An extensive forestry portfolio concentrated in the northwest of Ireland is on the market through DTZ Sherry FitzGerald for €3.6 million.
The portfolio, which is made up of 40 lots, covers some 1,084 acres and is dominated by Sitka spruce planted between 2001 and 2009. Sitka spruce is the predominant species used in commercial Irish forestry because it grows quickly in our moist-to-wet soils. Thinning of the stock general occurs after 15 to 20 years and every four years after that with final felling at 35 to 45 years.
According to Daragh Little, managing director of Forest Enterprises Limited, forestry is seen by many investors as a safe investment with low but steady returns of between 4.5 and 6.5 per cent. "It offers investors balance for their investment portfolios where other asset classes can be volatile," he says. "This has been a characteristic of the property and equity markets in recent years. To offset this investors are buying forests. An interesting characteristic of forests is no matter what the economic environment trees just keep growing and adding value and bigger trees are more valuable."
Valuation
As Ireland imports about 60 per cent of its timber needs, timber imports benchmark our domestic timber prices. This in turn determines the prices that Irish sawmills and panelboard mills will pay forest owners for their logs. The basis of commercial woodland valuation is in present and future timber prices. Log prices have historically averaged 1 per cent above inflation.
“Timber demand greatly outstrips supply in Ireland despite the increase in planting levels over the past 20 years,” says Shane O’Flynn of DTZ Sherry FitzGerald. “This shortfall in supply is forecast to increase over coming decades which will benefit owners of Irish forestry and means that timber prices will remain high.”
Forestry is a growth industry, contributing to 1.3 per cent of Ireland’s GDP in 2012. It is also a young industry in Ireland with almost half of all forests planted in the last 25 years through the State afforestation programme. This has been achieved through establishment grants and annual premium payments for up to 20 years which provides income while the trees mature.
Mr Little also says forestry is “tax efficient” when compared to other investments. “In purchasing or selling plantations, the trees are exempt from stamp duty and capital gains while the underlying land is not, leading to lower tax bills. Income from felling trees is free from income tax [not USC and PRSI] up to the income tax threshold and with the help of a forester felling can be planned to minimise tax. In inheritance planning, forestry is beneficial as it qualifies for agricultural relief.”
