The Act of 14th April 2016 on suspension of sale of property from the Agricultural Property Stock of the State Treasury (APSST) and amendment to certain acts has placed two significant restrictions on trade in agricultural property:
- First, a 5-year suspension of sales of undeveloped agricultural plots belonging to the APSST, excluding land intended for purposes other than agricultural, properties within Special Economic Zones, and properties smaller than 2 ha.
- Second, a restriction on buying agricultural properties not belonging to the APSST, larger than 0.3 ha and not covered by a current zoning plan or any final decision on land development conditions applicable on the day of the Act’s entry into force. Currently, according to the Act, such properties may basically only be acquired by individual farmers (with some exceptions) with the total area of agricultural land owned not exceeding 300 ha.
The Act also identifies several cases in which the Agricultural Property Agency (APA) of the State Treasury has a pre-emptive right to the agricultural properties for a price equal to the market value estimated according to the regulations on real estate management, thus with the participation of a property valuer.
These restrictions will shape the demand and supply on the agricultural land market by changing the profile of the market players, and consequently the market as a whole. As a result, we may expect a periodical decrease in liquidity and price fluctuations.
In this situation, determining the market value of agricultural property covered by the restrictions laid down by law may pose a challenge for valuers, who under the Act will now more often participate in the sales transactions on this market.
The very definition of market value indicates the need for a liquid market, and determining this value requires approaches and methods that reflect the specific property market. The most common method for estimating market value of agricultural properties is the comparative approach (including comparison in pairs or average price adjustment) based on historical transaction data. According to the regulations on valuation, with both methods the valued property is compared with similar properties that have been traded on the market and for which transaction prices, terms of transaction and other features are known. Less liquidity or price fluctuations and new legal conditions of agricultural property sales would create a situation different from that in which sales were concluded before 1st May 2016.
Historical data, which have so far been the basic tool for property valuers, may prove unsuitable in the new legal situation. When assessing the market value of agricultural properties after 1st May 2016, valuers will face the problem of a significantly reduced number of comparable transactions that would reflect the current legal and market conditions. Using transactions concluded before this date will require an additional analysis of the transaction parties, in order to exclude any transactions concluded between entities that are not allowed to trade agricultural land under the new Act. Should such analysis prove impossible, there will be an option of looking at a larger geographic area, analysing transactions concluded on the local market after 1st May 2016, but including the neighbouring communes or districts. However, transactions where the buyer was APA should be excluded from the analysis, so as to avoid estimations based on the market value determined by the Act for APA’s purposes.
Especially at the early stages, until the market stabilises after the Act is introduced, appraisal studies may contain additional clauses relating to risk factors on the demand side and an increased tentativeness of the presented estimates. This will be particularly important in valuation for the purpose of securing debts, where market value of the property has been determined in the Act as the upper limit of mortgage for agricultural properties.
The first weeks and months of the Act being in force will answer the question of the extent to which the changes in regulations have influenced market balance and agricultural property prices. More comprehensive analyses will be possible after the periodic reports by the Central Statistical Office and APA are published, assembling data for the entire country. These will also be a helpful source of information for property valuers, supporting them in the process of estimating the market value of agricultural properties.
Katarzyna Kotkowska MRICS, RICS Registered Valuer
Valuation & Advisory
Licensed property valuer no. 4729
Jakub Budych MRICS
Valuation & Advisory
Licensed property valuer no. 6140