Aggregated land in Romania has double the value of small parcels

Brown & Co research shows aggregating adds value, but consultant Stephen Hall says building value is not always so straightforward.

The capital value of aggregated land is more than double that of fragmented parcels, recent research by agricultural management consultants Brown and Co has shown.

Research involving 1,900 land sales in Romania demonstrated that land which has been aggregated into parcels of 20 hectares of more is worth nearly €5,000 per hectare, while parcels under 2 hectares are worth less than €2,000.

The data was collected from public land registry records with local authorities in Dolj County and represents notifications for proposed sales made in the third quarter of 2015. These are sales where the land title has to be transferred, known as “asset sales”. It does not include “share deals” where shares in a company that holds farmland are bought and sold.

Senior associate Stephen Hall added that land aggregation “can result in €200-plus per hectare in rental income a year, twice what a single hectare alone might achieve”.

“At scale, you can let out land for longer than a year – perhaps 5-year periods. And from a farmer perspective modern farming techniques require expansive areas of land. Machinery is large and needs size to work efficiently,” he told Agri Investor. “Just turning around means you might have to set up the machinery again, and you lose yield by compacting the soil.”

Most farmland in the region is dedicated to rotations of wheat, maize, oil seeds, rape and sunflower plantations.

From an investor point of view, he said: “One title is easier to process in terms of due diligence as a buyer or seller than individual single hectare blocks.”

He added that aggregating land in itself creates opportunity, “but you need to figure out the cost and the risk”.

As we reported in December, Romanian farmland sizes are still some of the smallest in Europe, although the number of overall owners fell by 19.1 percent between 2003 and 2013, and consolidation is expected to continue.

“Aggregating a single hectare could cost €1000 in legal costs and brokerage fees. But you need to complete the project [of aggregating]. Then you consolidate the land and bring the practical and legal status up to speed. Then you bring the value up,” Hall said.

He added that in the last few decades, investors have been stung because they failed to aggregate land within their budgets or time-frames. “There was a little bit of a shotgun approach to acquiring land so that in the latter part of the last decade funds were spending more on consolidating than they were on acquiring. Some have been successful, but some have been unable to complete their projects and had to liquidate.”