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Takarék Land Price Index 2017

According to the completed and processed transactions, the year of 2016 brought continuous growth in prices on the agricultural land market. The value of agricultural land has exceeded the level of 2015 by 11.2 percent in average, setting the average price at 1.22 million HUF per hectare for farmland in Hungary. According to our data, the land prices have doubled in the past five years. Based on the correlation between the growth of land prices and revenues attainable with agricultural activities, this price level is not exaggerated. According to TAKARÉK Agricultural Land Price Index analysis, about 2.5 million HUF per hectare of farmland with an average aptitude would be the price level above which the cash-flow based returns become questionable. Since FHB is operating as a member of Takarék Banking Group, this year the TAKARÉK Agricultural Land Price Index reflects our collaboration with experts from Takarék Agricultural Directorate.

1. TAKARÉK Agricultural Land Price Index – Price increase accelerated further on the agricultural land market

In 2016, TAKARÉK Agricultural Land Price Index has repeatedly shown a price increase, even higher than the previous year, although it was still behind the period between 2012 and 2014. The repeatedly growing dynamics of prices seems surprising at first because the turnover significantly dropped during 2014 due to the new Act on the Transfer of Lands used for Agriculture and Forestry (TL Act.).

The value of TAKARÉK Agricultural Land Price Index in 2016 elevated from the level of 162.4 recorded previous year to the level of 180.5, while the index value deflated by CPI rose from 133.4 to 147.7. The rise of TAKARÉK Agricultural Land Price Index showed acceleration anew, after a double-digit price increase during previous years has lessened to a one digit price increase in 2015. (Figure 1.).

We have revised the TAKARÉK Agricultural Land Price Index figures from the beginning of 2008 and chose this year as a base for determining the index-numbers.

Figure 1. TAKARÉK Agricultural Land Price Index – nominal and deflated by CPI (Source: TAKARÉK Agricultural Land Price Index)

During 2016 we have experienced a double-digit growth again in the nominal value of agricultural land. The prices increased by 11.2 percent while in 2015 the growth rate was 9.9 percent. In the same time, the result of 2016 did not achieve the rate of expansion experienced before tightening the property acquisition right, when the period between 2012 and 2014 was characterized by a growth range between 12.4 and 15.6 percent. The value of agricultural land in 2016 rose by 10.7 percent in real terms compared to the previous year, which is repeatedly less than it was in 2013 and 2014, but exceeding not only the value recorded in 2015 but also the one in 2012. Despite the expectation that the tightening of property acquisition regulations will cause price stagnation, this is the second year when price increase has the star turn.

The significant price increase experienced in the past two years, with the extent of its acceleration, seems surprising because the rise in 2016 was shortly behind the growth registered in 2012 and 2014, years when the pricing dynamics was under strong influence of heightened purchasing strain prior to introducing the new TL Act. Furthermore, the price increase between 2015 and 2016 could be interpreted as especially high, if we consider the years prior to 2012. One of the factors of the increase, in our opinion, was the program named “Provide Land to Farmers!” and the related financing opportunities. The trading transactions of the Program have not yet been completed, and for this reason, they are not taken into account for Agricultural Land Price index of this year. However, according to our preliminary calculations, a further price increase took place; the countrywide average price per hectare was HUF 1.4 million for the transaction volume of 185 thousand hectares.

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