(Investor Today) Farmland property outperformed commercial markets for the third consecutive year according to the IPD UK Rural Investment Property Index, sponsored by Smiths Gore and Carter Jonas.

The index measures the performance of farmland and rural property worth just under £2billion held by institutional and private investors.

"Capital value growth was again the main driver of total return performance, delivering 8.2% return last year," said Gerald Fitzgerald, Head of Property Valuations and Investments.

"Of overarching importance to investors is the fact that farmland continues to perform well during recessions and is a useful asset to have in a portfolio.

"The capital drivers remain three-fold; farmers buying land when the opportunity arises, people purchasing for lifestyle and leisure reasons and investors purchasing for the fiscal benefits."

Although the recent election had the potential to rock sentiment in all markets, the threat to some of the new farm investment funds of changes to Inheritance Tax reliefs has receded with the advent of a Conservative-Liberal Democrat Government which supports farming.

In 2009, rural property delivered an 8.2% return compared with residential property (11%), equities (30.1%), commercial property (3.5%) and bonds (-0.3%). However, over the three, five and ten year picture, rural property consistently outperformed all asset classes.

"Although rural property does not provide the high income return that other asset classes can produce in the short term, it does have long-term potential for capital growth," Fitzgerald said.

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