In discussions on real estate investments, leased apartments and commercial real estate often come up, but buying forest land or agricultural land as an investment is much rarer, even though this option is significantly safer and at times also more profitable. A simple example: if you had purchased an apartment in Tallinn in 2004, then by 2018, the median price on the apartment market had risen by 150%. However, the median prices of forest land and arable land increased by 248% and 757% in that time, respectively. This means that investing in agricultural land was nearly three times as profitable, more stable, and had less risks than a long-term investment in leased real estate.
Why is agricultural land a good investment?
The world’s ever-increasing population requires more and more food – and there is no end in sight for this growth. The increasing demand in the food industry leads to a stable increase in the value of arable land throughout the world, including in Estonia. Even though the economic cycle has its ups and downs, which occasionally bring about setbacks in the real estate market, the value of agricultural land is slowly but unerringly increasing. This means that investing in agricultural land is something to consider for the purposes of maintaining assets as well as making a steady profit.
Compared to leasing apartments or commercial premises, for example, investing in agricultural land requires a less hands-on approach and allows to avoid various contracts and fixed expenses (e.g. utilities). By leasing agricultural land, the usual procedure is to conclude a long-term lease agreement with one lessee and leave the management of the land up to them.
In addition, arable land is a relatively liquid investment, as agricultural enterprises are increasingly looking for ways to acquire agricultural land due to the hike in lease prices. As there is plenty of demand, there are always numerous buyers on the market who are willing to buy the land at the right time and price.
Who can benefit from investments in agricultural land?
Due to its fixed or steadily increasing value, investing in agricultural land is suitable for maintaining assets as well as for making a steady profit. Depending on the plot’s location, accessibility, soil fertility, and demand, lease income may range from €20–100 per hectare. The average price is approximately €50 per hectare. This, however, means that to earn an annual profit, the plot of agricultural land must be larger.
Investment in arable land is suitable for those who wish to invest more and manage their property less. Arable land in the investment portfolio ensures a steady growth of investments and a fixed lease income. In 2004–2018, the median hectare price of arable land has increased by 757%, which means that those who invested in arable land early have already reaped some considerable benefits. Main contributors to the price increase are various EU benefits. As the hectare prices of agricultural land have not yet reached the levels of Nordic countries, there is still room for growth.
How to earn a profit from the investments in arable land?
Most commonly, agricultural land is leased to a single lessee under a long-term contract while relying on the stable growth of the value of the plot. However, to maintain the value of the land, it is important to keep an eye on how the lessee manages your land – excess cultivation, fertilisers, and pesticides burden the land significantly.
The profitability of an investment in agricultural land largely relies on lease income, easier management compared to residential and commercial real estate or forests, and the stable and relatively certain price increase.
What should be kept in mind when investing in agricultural land?
Agricultural land is a great investment for people who wish for a safe investment that is not overly labour intensive. The only tasks after the purchase are to find a reliable partner with a good lease price, with whom a long-term lease agreement can be concluded, and wait for the increase in the value of the land due to the ever-increasing demand and the inevitable growth of the food industry. However, a few reminders are in order for investing in agricultural land:
- It is a long-term and relatively risk-free investment.
- The profitability of the investment is usually ensured through a stable lease income, little need for administration works, and the consistent growth of the price of arable land.
- It is relatively easy to quit an investment at any time as there are plenty of potential buyers on the market.
- A larger investment is required to earn a substantial annual profit.
- The price of arable land is growing steadily – in 2004–2018, the increase was 757%. The growth is mainly spurred on by benefits from the EU.
EstEst PR – an experienced partner in land transactions
We have more than 20 years of experience in transactions with and management of forest and agricultural land. We are constantly selling a large number of plots to investors interested in forest land, agricultural land, as well as residential land.
Reliance on our long-term experience helps us find a plot of land to suit the needs of each buyer. Need assistance in purchasing arable land? Contact us at 514 5215 or write to info@est-land.ee.
