Anyone Ever Bought A Forest?

[propertastic]

I was reading this article on the Daily Telegraph's website from 24 August about the benefits of buying commercial forest land.

I'm not allowed to post the URL, but hopefully you'll be able to find it.

Interesting stuff that got me thinking. There are benefits in avoiding inheritance tax, but what really surprised me is that values increased 26% last year, making it the best performing asset class over the past 12 months.

Even though the article was only about UK forests, it got me thinking about the potential of buying forests in Eastern Europe.

I know very little ... errm ... make that absolutely nothing ... about forestry, but I could see a lot of potential advantages, including:

1. Forest land in places like Latvia, Slovakia, Romania, etc. must be as cheap as (wood)chips.

2. With Eastern European infrastructure being improved all the time, it should get cheaper and cheaper to transport the timber into Western Europe.

3. Land is land - it's going to keep appreciating over time, no matter what its use.

4. It's pretty low-maintenance compared to the hassle of finding tenants and keeping the place in top condition.

5. I imagine that, depending on how much land you buy and what state the forest is in when you buy it, you can choose whether to get some income every few years, or have a big windfall for, say, when you retire - or as a legacy for your kids.

6. Timber is a commodity, same as copper or oil. Prices are currently half what they were in 1995, so they say that the only way is up.

7. This 'plant a tree to offset your carbon footprint' thing seem to be getting more and more popular these days. Perhaps you could buy a forest, chop it all down, then charge people 20 quid a time to replant the trees all over again?!

Has anyone ever looked at this before? Does anyone else think that it might have potential, or have I missed something?

[nickproject]

That does sound interesting, I can't seem to find the article. Could you nudge me in the right direction.
Thanks

[propertastic]

I haven't made enough postings to give out URL's yet.

But I can copy and paste the article:

Buying a commercial forest can help your money grow and you can also avoid inheritance tax, says Justin Harper

You can do your bit to save the planet and preserve the value of your heirs' share of it by making use of tax-efficient investments in timber.

Wealth held in the form of a commercial forest becomes free of inheritance tax (IHT) after you have owned it for two years because it qualifies for business property relief.

Commercial woodlands are defined as property where timber from the forest is actively being marketed and sold. So, sadly, buying a plot of land with a few trees on it for leisure purposes - such as camping or communing with nature - is unlikely to qualify as being IHT-free.

However, where the forest does qualify as a commercial concern, the income made on any sale of timber is free of income tax and any rise in the value of the trees is free from capital gains tax.

Alan Guy, head of forestry marketing for estate agents Fountains, explained: "To get the tax breaks it has to be commercially managed woodland - so you must have a proper management plan, prove there is regular maintenance and that you intend to harvest the wood. This is hard to prove with ancient trees, especially in a small wood.

"It could mean opening up a tea shop on the site, letting it for shooting parties or marketing the wood as an amenity. The Revenue has never challenged what is deemed commercial in court but you are still taking a risk if you're not actively growing trees to harvest."

Last year forestry was the best performing asset class returning 26 per cent compared to 17 per cent for shares, according to research house Investment Property Databank. You can either buy a whole forest, which - as you would expect - varies in price depending on its size and location in the UK, or pool your money together in a trust and buy a share of a forest.

One of the leading players in this field is Forestry Investment Management which offers both choices. It offers entire forests, starting at about £100,000, or forest funds which have a minimum investment of £25,000.

Bruce Hutt, a director of Forestry Investment Management (FIM), said: "Investing in forestry can be a very good investment as long as you appreciate a couple of things: it is a long-term investment as you are reliant on the time it takes for trees to grow and be ready to be used for timber. And you must not underestimate the management that is needed - a forest needs to be maintained, public access kept in order and the timber marketed."

FIM charges 0.6 per cent of your investment as its annual management charge. Upfront charges for an entire forest are negotiable but fixed at 6 per cent if investing via a fund. The service includes insuring the forest against fire, disease and other dangers. Mr Hutt says returns are currently running close to 5 per cent per annum. For a high-rate taxpayer this is equivalent to 8.3 per cent before tax.

Commercial forestry in the UK is focused on softwoods, of which Sitka spruce is the main species. These are mainly grown in the higher rainfall areas of the country – Scotland, Wales and the north of England. A spruce takes between 35 and 40 years to grow.

Once felled, its main use is in the construction industry for timber frames. It is also needed for chipboard, pulp, paper and fences. Forest investment therefore depends on your timescale. If you want a regular tax-free income a mature forest near harvest date is the best option. But those thinking over a longerterm, possibly investing in forestry as a pension provision, might buy into a younger forest. This could lead to capital growth in the early years as the trees and the land increase in value, and income in later years as the trees mature.

Timber prices had been in decline for eight years until last year when prices picked up. Despite a strong 2006, prices are still 51 per cent below their peak of 1995, showing the potential for future rises.

One of the factors has been strong global demand for building materials, especially from resource-hungry China.

Mr Hutt added: "Another factor is that the Government is actively encouraging energy production from sustainable, renewable sources and electricity suppliers have to use a set percentage of renewables for their energy supply.

"One of the markets meeting this requirement is generation from biofuels which uses sawmill residue and some round woods. This demand will push up prices further."

The UK uses all the timber it produces and has to import 85 per cent of domestic consumption, mainly from America, Scandinavia and Eastern Europe. But high fuel prices have meant increased costs of shipping make British wood more competitive.

Oxfordshire-based estate agent John Clegg also specialises in forestry buying and management. Among its current sales are a four acre wood in Buckinghamshire for £25,000 and a 287 acre forest in East Sussex for £285,000.

Fountains says it is regularly contacted by investors wanting "their own piece of England". Unsurprisingly, the further north you go, the cheaper forests are per acre.

The cheapest forest in the north of Scotland would set you back about £550 per acre while an oak woodland in the south of England costs around £3,000 an acre. Fountains charges an annual maintenance fee dependent on the size and type of forest.

Another potential benefit of forest investment is that the Forestry Commission offers grants to help upkeep the woodland. These are higher for ancient oak woodlands. But it is important to beware that this type of investment is not regulated by the Financial Services Authority, so there are fewer statutory safeguards in place than apply to more conventional investments.


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I did a little research on the market in Latvia, where I spend a lot of time.

Price are not quite as cheap as I thought at around GBP 800-1000 per hectare, which is around GBP 320-400 per acre.

It's cheaper than in Scotland, but not a lot cheaper.

I heard that, with timber being such a big business in Latvia, the big players in the timber bought out the forests from the gullible landowners quite a long time ago.

Maybe Slovakia, Montenegro or Romania would offer better opportunities?

[The Soup Dragon]

Interesting stuff - thanks for posting it.

Hadn't given forresty a thought till I spotted this thread. Living in Scotland and visiting coutryside where there is a lot of forrestry nearby every weekend I may take a closer look. (Will post findings here if I do.)

I'm assuming that what happens in Estonia also applies in Latvia when i say that forrestry covers a very high proportion of the land and that it is periodically cut down (generally to be used for building) and replaced. Its a while since I read the statistic, but think over 75% of Estonia is forrest. (Some of that 75% also being bog - if you buy in Estonia make sure you don't buy in a bog.)

Always thought that when/if I became a dad I would buy a barrell of malt whisky that I'd give to the little one on his/her 21st. Mmm, thinking of ways I might be able to invest in their future via forrestry and make the little blighter work for it.

Thank you for presenting an opportunity I hadn't considered and putting a smile on my face!

[Investy]

I did give this consideration when looking at Estonia 12 -18m ago. Some offshore islands had large forested plots for sale under £20,000.
Ive always been an eco nut so the appeal is both commercial and emmotional I guess.

On the face of it as you suggest the investment should be hassle free but I bet there are issues such as pest control - I could see local enviromental officers sending me a bill to have a beetle infestation removed that could devastate timber crops. The once commonly planted Pinus Nigra (Austrian Black pine) suffered just such a problem in the US a few years back (from memory).

The potential is good me thinks. From forest burials, to offsetting, timber, camping, survival courses for corporate manager bonding and so on.

Remember not all timber is economic - the costs of harvest might outweigh the income. Accesibility is one limiting factor.

Great fun though and a big part of me thinks, what the heck just invest!

[propertastic]

Originally Posted by Investy

On the face of it as you suggest the investment should be hassle free but I bet there are issues such as pest control - I could see local enviromental officers sending me a bill to have a beetle infestation removed that could devastate timber crops. The once commonly planted Pinus Nigra (Austrian Black pine) suffered just such a problem in the US a few years back (from memory).

The Telegraph article says that, for UK forestry investments the management company charges 0.6% which includes insurance.

I can't believe it's not possible to insure forests against these types of risks (it seems the EU-taxpayer seems to cough up any time there is any major sort of problem anyway in a lot of cases!)

I could imagine that the wooded Estonia islands are so cheap because of the additional costs of getting the timber off the island.

I must say that having an island of my own has always appealed to me in a James Bond villain kind of way. Then I just need to come up with a way of holding the world to ransom!

[paddy79]

I am keen to hear more about your idea. Have you investigated it further. i would be keen to make a trip over there if we had a good contact int he business over there. Thanks

[propertastic]

Originally Posted by paddy79

I am keen to hear more about your idea. Have you investigated it further. i would be keen to make a trip over there if we had a good contact int he business over there. Thanks

I have to admit that I have had a bit too much on my plate at the moment to investigate the possibilities as it's an area that I have no understanding of at all, so it would be a steep learning curve for me.

I did, however, speak to some people I know in Latvia. As I mentioned, the prices for wooded land here were more expensive than I thought they would be, so I forgot about the idea.

Latvia is a pretty small country and timber is one of the major businesses here, so maybe it shouldn't have come as a total surprise that all of the low-hanging fruit has been grabbed already.

I think that there might be some potential though in other places which are more remote and heavily forested (Slovakia? Romania? Eastern Poland?)

Maybe someone on the ground in these territories has more information on the potential here?

[viktor lojda]

Hi, I am not in to forums but i am selling a forest in Slovakia right now.

[viktor lojda]

295 ha of forest mainly oak
location: East Slovakia
Price 16,-SkK/m2 cca. 0.50 Euro/sq.m.
There is one interested buyer so if you interested you shoud contact me quickly,
Viktor Lojda