The world over, considerable wealth has been accumulated through forestry investments.
private forests are owned by wealthy families who want a safe place to store their capital, especially in times of low interest rates and for those perceiving more value from real assets. With its characteristic long term, low risk profile forestry has also long been favoured by pension funds. In New Zealand most forestry land is privately owned by less than 30 parties and dominated by a core group of long-term wholesale investors¹.
Forestry is not an investment for everybody (your average radiata pine forest takes 25+ years to mature), but if you had played the waiting game over recent decades you stood to benefit from an attractive ROI of 9.9% (ave. pre-tax)². Over the next few decades this asset class is set to be turbo-charged on the back of the government’s ‘One billion trees programme’. The goal to plant 1bn trees (by 2028) equates to an area of 1m ha that would increase the forestry area by a third. This, along with an increase in production volume from a planting-drive in the mid-90s that’s due to mature, signals a new and exciting phase in this industry.
The government plan is supported by numerous incentives, such as carbon accounting adjustments, grants and the lifting of the cap on carbon prices. This reduction in barriers only favours the investor in an already low cost, low risk asset.
While timber and land prices are strong, domestic housing construction needs are high and China’s demand increases; in a country known for its quality of sawn timber, it’s an asset class that’s worth considering.
Forestry investment schemes offer individuals the chance to invest proportionately and directly into this asset class.
Like any industry there is room for better technology, plants and equipment that will only materialise with investment over time. And time is a key factor here; as you are assuming that current ROI, policies, rates, exports etc will remain the same over the investment period. Fluctuations and bad press can lead to panic selling as happened around ten years ago when forestry was labeled as an asset class that was likely to underperform. The astute investors that hung on won’t be harbouring any regrets just yet; returns are on the rise, literally money growing on trees.
Syndex is an online investment platform for alternative assets trading on the private capital markets. It brings listings, in sectors such as forestry, horticulture, agriculture, commercial property and technology to it’s community of investors. In addition to listings of proportionally-owned assets, it provides a place for documentation storage, reporting and analytics. It offers all the structure and transparency of the public markets for maximising investor confidence.
To see current marketplace listings click here.
1 NZ Herald: Strong returns attract new forestry investors. 29 Aug 2018
2 ANZ Agri Focus, March 2017