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Investing in Land - Agricultural REITs

2011 Sep 1

 

Investing in land

I have noticed an increased interest in agricultural land investments during the last period. And I can it understand completely. When stocks are so volatile and bonds may offer such low returns you have to look for some more appropriate investments. The first idea may come about investing in gold, but after some consideration we should come to conclusion – that is too risky. 

 

So what then? And here we come to land investing. Land was valuable for centuries, and land investments now have the conditions to be valuable even more: population growth over the world increased demand for food very strongly, all kinds of nature disasters make damage for harvests every year (that pushes prices of products up), high commodity prices increased prices for all agricultural products. 

 

Investing in land especially is attractive in Europe, where farmers are getting huge direct payments from EU budget programs. In some cases such support payments may bring even more income than normal sales of products. 

 

However, if you regular retail investor, and you think that land is a good investment; you can’t just start buying all the land on yourself. You can of course, but it will bring to you a lot of trouble. The land won’t bring any income, if you will not work with it. But you will be needed to pay taxes, so you would have only expenses. To get income, you should farm that land by yourself or rent the land for farmers and do just a paperwork and supervision of your fields. It still takes a lot of time. 

 

Agricultural REITs

If you want to save your time, the best option for you might be agriculture REIT.  (Real estate investment trust (REIT) is a corporate entity that invests exceptionally in to real estate sector). You may invest in agricultural REIT shares as in any regular shares and it does not take more time from you. 

 

The hardest think would be to find a proper agriculture REIT for investment. And I will try help with this and mention few possibilities. 

 

A very attractive market for land investing is Bulgaria. (Read more about investment in Bulgaria). Bulgaria is an EU country, so farmers are getting EU budget support and this country has a good climate and very fertile land. Bulgarian stock market is rich in REITs and those are main agricultural REITs:

 

 

Agricultural REITs in Bulgaria
   Ticker   P/Bv* 
Advance Terrafund REIT 6A6 0.7
ELARG Agricultural Land Opportunity Fund REIT 4EC 0.7
Bulland Investments REIT 5BD 0.6
Agro Finance REIT  6AG 0.7
Agricultural Land Opportunity Fund Mel Invest REIT 6A7 0.5

* P/B is according data of Bulgarian Stock Exchange

 

Some of those agriculture REITs are lack of liquidity, especially if you would like to invest in larger amounts. For average retail investor they still might some good choices for long term investment (spread is not so painful when investments are made for long term). 

 

One more important reason for Bulgarian agriculture investments is the price. For example, ELARG Agricultural Land Opportunity Fund REIT at the beginning of the year had 28,481.7 hectares of land and now market capitalization of the REIT is 41.8 mBGN (company’s total liabilities are almost equal to short term assets we just ignore them). So in this case, if you are buying its shares you are paying 750 EUR/ha. Or in imperial standards that would make 436 USD/acre

 

We can take another example, Advance Terrafund REIT: market capitalization is 117 mBGN, free cash at balance sheet is 44 mBGN and land portfolio is 30105 hectares. In this case you are paying 1240 EUR/ha. Now the price for the land is higher, but this REIT also owns valuable city land and we did not make any adjustments for that.

 

Bulgaria is just an example, but I believe a good one. Of course you have to do your own analysis and remember that is an emerging market country and possible volatility may be very high. 

 

Also you may interest in Australian agricultural REIT that focuses on forestry: The Agricultural Land Trust

 

 

 

Rokas Lukosius - investing book author

 

* Disclaimer: an author of the article might have been invested in stocks/assets that are mentioned on the article directly or indirectly. 

 


Read next article: What to Do With Investments in Current Turbulence?


Other articles you may like:

Investment in Bulgaria

Investing in Russia

Investing in Africa

Investing in Gold





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