Questions & Answers
Q. What are the main markets for timber?
A. Timber plantation owners benefit from diverse markets. There are seven main markets: construction, furniture, packaging, pallet, panel board, paper and biomass for energy and heat – this last market has led to new competition for the least valuable part of the tree and therefore increased the value of the whole tree to timber purchasers. The grower is not dependant on one market to sell timber to.
Q. Why is forestry so tax efficient?
A. Depending on investment structure, there may be no income tax on harvested timber and no capital gains tax on the growth in the value of the tree crop. An investment may also qualify for Business Property Relief (BPR) which provides 100% relief against inheritance tax (IHT) after two years of ownership. You need to consult your tax advisor for a detailed assessment of your potential tax liabilities and circumstances.
Q. Why have forestry investments been so high or is this just a fad?
A. The essential ingredient is the assured growth rate in the volume of timber, combined with an increase in the unit value of the timber as the trees increase in size – larger trees provide better recovery rates for saw-millers. So even at static timber prices the investment will provide a positive return. iPaulownia expect timber prices, especially paulownia, to be higher in the future due to substantial increases in consumption in both the developed and developing economies, in particular China, North Africa and India, at a time when supplies will become increasingly constrained.
Q. Would volatility in the lumber market be an issue in considering an investment in forestry?
A. The benefit of timber plantations is that when prices drop there is no need to harvest. Value is stored on the stump and the trees continue to grow both in volume and unit timber value. There is generally a window of five to ten years in which a crop can be harvested, which means that the volatility in timber prices can be exploited to the landowner’s advantage.
Q. What is the minimum investment?
A. iPaulownia acts for private clients with an acquisition appetite for direct ownership of private, as well as commercial forestry from a couple of hectares too several hundred.
The minimum investment is usually circa £16,000
Q. Is an investment liquid?
A. There is an active market for forest properties which sees good properties sold quickly. iPaulownia facilitate the sale and purchase of paulownia’s plantations, if required.
Forestry is the same as any other property; it is potentially illiquid as there is no perfect, established market. The trees continue to grow in volume should a property remain unsold.
Q. Who manages the paulownia plantations?
A. Experienced local plantation managers experienced in paulownia. They provide ongoing budgets and advice for the development of the paulownia plantations which are reviewed by Paulownia Ltd, and amended as necessary, in order to ensure that the investment achieves the best possible return.
Q. How is the forestry asset valued?
A. By taking into account location, the age and quality of the crop, also the state of the infrastructure and in particular, the access to the plantation. Value can be ascertained by market evidence and calculated on a discounted cash flow basis by professional valuers.
Q. Why is forestry regarded as an inflation hedge?
A. There is a limited supply which is constrained by the fixed area of productive timber plantations in Europe. There is a diverse spectrum of wood-based products that permeate the global economy and ensure that demand is robust.
Q. What are the main risks of an investment into forestry?
A. The main risks are fire and wind. These, along with public liability, are insured against. There is currently no insurance cover for pests and disease but trees with a relatively short rotation, such as paulownia, are less vulnerable to pests and disease than trees with a lifespan of more than 50 years growing without continuous local supervision.
Q. What are the environmental benefits to owning forestry?
A. Timber plantations are at the frontline in the battle to restrict C02 emissions – an investment into paulownia is a venture that you can feel good about!
Q. Is timber a commodity with a low correlation to equities and gilts?
A. Yes. A paulownia timber investment provides diversity within a portfolio and helps to spread risk.
Q. How does timber compare with the stock market?
A. Managed timber (as professional investors call it) has actually out performed the stock market, with less risk, over the long term. From 1973-2002, managed timber returned roughly 15% annually as an investment, while stocks returned about 11%.
Q. Is timber a good hedge against inflation?
A. Yes. According to legendary investor Jeremy Grantham, over the last century, general timber prices have risen at 3.3% above the rate of inflation. Add 5% a year in income and you’ve got a timber investment asset that has returned double digits, competing with stocks over the long run.
Paulownia offers its own fairly predictable returns based on its known faster growth rate and timber quality.