Is it worth investing in forestry?

 In Comment, Finance & Investments

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We are living through exceptional times economically and financially and, perhaps inevitably, we caste around for alternatives for our money. And forestry is one such. Here, and in future contributions, we examine investment in woodlands and forests. Considering they occupy 12 per cent, or one-eighth, of Britain’s land surface, they are surprisingly neglected compared with investing in farming or in a traditional estate or other rural enterprises.

The popularity of woodland ownership has soared in the last 10 years, but very much at the small end of the range. Purchasers have been buying 3, 5 or 10 acres (1-5 ha) to own a little bit of England, to enjoy as an amenity or for wildlife, but rarely for a financial return. This brings us to the first important dichotomy: the small wood managed purely for enjoyment does not attract the preferential tax treatment that applies to a wood or forest managed with at least some intent of commercial return. Amenity woods, as we can call them, have appreciated greatly in value from £500 per acre in the 1980s to £5000 per acre today, and we will look at these briefly since their individual valuations vary greatly and it’s useful to know why. However, the main focus of our contributions will be investing in woodlands and forests where some commercial return is sought.

The topics we shall cover in 2009 will be:

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  • What to look for when considering a wood or forest as an investment
  • What are the reasons price/hectare varies so much?
  • Who sells woods and forests and what is involved in making the purchase, including shared ownership.
  • What returns does forest management generate – how is timber valued and what influences values, and how is it sold?
  • What grants, tax incentives and related fiscal measures are there.
  • What might go wrong when investing in a wood or forest.
  • What are the ways to add value to an investment.

What woodlands and forests are likely to be a good investment?

We shall enlarge on this topic next time when looking at what causes variations in price per hecatre, but whatever kind of woodland or forest is being considered there are three basics which must be in place to offer potential of a good investment.

  1. Title. A surprisingly large number of woods are sold on a very long lease (999 years) so that shooting and occasionally other rights, such as minerals, can be reserved to the Lessor. Although rents will be very low (peppercorn) the restrictions – and they can spill over to one’s amenity enjoyment too – may make the property unattractive. Naturally, acquiring leasehold will be less expensive than freehold, but the restrictions may be too onerous in the long run.
  2. Access. Access to the wood or forest from a public highway for all kinds of vehicles and for all purposes must be in place. There’s no point buying a lovely wood in the middle of a field if vehicle access is restricted to a few weeks in the year or there is a weight limit on the vehicles that are permitted. Without full access rights, at all times and for all purposes, commercial management is fraught. The ideal is for a property to have direct access onto a public road.
  3. Access again! Good access to a wood or forest is essential, but almost as important and certainly something to look out for is good access within. Is there a main track from the entrance constructed to a load-bearing standard, say at least 1km per 100 ha of wood, and are there usable secondary tracks (rides)?
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