A sharp rise in the price of rented land in France

On average, a hectare of rented land has a market value of €4,930 compared to €6,080 for unrented land, i.e. a discount of 19%.

This price increases by 3.57% (compared to 1.33% for free land)

The difference in valuation between land taken by lease or free of lease is narrowing year after year (it was 26% in 2015 and 25% in 2012), a sign of the current attractiveness of agricultural land.

Why is there a discount on the price of rented land compared to free land?

The price of leased land is usually lower than the price of free land. This is due to the particularities of the rural lease system.

When agricultural land is rented under a rural lease, the farmer is in place for a minimum of 9 years and also benefits from a right to renewal at the end of the lease. Apart from cases where the farmer retires, the lessor takes over the farm (under certain conditions), or where there is a fault in the execution of the lease, the lease is intended to continue. The desire to sell the land is not, for the landowner, a valid reason for not renewing the lease.

Therefore, where the land is leased, the lessor who wishes to sell may do so:

• to its farmer
• to an investor who will receive a rent
• to a farmer who will wait for the end of the lease to exploit the land (note that the conditions for the lessor to take over the land are very strict and require several years' advance notice).

And the farmer will always have a preferential right to buy the land and can also appeal to the Tribunal Paritaire des Baux Ruraux if the proposed transfer price seems excessive.

In practice, this complex legal situation results in a discount of up to 30% compared to the price of free land in some regions.

Is investing in agricultural land a good investment?

Buying farmland for an investor is an investment that has advantages but also constraints.

• The profitability is currently quite good with average returns of between 1% and 5% depending on the amount of rent (note that rents for agricultural land are regulated).
• The profitability of this investment depends on both its rental yield and the evolution of its value over time. Over the last 30 years.
• When the land is rented under a long-term rural lease, the investor can benefit from significant reductions in inheritance tax, gift tax and property wealth tax.
• The value of land is uncorrelated with the financial markets, which makes it a safe investment in the event of a financial crisis.
• Historically, the high inflation of the 1970s and 1980s had a very unfavourable effect on the value of property, which rose less quickly than inflation.
• It is an investment for the very long term: it is a very illiquid investment. That is to say that the resale of the property can take a very long time due to the constraints of rural leases.

In summary, investment in agricultural land can be of interest to the estate. The characteristics of this type of asset must be taken into account, as well as the asset situation and objectives of each individual.

Line Chart
Infogram

Source : Agreste - Valeur vénale des terres en 2020 - Août 2021

The Statistics and Forecasting Service (SSP) of the Ministry of Agriculture and Food publishes an annual document on the market value of land in France. This publication is produced jointly with the Fédération nationale des sociétés d'aménagement foncier et d'établissement rural (FNSAFER).
These values are calculated from the data of the SAFER on the basis of the notifications made to it on sales of agricultural land free of rural leases in France.

The annual price is first calculated per small agricultural region grouped together. This is a gross three-year average price per hectare from the three-year sample. Sales of less than 70 ares, containing buildings or considered outliers are removed from the calculation bases. Then averages are calculated at county and regional level.

"The price information used for these calculations comes from the rural land market observatory set up by the Safer. This is based on all the notifications of proposed sales that notaries are required to send to Safer under the Rural and Maritime Fishing Code. This information covers the entire market for natural areas (agricultural and forestry). It makes it possible to monitor the flow of the land market and measure the evolution of real estate prices. 
All prices indicated are calculated on the basis of transaction values. They thus reflect the state of the agricultural land sales market. 
Two calculation methods coexist depending on the geographical level considered: 
- three-year averages are calculated at the level of small agricultural regions1 (sub-departmental zoning) and departments; 
- annual regional and national prices are calculated from annual regional indices defined by hedonic models. These econometric models make it possible to estimate an annual price change, which neutralises the change in the quality of goods offered for sale from one year to the next.