Why Invest in Woodland?
The reasons for any commercial investment tend to be the same no matter what form the investment takes and a good investment should increase in value and provide a good return on the outlay. It is no secret that risk and return are generally inversely proportional leading to most serious investors spreading the risk with wide portfolios ranging from government bonds to equities.
In the past many safety conscious investors have been attracted to property in the belief that such an investment will be "As Safe as Houses" but unfortunately this is not always the case. Land on the other hand is a finite resource which will last forever and they don't make it anymore! Forestry land is even more attractive because, irrespective of the state of the economy or the FTSE 100, trees continue to grow both in size and value making this a truly growing investment.
Being environmentally aware and connecting with nature may conjure up images of tree hugging hippies but investing in woodlands is certainly a responsible thing to do and will appeal to many investors on purely ethical grounds. The timber industry, including wood fuel, is regarded as being carbon neutral and as such has no effect on the investor's carbon footprint. A well-managed woodland will also include a programme of replanting negating any detrimental effects of felling and ensuring that this amenity is in place for future generations. There are many other environmental advantages such as providing a haven for wildlife and helping with natural defenses against flooding. Some aspects of woodland investment are more difficult to quantify and the wonderful feeling of owning and working in one's own forest simply cannot be put into words.
How Does Woodland Investment Work?
In its simplest form, this is simply a case of planting, growing and harvesting a crop but, unlike most crops, the timescales can be immense. Even a fast growing species such as Sitka Spruce is likely to take around thirty years between planting and harvesting and this to many would be investors is akin to locking money in a box and throwing away the key. The reality is rather different however and purchasers of woodland are likely to acquire a range of trees in various stages of maturity. The valuation of any woodland requires specialist knowledge and the services of a forestry investment consultant should establish whether the price is realistic. This is particularly important with mature woodland where a buyer may be looking to make an early return on the investment. In most cases, woodland investment is regarded as being part of a long term plan with capital growth being more important than the creation of a revenue stream. From an asset point of view few, if any, other products come close to the annual growth associated with trees which is typically around 10% per annum. Although most investors are likely to be looking at commercial softwoods for timber and paper production, other types of woodlands can also be managed on a commercial basis including mixed plantations of native species. In addition to timber production, some income can also be derived from the sale of sporting rights, firewood and the sale of young trees including Christmas trees.
An added attraction to this type of investment is that there are various tax benefits. Both standing and felled trees are exempt from capital gains tax and commercial forestry is normally excluded from any inheritance tax liabilities making woodland investment particularly attractive to private investors wishing to leave a legacy to their families. The Government is always looking at ways of increasing tree production and grants for tree planting are usually available.
Although none of us can predict the future, current signs are that the demand for timber will continue to rise. Other wood uses, such as use as a renewable fuel source are also steadily increasing which bodes well for forestry.
Perils and Pitfalls
All investments have some element of risk and woodlands may suffer damage from disease, pests or natural disasters. A poorly managed site may produce no revenue and only negligible growth. Harvesting may be hampered by problems of access or location. All of these potential problems can be minimized by taking expert advice from a forestry consultant and a plan drawn up to maximize the profitability of the site. Potential woodland buyers should also be aware that local planning authorities will almost certainly not allow for the building of a house on the site although there may be some potential for amenity use.
With a little planning and foresight, woodland investment can prove that money really does grow on trees providing a great hedge against inflation.