Investing in the forest: a good idea?
Investing in forestry is a way to diversify your investments while being responsible, enjoying tax benefits and attractive overall productivity. It is also an investment in the future. In several figures, French forests cover 16.9 million hectares, or 31% of the territory (+ 0.7% per year). They are also the 3rd European stock of standing wood.
So why invest in forests? What performance can we expect and what are the risks?
Investing in the forest: the levers of productivity
The value added of forests is growing by an average of + 3.2% per year. At the same time, dividends range from +0.5 to + 1% per year due to deforestation, lease of hunting rights. This is equivalent to a total annual productivity of +3.7 to + 4.2% for an investment horizon of 10 years. Therefore, the results are interesting when we know that these investments avoid the vagaries of financial markets. Moreover, such an investment allows you to diversify your assets with real and tangible assets. Despite economic fluctuations, forests are also assets whose profitability continues to grow, trees retain their vital needs and therefore benefit from relatively active protection policies. Finally, the forest is a market that occupies 31% of the country’s territory and most of which belongs to the private sector (75%). This market, documented for 50 years, shows less price volatility, especially since they are diverted from financial markets. Prices have also risen by + 3.2% per year for 20 years.
An investment that offers tax benefits
Investing in forest offers attractive taxation. You can take advantage of an income tax rebate of up to 25% of payments, up to € 50,000 for a single person and € 100,000 for a household, ie between € 9,000 and € 18,000 respectively.
You can also take advantage of the real estate tax exemption (IFI) for a partner who owns less than 10% of the capital.
Finally, investments in forestry provide grounds for exemption from inheritance tax. That is, up to 75% of the forest value of the share will be exempt from donation and inheritance, without limitation on the amount or duration of maintenance for the partner and his successors.
Investments in forestry: investments in the common interest
These investments address obvious environmental and social challenges by helping to conserve biodiversity, capture Co2 (15% of Co2 is captured by forests) and preserve related jobs. This investment with high economic and environmental value is ideal for giving meaning to your heritage.
This is a financial investment that contributes to the economic dynamics of France. Currently, there are 400,000 jobs in the woodworking sector, which is 22,500 more than 3 years ago. In addition, the sector reached € 26.1 billion in value added, up € 1.52 billion over three years.
Public authorities support these investments. Thus, France is developing an environmental strategy to be carbon-neutral in 2050. To this end, it combines significant funding (€ 100-150 million per year until 2030) and creates a “low-carbon” regulatory framework with the intention of encouraging companies to offset their emissions by financing CO2 recovery operations in the forest.
Thus, for this type of assets, funds are used to promote reforestation, conservation or management of one or more forest areas.
What are the risks of investing in forestry?
However, like any investment, there are risks. Obviously, there are natural risks: the risk of fires, storms or phytosanitary risks. They are often associated with array management. But you can insure against these risks so as not to suffer the consequences.
For this investment, as for most, there is no guarantee of capital: the value of forests changes over time. Fluctuations in the timber and forest markets must also be taken into account. Finally, although it is profitable today, taxation may change over time.
Forest investments offer many benefits and are a solution for those who want to diversify their investments by giving value to their investments. Despite certain natural risks, profitable taxation of these investments makes them an attractive investment for those who want to combine personal beliefs and performance.
Find this article at Primaliance.com