Understanding the restrictions

The regulatory environment for foreign investment of farmland is not only complex but varies by country.

3 April 2014, Words by Nicola Buckingham

 

To the overseas buyer looking to buy agricultural land, a knowledge and understanding of the restrictions and policy on foreign ownership is crucial.

The policy and regulatory environment for foreign investment of farmland is complex and varies significantly. In some countries, the ownership of agricultural land is prevented on all types of land. In others, there are restrictions on the location, size and types of property that can be owned.

Sometimes there is specific criteria surrounding the skills and character of those who can acquire private ownership of land. Table 4.1 illustrates how the regulatory environment for foreign investment of farmland can differ by selected countries.

In addition, as the interest in foreign ownership of agricultural land increases, the rules can and do change. Lobbying from local people, or a change in government policy can lead to a change in the regulations. For example, a new law recently introduced in Uruguay bans Sovereign Wealth Funds but private investors will not be affected.

Eastern European countries have experienced considerable change in their land market policy. For those countries that joined the EU in 2004, the rules on foreign investment have opened up since 2011. Lithuania, Hungary, Latvia, Slovakia, Estonia and the Czech Republic were granted a seven year transitional period, where they could maintain their existing legislation restricting the acquisition of agricultural land or forest until 2011.

Romania was also granted a seven year transitional period from accession in 2007. However, these restrictions did not fully constrain foreign investment as there were differences within countries in the implementation of this rule. Conversely, in Hungary foreign investment has become more regulated.

Advice should also be sought on the rules surrounding the selling of farmland in different countries, because if restrictions change the demand may be limited. Argentina is an example of where the rules changed, and farmland cannot be sold to overseas investors until the political situation changes.

In some countries the option to lease is possible and this is a realistic and viable investment option.

Table 4.1
 
Hungary

Foreign investment regulated

■ Following accession in 2004, Hungary was granted a seven year transition period to prohibit land purchases by foreigners until 2011.

■ This transitional period was extended until 2014 which should have opened the land market to the wider EU from 1st May 2013.

■ However, in June 2013 a law was passed – the Hungary (Land Act). This restricts land ownership to professional farmers who have lived and worked in Hungary for at least three years.

■ Currently foreign investors can only acquire farmland by purchasing a company where farmland is an asset of that company. However, the company structure must have been established before 1992 and the assets acquired in the company prior to the restrictions.

■ Romania was also granted a seven year transitional period from accession in 2007. However, these restrictions did not fully constrain foreign investment as there were differences within countries in the implementation of this rule.

 
Zambia

Supporting foreign investment

Zambia is seeing a strong surge in capital values through secondary market transactions of commercial farmland. In Zambia title is available through long leases of 99 years which are renewable. Zambia has proven to be stable and secure since independence and a proven secondary market of traded commercial farms underlies the tenure security.

Whilst governments are subject to change, Zambia has a proven long term policy of supporting foreign investment and commercial farming particularly through the Zambian Development Act for agricultural infrastructure projects and irrigation development.

These positive market conditions and the infrastructure investment has supported the growth of commercial farms over the past 30 years allowing the farmland market to evolve. Values reflect the political and economic situation, the infrastructure and operational development and market maturity.

 
 

Key Contacts

Ian Bailey

Ian Bailey

Director
Rural Research

Savills Margaret Street

+44 (0) 207 299 3099

 

Hugh Coghill

Hugh Coghill

Director
International Farmland

Savills Margaret Street

+44 (0) 20 7016 3818

 

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