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The Market For Privately-owned British Woodland – Amenity Value Takes Primacy

Who Would Invest In Three Acres Of Deciduous Broadleaf And Why?

by Frank Quin

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Buying A Piece Of Little Britain

In this piece, we take a fresh look at investment in UK woodlands, a topic previously visited early last summer (Forestry Investments – The Private Investor's Options). We focus particularly on the purchase of small woodland tracts rather than large commercial forests, the cost of which in the UK typically runs to high six or even seven figures and is thus well beyond the scope of individual investors. We look at the issues to be factored into the investment decision and the process of actually buying your very own woodland. Typically, that tract will consist of indigenous broadleaf species and could be anywhere in the British Isles whereas the large commercial forests – in the hundreds of hectares and located especially in Scotland, the north of England and in Wales – are coniferous.

Others Are Watching

Perhaps the first thing the prospective investor in small woodland tracts should appreciate is that a sign reading ‘Woodland for Sale’ at some visible point alongside the tract in question will quite likely invite a rude message or other unwelcome attention. Indeed it’s most unlikely that there will be a for-sale sign at all. When it comes to marketing woodland for sale, discretion by the vendor or its agent is very much the order of the day. Why? Because the private ownership of the country’s woodlands is a contentious issue, with active ‘anti’ lobbies - such as the Ramblers organisation, which advocates public access to all of Britain’s countryside – making their presence felt in a variety of ways.

Indeed, such was the public outcry at the UK government’s 2011 proposal for progressive privatisation of the Forestry Commission’s holdings – some 18% of the nation’s forests - that there has since been a complete volte face, with the announcement in January this year that henceforth all of the Commission’s inventory will be transferred to a yet-to-be-established national trust, there to repose in perpetuity. The funds for their future maintenance – an austerity-related issue at the heart of the sell-down proposal – will be found elsewhere.

Britain Relatively Treeless

A second – and related – point to be borne in mind is that, relative at least to peer countries in Europe and elsewhere, Britain is poorly endowed with forestry cover. According to the Forestry Commission’s most recent estimate, as of 31 March 2010 the UK had 2.982 million hectares of woodlands – some 13 percent of the country’s total land area. Yet a government note last November, reporting on the consultation process which followed the ill-fated sell-down proposal, put the coverage at just nine percent. No doubt the discrepancy relates to measurement criteria, but in any event, only Ireland (10 percent) and The Netherlands (nine percent) have similarly low forestry cover amongst the EU-27. Germany’s forests cover nearly 32 percent of its territory, similar to New Zealand for example, and the EU overall cover is higher again, at around 35 percent, thanks to the greater afforestation levels in the group of central and east European countries which have joined since 2004.

Some Species Facing Extinction?

So woodlands are a scarce resource in Great Britain and that scarcity makes their ownership a matter of considerable public interest. To which should be added growing public awareness of the threats to the country’s forests and woodlands. For years now, of course, there’s been global warming and its implications for indigenous flora and fauna. But just in the past year, since its discovery in March 2012, the disease Chalara dieback and its potentially devastating effect on Britain’s native ash population – some five percent of the country’s forest cover - has caused intense public debate, much of it focused on the limited oversight of privately-owned forests and woodlands.

And ash dieback is by no means the only threat – Britain’s larch population is under sustained attack from the P. ramorum pathogen, with millions of trees already having been felled in the north in an attempt to halt the disease and, in mid-2012, its presence detected in south-eastern England. And in Wales, the hardy Macedonian pine is being seen as the potential saviour of the commercial forestry industry after Dothistroma Needle Blight forced cessation of Corsican pine plantations in 2006.

You Still Want A Woodland?

Assuming that none of the above considerations work to deter the would-be buyer of woodland for sale in the UK, we turn to the legal aspects of such an investment before asking the questions – who is doing it, and why?

The Legals

The purchase process can be shortly disposed of. By and large, it’s a straight-forward real estate purchase, with no special permissions needed on account of the woodland status. Which is not to say that due diligence should be eschewed – in the way of English (and Scottish) law, there may have been third-party rights in respect of the tract granted in bygone times which nevertheless run with the title, binding all future owners. For example, ‘shooting rights’ – a legally-binding easement entitling third-party hunting on the land, quite possibly to the exclusion of its owner. Or there may be a common law right to roam, now entrenched in legislation, or access entitlements for water or electricity utilities.

And there might also be woodland-specific covenants running with the title – such as an obligation to replant following a cull or to adequately fence the property – which are monitored by the Forestry Commission and performance of which could add significantly to the purchase cost.

But such diminution of full, untrammelled ownership is likely to be the exception rather than the rule. In most instances, investing in a woodland plot will entail no more complexity than the purchase of a home and in all probability considerably less than the purchase of a corner shop or off-licence.

Who’s Buying?

As for who is investing in the UK’s woodland – leaving aside the Crown via the Forestry Commission –a report by DEFRA in June last year, commissioned following the sell-down debacle and entitled ‘Woodland Management In England’, kicked off the section headed ‘Woodland Owners’ with this observation –

Surprisingly little is known about the profile of private woodland owners in terms of who they are or what motivates them.

A secretive lot, seemingly, these private woodland owners. Which for many buyers of woodland for sale is of course a big part of the attraction – you can be sat on a stump in the middle of your little stand of mixed broadleaf, down an anonymous dirt track off the B3108, minding your own and your trees’ business, and who’s to know you’re there?

And it seems you’ll be by no means alone in your splendid isolation. Using data provided by NIWT – the National Inventory of Woodlands and Trees - DEFRA in the aforementioned report calculated that of the land area making up the 263,525 woods in England not owned by the Forestry Commission, 14.7 percent – 158,456 hectares in total – is comprised of tracts less than two hectares – under five acres - in size, indicating something over 80,000 separate owners. Another 24.4 percent of privately-held English forestry is in tracts of between two and 10 hectares in size and a further 12.4 percent between 10 and 20 hectares. Meaning that over 50 percent of the total woodland in private ownership in England is in plots well under commercial size.

What’s Commercial?

Though, how much forest do you need to qualify as ‘commercial’? That’s a bit like asking the length of a piece of string. One woodland owner’s commercial return - from felled timber, say, or the grant of hunting rights – is another’s pocket-money. But with timber providing returns of barely one percent these days, the income from small plots is going to be modest by any measure. The 18 tracts of woodland for sale in the South-West currently listed by specialist vendor woodlands.co.uk average just 4.87 acres – or a little over two hectares – and they simply won’t cut it if a commercial return is sought. Especially with an average asking price of £8,450 an acre, well above the price of commercial forest and no doubt reflecting the demand for and scarcity of woodlands in Devon and Cornwall.

Neither will that modest size qualify your tract for a Woodland Planning Grant – you need a minimum of three hectares (7.2 acres). One of several funding schemes administered by the Forestry Commission, this grant is available to pay for the cost of having an expert draw up a management plan for your woodland. You’ll need one if you want to sell timber from the tract to any arm of the UK government, under a procurement programme aimed at ensuring only legally-harvested timber is consumed in government works.

Of course, you don’t have to sell your timber to the state – there are plenty of private enterprises which will take it off your hands. But you will need a felling licence from the Forestry Commission for any quantity over five cubic metres per quarter, of which only two can be sold – the balance must be for own-consumption, eg as firewood.

Most Woodland Plots For Tree-hugging Only

Which highlights another aspect to be kept clearly in mind by the prospective buyer of British woodland for sale: there are stringent controls over what you can do with it once in possession. And what you almost certainly can’t do is live on it. The prospects of getting planning permission to construct a dwelling on your little piece of arboreal Britain are zero or thereabouts and you can be sure of being dobbed in by a vigilant eco-warrior if you proceed regardless. The most you can hope for is approval to erect a very small shed, for housing items specifically needed in the maintenance of your tract – which does not include a gas barbecue or long-drop loo.

Claimed Returns - Domain Of ‘Top Performers’ Only

Turning now to investment worth, we think it necessary to factor in a large grain of salt as regards the returns claimed in any number of forestry investment websites. It’s commonly asserted that forests have in recent years been outperforming any other investment product and seemingly that case is made out in the annual IDP UK Forestry Index, most recently available for the 2011 calendar year. This recorded an overall return of 34.8 percent for the year, on the back of 20 percent growth in 2010, representing ‘the best annual performance since the inception of the index in 1992’ and continuing ‘the recent trend for very strong performance by forestry investment in the UK’.

But – and it’s a big one – these kinds of returns are very much the domain of what, in reporting on the 2010 index, IPD described as the ‘top performers’. It entered this caveat, referable to the period since the index’s commencement in 1992:

‘The 18-year history has shown a similar pattern. The top 5% of investments delivered 8.6% pa, while the bottom 5% recorded -0.4% pa. The top quartile returned 5.3% pa with the bottom quartile at 0.1% pa. The median was just 2.0% pa, which was considerably below the 6.3% long-term average. That … demonstrates that forestry returns were heavily weighted towards the top performers.’

We can take it pretty much for granted that this ‘top performers’ category does not embrace small woodland tracts of a few acres and having no management beyond what their private, non-expert owners are willing and able to provide. Indeed, it’s more likely that such properties would – if the data were recorded – show a very much lower level of return, quite possibly in that bottom five percent which, according to IPD, has produced negative returns over the life of the index.

The fact is that a small tract of woodland for sale can’t realistically be expected to provide any return on the investment until a subsequent resale. It may be that there is timber ready to be felled, that the necessary permit will be forthcoming and that a buyer will also come forth. But after factoring in all costs of preparing the timber for sale, the income will be modest in the extreme and it will to all intents and purposes be a once-in-a-lifetime event, because replacement trees will need 30, 40 or – with indigenous hardwoods like oak – 100-odd years to reach maturity.

Capital Gain No Certainty

In all likelihood then, the only fiscal return on the investment will be an appreciation in the value of the tract while owned. And this is by no means a foregone conclusion. Where a woodland is bought by a keen buyer from a discretionary – as opposed to distressed – vendor, the price paid may well prove to be the high-water mark in the plot’s value over the ensuing three to five years, or even longer. In such a case, the expectation of a nice capital gain on resale may well come to naught.

Summing Up – Amenity Value Driving The Market

So we’ve seen that buying and owning a small woodland plot in the UK may be contentious; that there are diseases threatening indigenous species, notably the ash and the larch; that most tracts marketed to ordinary investors are of much less than commercial size; that the owner of a woodland has very little freedom to do anything with the asset other than to tend the trees; and that the claimed returns on a woodlands investment are strongly influenced by the financial performance of large-scale commercial plantations.

For all these negatives, Britons in their tens of thousands are stumping up to buy their very own plots of woodland and for the most part are doing so with the prospects of financial gain secondary to another consideration. First and foremost, they’re buying woodland for sale for the amenity value – the pleasure to be had in the ownership and attendant enjoyment of the woodland. And for so long as that interest continues, we can safely conclude that there will continue to be a market, comprising motivated sellers and enthusiastic buyers and holding out at least the prospect of a gain on resale. From that viewpoint, but that viewpoint only, small woodland tracts in the UK might be seen as an investment.

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