My neighbour had agreed to sell me the field adjoining my house, but now wants more money for it, as he says that land is now more valuable. Is this correct?

TC, by e-mail

Just as the housing market has boomed, so the cost of land has increased dramatically over the past two years; the Royal Institution of Chartered Surveyors (Rics) says that prices have risen by nearly a third, from an average £2,700 per acre in late 2004 to £3,500 per acre at the beginning of last year. Why? Higher commodity prices (cereal prices have doubled); increased demand for biofuel production; demand from nonagricultural buyers; the exemption from inheritance tax; and the influence of residential values on amenity land. Some overseas investors, particularly those from Ireland and Denmark, also regard British farmland as cheap relative to that in their own countries.

By definition, the supply of land is limited, and there has been a relative shortage of it coming onto the market. Although the livestock sector has not fared so well recently, confidence in agriculture’s long-term prospects is growing, which might remove pressure on farmers to sell.

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The value of land depends on what it is, where it is, its size and who wants it. Small blocks of amenity land in the south of England might sell for £20,000 per acre, and larger blocks of arable land might fetch up to £5,000 per acre, but relatively unproductive grassland will be much cheaper. As the farming sector continues to improve, rents will tend to rise, but the income that land produces is usually quite small compared with its capital value. If an average acre costs £3,500, then an average rent will probably be less than £100 per acre.

Bearing all this in mind, your neighbour is right to argue that his land is now worth more. For more information, visit www.rics.org.

Philip Eddell is head of the country-house consultancy department at Savills; www.savills.com

E-mail your questions to propertyexperts@sunday-times.co.uk

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