Saturday, February 19, 2011
5 Reasons Investors Are Going Crazy For Farmland
I wish that there would have been better ways to get the reality out of Facebook's Farmville, so that everyone would have had dollars in their pockets to give their neighborer some cat and vegetables for free. Anyhow, back to the reality on why investors are getting in cash available to the farmlands
NUMBER 1: Food Prices are Rising
Food inflation leads to core inflation which reflects the rising demand for food and soft commodities like corn, wheat and rice. Sovereigns are rushing to buy land and farmland is becoming increasingly scarce. Recently, a US based fund, Hancock Agricultural Investment Group, snapped up 1,100 acres of land in Quebec, Canada and has plans to seek more properties
NUMBER 2: Inflation is Red Hot
Farmland is "earthen gold" because there is a limited supply of it and if there is any increase in demand, there is a translated increase in food prices and thus, inflation. Globally, the value of farmland has appreciated 2% higher than inflation since the 1950s.
NUMBER 3: Farmland has stable returns
Properly managed farmland is a source of steady income generated by leasing the land to a local farmer to grow crops; the market for productive farmland to lease is very competitive. Since cash rents are generally paid before the growing season begins, this makes the revenue stream from farmland very secure. If for any reason the leasing operator cannot make the rent payment, it is easy to find a replacement tenant.
NUMBER 4: Farmland offers portfolio diversification Developed markets are a better fit for investors concerned solely with wealth preservation even though values are higher, reflecting the sophistication of the agricultural industry. These include Western Europe, USA, Canada, Australia and New Zealand.
NUMBER 5: Tax breaks for buying farmland
In the U.K. income off farmland investment benefits from tax planning advantages if you've lived on the land for two years. Property owners also benefit from a business relief for 5 years if their farmland makes a loss. The U.S. and Canada offer tax incentives as well.
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