Demand for residential farmland plummeted in the second half of 2008, as ‘life-style buyers all but disappeared’, according to the RICS.

In its Rural Market Survey published today it said that the net balance of surveyors reporting a decrease in demand for residential farmland fell from – 3% to -64% in the second half of 2008. Demand has fallen drastically since last year when the net balance was a positive 50%.

It said that the net balance of surveyors expecting price rises in residential farmland fell from -25% to -79% as there is an expectation that lifestyle buyers will continue to retreat while the challenging financial climate persists.

However, the RICS said demand in the commercial sector has fared better with the net balance falling slightly into negative territory. UK banks have become more willing to lend to the agricultural sector over the past year but it said anecdotal evidence suggests that both Danish and Irish investors have withdrawn from the market and a reversal in commodity prices have been a factor in the drop in demand.

The RICS opinion based measure for current farmland prices for bare land fell by 5% with the weighted average price falling from £12,965 per hectare to £12,336. Arable land fell by 9% from £14,453 per hectare to £13,182, while the price of pasture land fell marginally from £11,477 per hectare to £11,490.

However, the RICS transaction based measure for farmland prices, including residential farmland, suggests that the weighted average price rose from £15,825 per hectare to £16,318. The RICS said that historically, the opinion based measure has tended to turn sooner than the transaction based measure, which exhibits a degree of inertia due to the time lags involved in the sale process.

‘Consequently, surveyors have turned pessimistic about the outlook for farmland prices,’ it said. ‘In the non-residential sector, 42% more surveyors expect prices to fall rather than rise - the lowest recorded level since the first half of 2003. In the residential sector, the net balance reached the lowest level in the survey’s history with 79% more surveyors expecting prices to fall.

RICS spokesperson Sue Steer said: ‘The downturn in the economy has made many from the financial services sector re-think their life-style priorities, putting an end to city expansion into rural areas. Prices for farmland peaked in the first half of 2008 and lower commodity prices and an uncertain financial climate could push prices lower in the first half of 2009.’