today’s marketplace. Typically the farmer will also pay for the buying costs. The farmer pays his “rent” and then buys the farmland back from investor at the end of the agreed period for the same % discount based on the then market value. Therefore this offers the investor a superb capital gain opportunity and allows the farmer to improve his business profitability in the short-term.

Strong leaseback deals will utilise an agricultural project management team, (as we do), to ensure that a new business plan is in place and so that the farmer is monitored on a quarterly basis for the investor. This ensures a smooth, hands-off and full managed product that so many investors fear they will not otherwise receive. The product is also SIPP/SAAS compliant.

With regards risks, with such a strong initial equity position, you would need UK farmland to fall by more than 30% in order for your capital to be at risk; something which has not happened since records began, nor is it likely when taking into account global demand for food and the fact that we still have not found ways of making food without the use of farmland!

So in difficult economic times, it is possible to find deliverable, high income, secured products. If you wish to find out more, please register or email enquires@discoverandinvest.com

2010; a new year, a new start. But in some ways, we have been here before.

This is not the first time we have experienced a recession, and as tends to happen, governments spend their way out of them. New infrastructure projects, more public sector jobs, and that now oh so familiar phrase, Quantitative Easing, or QE. In other words, the government is flooding the markets with money to stimulate action.

Although deflation has been an equally used buzzword in 2009, as the lack of demand has in some instances had a downward effect on pricing, the smart discussions revolve around inflation, the natural consequence of “too much money chasing too few goods”. Inflation, that by-gone concept of the 1970s! In fact inflation is all around us, with a particularly constant pressure on currency over the years. How many remember when a chocolate bar was 10p?

Although there is a split between forecasters, significant evidence points toward a higher inflationary period and an increasingly weak Sterling/Dollar fuelled by unprecedented government debt. Current house price rises, driven by a lack of available supply are likely to be short-lived rather than upward demand (as sellers wait for prices to go back to “break even” levels) , as the resultant supply increase will outpace demand does increase through higher interest rates. The stock market is having one of its roughest periods on record. Therefore, where can investors look for not only safety, but also results?

In volatile times coupled with vulnerable and weakening currency values, tradable hard assets become investments of choice. The likes of gold, silver, farmland, wine and stamps have proven to retain value in tough times as the measurement and value of cash becomes uncertain. Regardless of the measurement of exchange, or currency, these products show value and become excellent locations to park and secure wealth whilst the world begins anew.

Throughout January and indeed 2010, we will explore inflation hedges in more depth, with the next blog giving investors a comparison of the available options. There are some cracking opportunities even in these times, so I look forward to welcoming you back for another instalment in the next few days.

Since the commodities boom of 2007, investors have increasingly come to realise the underlying benefits of investing in farms. An often misunderstood sector largely due to an unbalanced media view point, this article hopes to redress the balance and inform

In the current climate and to help educate, below are the top 10 reasons to invest in UK Farms:

No over-supply, robust local demand

It has been said many times regarding land, and it is as true today as it ever was, they are not making anymore of it. On top of this, less and less parcels each year are coming onto the market to be sold. According to Reed Business Information’s The Farmland Market Report, there is a huge dearth of land for sale and the volume of sales has been on a steep decline since in 1950. 1 million acres were traded then compared with around 100,000 in 2008; only 10% of the previous high. This is mainly down to the fact that there are many more landowners now than 60 years ago and most do not look to sell unless absolutely essential.

As a result oversupply issues that have hit the commercial and residential property markets are highly unlikely to effect the farmland market. In fact, evidence from experts shows that farm prices remain stable in this and previous recessions and are going up slightly compared to residential property.

As for demand, levels remain strong from local farmers, who are always interested in local businesses as they tend to be “once in a lifetime” opportunities to buy. The only drop has been from lifestyle buyers, who make up a much smaller percentage of the overall market.

Excellent defensive investment against inflation

It is widely regarded that higher inflationary times are around the corner given the extraordinary levels of global government spending combined with the rare sight of extremely low interest rates at the base of a recession. The value of currency has always been eroded by inflation and the next few years may see this increase. There is much talk of a global currency in the future if fiat currencies continue to decline in value. Therefore, the smart investors are looking for tradable assets which can retain their value in more volatile times. UK Farms, and in particular the primeland that they sit on, present such an opportunity to investors.

Tax/pension benefits

Depending on the type of vehicle used, a number of tax reliefs are available to investors, such as Inheritance Tax relief. It is also worth noting that in many cases, farmed land qualifies for SIPP and SASS, the popular UK pension schemes.

The UK presents an extremely secure environment

Due to the UK’s property and land laws, the country is considered one of the safest environments to invest in globally. Although returns may be higher in emerging markets, those investments quite often carry a very high degree of risk.

Undervalued due to weak Sterling

Not only is the UK secure, but its prime farmland can be considered undervalued. The first of these reasons is down to the currency movements. Sterling has declined sharply over the last 18 months, which effectively means the country has a “30% off” sale sign over it. International investors who buy now will have the benefit of profiting from any reverse currency movements as the economy improves.

Buy at 70%, re-mortgage at 100% of the valuation

The second reason for the argument of value is that farms can be picked up in the UK at around 70% of their valued price. This presents not only a capital gain opportunity but also presents a liquidity opportunity. Banks will lend at 100% of the valuation which means an equity release is entirely possible.

8-15% yields achievable

Depending on the project, 8% yields are achievable in the UK; with leaseback deals buying at 60% LTV, the yields are as much as 15.9% based on a project available right now. Compared to the options available in the UK ie. Bank deposits 1%, volatile stock market, property yields dropping below 5%, income is a particularly pleasant current upside for investors.

Buyback option can provide extra investor security

One facet of investment that is always of concern is the exit strategy. If a lease agreement is in place, investors can have extra security that the tenant farmer will buy the farm back at an agreed price level 2,5 or 10 years into the future. If they cannot, this would trigger an event of default, which raises the next benefit of farm investments.

Strong evidence shows farms sell quickly

Again, mainly due to the lack of supply in the marketplace, farms and farmland usually takes 3 months to sell from agent instruction. If you are investing through the right companies, there should be an all-in-one solution available in terms of managing and selling the farm, either by choice or in event of default.

Investment period as little as 18 months

If the farm has been purchased and leased back to the farmer, the investment period can be as short as 18 months. Therefore tie up of capital is the same period unless you are able ot release equity and also allows for potential capital gain opportunities.

Therefore there is a lot to like about farming and agriculture from an investment point of view, particularly in today’s market.

In the current marketplace, it is interesting to note that there is a high level of demand for varying pieces of land with planning permission in emerging markets. Why? Well, the demand is coming from two main types of buyers. Firstly, nationals who have emigrated who wish to buy ready to go land back home to build on or to invest in for strategic future purposes. Secondly, an increasing number of corporates are looking for market share in emerging markets and are seeking strategic sites where they can build commercial, alternative energy or logistics operations. Discover and Invest Ltd., the london based investment consultancy, has recently sourced and launched 3 stunning sites which fit this criteria.

The first site is a 40,000 m2 of strategic land in Plazovets, from a stunning, elevated position 600m above and overlooking the Black Sea coastline in Bulgaria. The company’s project team on the ground are currently one month away from achieving full planning permissions for a ready-to-go property development project. The site is also extremely suitable for Wind or Solar investment projects, with the change in planning for such a project taking in the region of 4-8 weeks. A 10% deposit required which will be held with 3rd party lawyers until planning is approved. It is also worth noting that VAT is not payable on any land purchases in Bulgaria.

The second site is situated around the Bulgarian capital city, Sofia. This is another elevated, well located site of 5600m2, which offers stunning views of Sofia from the desirable upmarket commuter area of Bistritza. The land is strategic due to the fact it is 10 minutes drive from the new Sofia Business Park, 20 minutess to downtown Sofia, 20 minutes from the airport and 30 minutes from Mount Vitosha for winter weekend skiing. The land is suitable for either commercial units, or a high end villa development aimed at the more wealthy city dwellers looking to live near, but not in, the city itself. All the usual amenities exist such as schools and supermarkets, as well as the infrastructure necessary.

Finally, on offer is a rare plot of 980m2 situated in a developed residential area in the commuter zone of Krustova Vada in Greater Sofia. The plot is situated on a built up residential street with all the usual infrastructure and amenities in place. This is a wonderful opportunity to build a large house or small group of townhouses, where the land will be regulated in 2 months with the project team available to complete this if needs be. Again a 10% deposit is required, to be held with lawyers.

So if you are a Bulgarian, or non-national looking for an interesting spot to build or invest in or are commercial firms looking for some options to start operations and gain market share, Discover and Invest Ltd have some unique options for you.

To enquire, please contact Chris Goodman on London 0207 060 4404 or email chris.goodman@discoverandinvest.com

With tough times ahead for the land and property industry in general, it is encouraging to hear of one particular segment that is receiving high levels of demand; namely large land sites in emerging markets with full planning permissions.

Why?  A number of large multinationals are looking for sites in emerging markets to establish market share.  In countries like Bulgaria, there is a general lack of major companies, but this is changing.  In particular, energy companies are interested in sites with strong potential for renewable energy production like solar farms and wind turbines.

Why is full planning permission so important rather than standard agricultural land?  As anyone who has tried to get planning permission in emerging markets will testify, it is not easy; emerging markets have emerging processes by definition!  Multinationals do not want the hassle of going through the planning process and the time factor, which can take a year or more, and in many cases do not have the local expertise to push the process along.  As a result, they are happy to pay the extra for a ‘ready-to-go’ site.  In general, land in emerging markets is much cheaper than established markets so the price is worth paying. Locations that are strategic by nature vary due to the buyer’s sector, but for example, logistics companies look at land near highways or new bridge projects.

So who can benefit from this?  Well, developers for one or anyone holding large sites with full planning permission.  A number will have bought multiple tracts of agricultural land with the intention of building.  The current situation means a number of future projects are either on hold or have been cancelled.  Therefore strong demand from multinationals could offer landowners with strategic sites a credible exit strategy in hard times.

Offering amazing land plots with ideal opportunity to make stunning returns very quickly.

You can find out more about each plot :

Bistritza - A reasonably small project but at the luxury end, the sales will come from wealthy Bulgarians, looking for modern, western-style, luxury accommodation - Click Here For Full Listing

Kastrova - Situated in a residential area, this is an ideal opportunity for a self build or small development project. - Click Here For Full Listing

EcoMount - Unique opportunity for a developer to realise the first eco-project near Sunny Beach. - Click Here For Full Listing