Risks Associated With Forestry Investment
Although there have been relatively few forest fires in Ireland, it still remains a significant risk. The low level of forest fire incidence is indicative of the quality of scrub clearance and forest management insisted upon by the Forest Service. Historically, trees have been planted to minimise the risk of fire and whilst the investor is advised to insure against this risk, significant fire damage will result in a loss in expected income from tree thinning and in profits from the sale of trees or replanted trees at the end of the investment period.
Frost and more particularly wind damage are two potential problems arising as a result of Irish weather conditions. Both of these risks can be reduced by the careful selection of sites. Through experience and knowledge your Veon forest manager will seek to minimise this risk by purchasing only the most suitable land. Investors may be advised from time to time to insure against wind.
Irish forests are considered to be among the healthiest in Europe due mainly to our island status and the rigid enforcement of strict forest plant health regulations. This coupled with a very strong management presence minimises this risk further. However, significant occurrences of disease will result in additional expenditure being incurred and/or the loss of profits where remedial action including the premature felling of trees is required.
Investors may wish to sell semi-mature plantations in the future. While there is an emerging vibrant market, this market may not be as vibrant when the investor wishes to sell their plantations thus affecting the return for the investor.
Forest Managers take care to ensure that the assumptions and projections are reasonable based on current industry norms, historical trends and current forest management practice. However, past performance may not be a reliable guide to future performance as future events and circumstances may cause actual results to vary from those projected. The value of investments may fall as well as rise and investors may not realise the full amount of their investment.
Forestry is currently favourably treated under current Irish tax legislation. Changes to such legislation may arise in the future, which, although unlikely, could be applied retrospectively. As an investor you are also advised to take advice from taxation professionals.
There are very attractive grants available for Forestry. The grant rates are reviewed periodically but they may not rise in line with costs in the future. Should there be a future reduction in the grant rates available, or should there be a lack of funding made available for the grant schemes in operation, it may have a negative effect on the investment’s performance.
Forestry is an asset class for long-term investors. Trees generate most of their returns through steady biological growth, and forestry rotations are typically 30 to 40 years. Also, forestry plantations are difficult to sell quickly due to the specialised nature of the investment.
Industry standard public liability insurance should be taken out and maintained by the investor on his/her properties to mitigate against the cost of public liability claims.
For more information on investment forestry and above risks. Please contact a member of our investment team today on 1800 719 399 or [email protected]veon.ie