Farmland values in Illinois increased by nearly 6 percent during the first half of this year with investors, both local and national, bidding up the rural properties, particularly in the “collar counties” around Chicago. Rather than focus on short-term problems in the credit and housing markets, many long-term investors perceive an “asset shortage,” and that is driving the price.
By Gene Koprowski
According to a survey released last week by the Illinois Society of Professional Managers and Rural Appraisers, and the University of Illinois, and released by the Illinois Farm Bureau, farmland values have increased by 5.9 percent since January of 2007. Land sold for $9,900 per acre for “excellent quality farm property” during the first two quarters, while the same kind of land sold for slightly more than $5,000 in central Illinois, the survey said.
Only 36 percent of rural properties sold here moved for tax exchange purposes — so called “1031 exchange” properties. Under the federal tax code, section 1031, landowners can swap land with other rural landowners, and defer taxes until later. The percentage of transactions linked to the tax break is down dramatically from 2005, when 56 percent of farmland properties that were turned over for tax purposes, according to the society’s study.
Those surveyed by the society — owners of farmland throughout this Midwestern state, who are also members of the Illinois Society of Professional Managers and Rural Appraisers — told researchers that they expect property prices to continue to increase through the rest of the year.
“Near-term troubles in the credit and housing markets notwithstanding, the U.S. population is putting us on the verge of a looming ‘asset shortage’ and significant inflation,” said Jason Hartman, president of Platinum Properties Investor Network, a financial services firm with 10,000 members, which does business in 33 metropolitan statistical areas (MSAs) across the U.S. “That’s good news for real estate owners.”
Hartman said that there is a long-term “prosperity boom” that is changing the real estate investing game forever. “This will put upward pressure on prices of farmland,” said Hartman, who is based in Newport Beach, Calif.
Another real estate investor, Gene Curtis, the broker/owner of RE/MAX Unified Brokers in Macomb, Ill., told LandReport.com, that “price is not a concern for a lot of the people I deal with” on rural land transactions. “Developers are purchasing the land.”
In downstate Illinois, where Curtis runs his business, another factor that is driving sales is the interest in big agribusiness in cultivating lands for ethanol production. Smaller farmers, whose costs in seed, fertilizer, and other inputs, continue to rise, are selling land to the agribusiness companies.
“In the next year or two, there could be some more shakeouts there,” said Curtis.
The study by the society supported this theory. “Commodity prices caused by new bio-fuel demands have led to renewed interest in farmland among farmers in the last half of 2006,” according to the new study. “This has helped renew growth in farmland prices.”
Some rural property managers here surveyed by the society are, however, worried that “farmland prices may have reached their peak,” according to the survey.
Cash rents increased to $191 per acre and are expected to continue to grow, reaching at least $212 per acre next year. That will be $43 above 2006 levels, according to the survey.
Interestingly, the overall volume of farmland sold has decreased, slightly, during the first six months of this year, and the volume of land sold is expected to remain steady throughout the rest of the year, according to the study, the Mid-Year Survey.