Not all farmland sits in prime agricultural regions. A lot of Canadian farm property is what we’d call rural or marginal agricultural land.
Let’s talk about what’s happening with values for this type of property, how it differs from prime farmland, and what lenders think about financing it.
Defining Rural Agricultural Land
When I say rural agricultural land, I’m talking about properties that have agricultural use but aren’t in the prime grain-growing areas or established livestock regions.
This might be mixed farm and forest land. Properties with some cultivated acres and significant bush or pasture. Smaller acreages that support hobby farms or part-time operations. Land that’s agriculturally productive but not at the intensity of prairie cropland or southern Ontario farms.
These properties serve important roles. They support smaller-scale farming, provide rural lifestyle opportunities, offer hunting and recreational values, and maintain rural landscapes. But they trade in a different market from prime agricultural land.
Value Drivers Are Different
Prime farmland values are driven primarily by agricultural productivity and commodity economics. If you can grow good crops or run profitable livestock operations, the land has clear economic value.
Rural agricultural land values are driven by a more complex mix of factors.
Agricultural productivity matters, but it’s often not the dominant factor. A property might have modest crop production potential but significant value from other attributes.
Lifestyle appeal is huge. People want rural properties for the quality of life, the space, the privacy, the connection to nature. They’re willing to pay premiums well beyond what agricultural income alone would justify.
Recreational value drives prices in many areas. Hunting, fishing, wildlife viewing, these amenities create value for buyers who aren’t primarily focused on farming income.
Proximity to cities or towns affects values significantly. Rural land within an hour or two of urban centers commands premiums because buyers can have rural lifestyle while maintaining connection to employment and services.
Development potential, even if distant and uncertain, influences values. Land that might someday be developed or subdivided trades above pure agricultural value.
Regional Patterns
Let’s look at where rural agricultural land sits in different parts of Canada.
In Ontario, anything within reasonable commuting distance of Toronto, Ottawa, or other cities trades at prices driven by lifestyle buyers rather than agricultural economics. You might see $8,000 to $15,000 per acre for properties that generate modest agricultural income. The value is in the lifestyle and potential, not the farming.
Quebec has extensive rural agricultural land, particularly in eastern regions. Values are more moderate, often $4,000 to $8,000 per acre, but still elevated above pure agricultural value because of demand from urbanites seeking rural retreats.
The Maritimes have significant amounts of rural agricultural land. Values are generally lower than central Canada, often $2,000 to $5,000 per acre, but demand has been increasing as the region attracts both interprovincial and international buyers.
British Columbia rural agricultural land varies enormously by location. Anything on Vancouver Island or in the Lower Mainland with agricultural designation trades at very high prices. Interior rural properties are more moderate but still command premiums for recreational value.
Alberta and Saskatchewan have rural agricultural land in the parkland and northern regions. Values are lower than prime grain land, often $1,000 to $2,500 per acre, and more closely tied to agricultural use, though recreational value for hunting and fishing factors in.
The Buyer Profile
Understanding who buys rural agricultural land helps explain pricing.
Pure agricultural operators do buy these properties for farming purposes, but they’re price-sensitive. They need the land to generate returns and they can’t pay lifestyle premiums.
Part-time farmers or hobby farmers are significant buyers. These are people with off-farm income who want some agricultural activity but aren’t dependent on farm income for their livelihood. They can pay more because they value the lifestyle and don’t need full economic returns.
Lifestyle buyers with no farming intent buy rural properties for the amenity value. They might keep some land in agriculture, perhaps renting it to farmers, but their primary value is the rural experience.
Investors and speculators buy in areas where they see appreciation potential, whether from development pressure, recreational demand, or general rural real estate trends.
Recreational buyers focused on hunting, fishing, or outdoor activities will pay premiums for properties with those amenities.
Financing Challenges
Rural agricultural land is more challenging to finance than prime farmland for several reasons.
Values can be hard to assess. Comparable sales are often limited. Properties are unique in terms of mix of agricultural land, forest, buildings, and amenities. Appraisers have difficulty pinning down precise values.
Income generation is often modest or uncertain. If a property doesn’t produce significant agricultural revenue, lenders can’t rely on operating cash flow to support debt service. That means the borrower needs other income sources.
Market liquidity is lower. Prime farmland has ready buyers when it comes to market. Rural agricultural properties can sit unsold for extended periods if pricing is aggressive. Lenders worry about being able to recover their money if they need to foreclose.
Property conditions vary widely. Some rural properties have well-maintained buildings and good infrastructure. Others have deferred maintenance, inadequate wells or septic systems, and challenges that affect value.
What Lenders Look For
When agricultural lenders evaluate rural property financing, here’s what matters.
Borrower income and credit are paramount. Since the property might not generate enough income to service debt, lenders focus heavily on the borrower’s other income sources, employment stability, and overall creditworthiness.
Loan-to-value ratio needs to be conservative. Lenders typically won’t go above 65% to 70% LTV on rural agricultural properties, and often prefer 60% or lower. They need equity cushion because of valuation and liquidity uncertainty.
Property access and services affect value. Year-round road access, good water supply, electricity, these basics are important. Properties without these are harder to finance.
Highest and best use is analyzed. Is this property best suited to continued agricultural use? Recreational use? Potential residential development? Lenders want to understand the property’s most likely future use.
Local market conditions matter more than national trends. A rural property in a growing area with active market is much easier to finance than one in a declining region with limited buyers.
Types of Lenders
Different types of lenders approach rural agricultural property differently.
Major banks are often cautious. They have lending policies designed for prime agricultural land, and rural properties don’t fit well. They’ll finance strong borrowers with significant equity and clear repayment capacity, but they’re not aggressive.
Credit unions, particularly rural-focused ones, are often more flexible. They understand local markets, they have experience with rural properties, and they’re willing to work with borrowers who are good community members even if the property doesn’t fit standard criteria.
Farm Credit Canada finances some rural agricultural properties if they meet agricultural use criteria and borrower qualifications. They’re more focused on bona fide farming operations than lifestyle properties.
Private lenders fill gaps where conventional lenders won’t go. If you need higher leverage, have credit challenges, or own property that’s hard to appraise, private lending might be available, though at significantly higher rates, typically 8% to 12% or more.
Specialized rural property lenders exist in some markets. These are smaller lenders who focus specifically on farms, recreational properties, and rural real estate. They understand the market and can be more creative than major banks.
Recent Trends in Rural Land Values
Over the past few years, rural agricultural land has seen interesting dynamics.
The pandemic created surge in demand for rural properties as people sought space and escape from urban density. Values increased notably in 2020-2022, particularly for properties within a few hours of major cities.
That surge has moderated. Values haven’t crashed, but the frenzied buying has cooled. Properties are taking longer to sell at asking prices. The buyers who were motivated by pandemic factors have largely transacted.
Interest rate increases affected affordability. Higher mortgage rates mean buyers can afford less, which puts downward pressure on values, particularly at the higher end of the market.
But underlying demand remains. People still want rural lifestyles. Demographics favor rural demand as baby boomers retire and seek different living situations. Immigration brings people to Canada who are interested in rural opportunities.
Investment Considerations
If you’re looking at rural agricultural property as an investment, here’s what to think about.
Time horizon matters. Rural land is not a liquid investment. Plan to hold for years, not months. Transaction costs are high and finding the right buyer takes time.
Cash flow expectations should be modest. If the property generates any agricultural income, great, but don’t count on high returns from operations. Appreciation potential is the main investment thesis for most rural properties.
Location is everything. Properties in areas with growing populations, good access, and amenities will outperform remote properties with limited appeal.
Property characteristics affect value. Quality of soil, water, forest, views, wildlife, these all matter. Properties with diverse attributes have broader appeal.
Tax implications need understanding. Agricultural property tax treatment varies by province and by use. Understand what you’re getting into from a property tax perspective.
Financing Strategies
If you’re seeking financing for rural agricultural property, here are strategies that help.
Bring substantial equity. Plan on at least 30% to 40% down payment, more if the property has characteristics that make lenders cautious. The more equity you bring, the more financing options you’ll have.
Demonstrate income capacity. Show lenders that you have reliable income from employment, business, or other sources to service the debt. Don’t rely on the property generating enough income unless it clearly can.
Get a quality appraisal. Use an appraiser with experience in rural properties in your specific area. Good appraisal makes lender underwriting easier.
Be prepared to use multiple sources. You might finance part of the purchase with a conventional mortgage and part with private lending or seller financing. Creative structures are common in rural property transactions.
Build lending relationships. Local credit unions and community banks that know you and understand your area are often the best sources. Relationship lending works better than anonymous online applications for rural properties.
Opportunities in the Current Market
For buyers, the current environment offers opportunities.
The frenzy of 2020-2022 is over, so there’s less competition and more negotiating room. Sellers who priced aggressively are coming down to realistic levels.
Motivated sellers exist. People who bought during the pandemic surge and found rural life wasn’t for them, older owners who want to downsize, estates that need to settle. These situations create opportunities.
Properties that need work or haven’t been marketed well can be acquired below market value if you have vision and capability to improve them.
For lenders’ perspective, borrowers who present well, bring strong equity, and have clear plans are getting financed. The market hasn’t shut down, it’s just become more selective.
The Long-Term Outlook
Where are rural land values headed over the next several years?
My expectation is for stability with modest appreciation. Not the rapid increases of the pandemic period, but steady long-term value that reflects ongoing demand for rural lifestyle and limited supply of quality properties.
Demographic trends favor rural demand. An aging population, increased ability to work remotely, and desire for quality of life all support interest in rural properties.
But affordability constraints and economic uncertainty create headwinds. Not everyone who wants rural property can afford it, particularly as interest rates remain elevated compared to the pandemic period.
The properties that will perform best are those in good locations with strong attributes. Marginal properties in declining areas will struggle.
Work With Rural Property Specialists
Financing rural agricultural land requires lenders who understand this market segment and brokers who can navigate the complexity.
At Creek Road Financial Inc., we work with borrowers across the spectrum of agricultural properties, from prime farmland to rural lifestyle properties. We have relationships with lenders who are active in rural property financing, and we understand how to structure deals that work.
Whether you’re buying a rural farm, refinancing an existing property, or exploring your financing options, we can help you understand what’s possible and secure terms that fit your situation.
Let’s discuss your rural property financing needs and find a solution that works for you.