Thursday, June 5, 2008

Real Estate as Substitute for Commodities?

Some of you may have noticed the poll in the right-hand column of our blog asking for your opinion on the next hot property type and including the option of 'farm land.' This article in today's NYT shows that agricultural land is getting hotter as more institutional investors use land acquisition as a way to make bets on rising food prices. As the lending world catches up it will be interesting to see if these investors can leverage up their commodities bets with low-interest, high leverage, real estate backed loans.

This article also struck me as one of the few times I've seen Sub-Saharan Africa listed among property markets receiving interest from institutional investors. Could this be the innovation needed to add African countries to the list of true emerging markets in real estate? Institutional investment on this scale sounds like a potential boon to a continent that has been off the radar screens of international capital for decades.

Another question is the effect that institutional investment in farm land will have on the 'green movement.' These two trends are intertwined on many levels - increased production and use of biofuels; open space preservation; and revaluing of ex-urban land to reflect agricultural uses instead of development - but the relationship between agricultural investment and the greening of the world's economies is highly complex and will need to be approached carefully from the start.

Finally, let's hope that since the current interest in farm land was prompted by a bubbly run-up in food prices investors will be careful not to create yet another hype- and liquidity-driven bubble in the price of farm land. This article outlines the already steep price run-ups of some agricultural stocks.


Llenrock Group

No comments: