Investments in agricultural land are long-term and suited to investors who are content with rental income and possible gains from rising prices for agricultural land. The main goal of INVL Baltic Farmland – to invest into agricultural land in Lithuania and, after renting it to farmers and agricultural companies, to ensure that income from rent will exceed inflation and make a profit from agricultural land price growth. As an owner of shares in private limited companies which invest in agricultural land, the company focuses on increasing the value of land holdings and their ecological sustainability. Considering that the prices of agricultural output are determined in world markets, this investment makes it possible to participate in the global food supply chain.
The group has been investing in agricultural land since 2004.
Advantages of investing in land:
- Agricultural land in Lithuania is undervalued. Agricultural land prices in Lithuania are among the lowest in the European Union, and much lower than in neighbouring Poland. This is due to increased land fragmentation and other reasons.
- Land helps protect core capital and has a low risk. After recent market turmoil, investors are paying more and more attention to capital preservation. Investment in agricultural land is backed by assets which have only a small chance of losing value. Historical data shows that land, in the long term, is characterized by strong core capital preservation features. Unlike investments in non-renewable resources like metals, oil and gas, well-managed agricultural land is a completely renewable resource which remains productive forever.
- Land is a good protection against inflation. Agricultural land, as an asset class, has a positive correlation with inflation. Historically, agricultural land values have risen faster than inflation, therefore agricultural land is an effective insurance against inflation and a capital preservation tool. It may be attractive to investors who are worried about government inflationary policies.
- Land generates stable income. Unlike other popular measures to protect against inflation, such as precious metals, land provides regular income to the investor, which, in a low interest-rate environment, is often higher than the interest rates on deposits or bonds. Although land investments do not bring the highest income in the real estate sector, non- depreciating assets with strong price growth potential and close to 100% occupancy (unlike commercial real estate, demand for high-quality agricultural land is always high regardless of the economic environment) generate income.
- Investment in land is characterized by lower income volatility. By placing agricultural land in a diversified portfolio, investors can reduce the risk of income shortfalls at a time when other assets generate little or no income. While the long-term rise in agricultural commodity prices positively affects the value of land, short-term fluctuations in output prices are assumed by the farmer rather than the landowner.
- Historically land has delivered higher yield. In developed countries agricultural land has had bigger gains than other asset classes, including equities, bonds and commercial real estate, despite the lower risk (measured as the standard deviation of the annual return).
- Land is an attractive means of diversification. The yield on agricultural land yield has a low or even negative correlation with traditional asset classes like stocks and bonds, and a small positive correlation with residential and commercial real estate. These features make farmland an attractive means of diversification which can reduce the impact of general market fluctuations on the diversified portfolio.
- Agricultural land offers advantages over other real estate investments. Agricultural land is classified as an investment in real estate, but has unique features. They protect agricultural land from the types of extreme fall in asset value residential and commercial property experienced during the crisis.