Agricultural land valuation in Ireland : a discounted cash flow approach

Valuing real estate is a key requirement for various stakeholders in the property industry. There are many challenges that include the issue of liquidity, individual real estate charachteristics and lot sizes. As this creates difficulties and with limited sales evidence – an analysis of future income streams (including discounted cash flow approach) is one of the accepted methods of valuing a real estate asset. The rationale for this research emerged from an issue facing the professional doctorate candidate in practice. The researcher identified (1) the lack of comparable sales data and (2) the reliance on the comparable method of valuation in the agricultural land market in Ireland. Drawing on his professional experience the researcher observed that in the absence of data or alternative methods of valuation it can lead to non-evidence based opinions of value. The researcher set out to investigate this problem with the aim to provide insights into the valuation of agricultural land in Ireland. The research commences with a historical review of the agricultural land market in Ireland which provides context on the research problem. The reasons for the lack of agriculture land sales are explored. The research proposes and produces a long run dataset of agricultural land sales and rentals from the researchers’ firm’s (Smith Harrington) records. The literature review goes on to review alternatives methods of valuation. It identifies the discounted cash flow (DCF) method as compatible with the culture and conceptual framework. This leads to the primary research question of the study ‘Can the DCF method provide supportive evidence in the estimation of market value of agricultural land in Ireland’. The research develops a model to test this question drawing on investment theory and analyses the results from the model against the sales records from the Smith Harrington dataset. The findings suggest that the DCF model proposed can provide supportive evidence in the valuation of agricultural land in Ireland. A further output from the research is a series of market discount rates. The researcher reasons that improving the availability and accessibility of agricultural land market data through the publication of the Smith Harrington dataset, identifying and testing alternative methods of valuation and discussing these findings, limitations and areas of further research provide a valuable tool for the Irish property industry, insights into the valuation of agricultural land in Ireland and are valuable contributions to knowledge