Farmland is being targeted by a new breed of investors, fuelling demand and raising land prices, according to the latest rural land survey published today by RICS (Royal Institution of Chartered Surveyors).

The average price of farmland for the third quarter 2004 continues to edge closer to £10,000 per hectare, with price rises rivalling those of the residential sector in the past year.

RICS finds that overall prices have risen by up to 30% in 12 months and 130% since the early 1990s. Although land prices continue to rise, this has not weakened demand as non-farmer buyers look to farmland as a source of investment potential.

A possible reason for this could be relief from inheritance tax, but a more likely explanation centres around non-farmers buying neighbouring farmland to protect the expensive residential property they have purchased.

Latent demand is strong but sellers are few, so sales have declined to their lowest level recorded by the survey.

Despite the sale of farmland declining noticeably over the third quarter, surveyors remain confident that farmland prices for the next 12 months will continue to rise.

It is expected that rising interest rates will curb future rises in farmland prices, while clearer understanding of the Single Farm Payment regime may lead to more availability of land next year.

RICS rural spokesperson, Sue Steer said, "More and more people are being turned on by land as an investment vehicle. These are not just downshifting city slickers but also those looking for a viable investment alternative to bricks and mortar or the stock market."