A different type of investment… Land.....

[pats]

A different type of investment… Land………. With trees on it

Over the past 20 or so years there was quite a large area planted to plantation timber in Australia.

With the failure of many MIS schemes most of the large land holdings were sold as in individual parcels( typically at below cost). Recently there the have been a number of smaller parcels of forestry and agro-forestry land for sale.

All of the cheaper parcels (sub $500k) seem to be planted on more marginal areas (sub 600mm rainfall), however seem to be selling for what I would consider quite a low price, even less than the land is worth bare for farming . I have seen places advertised where cropping country is $2.5k plus ha, however land planted to pines is $2k a ha). The reasons I believe this is
- There is an uncertain future as to the value of the pine
- Capital tied up for long time before return
- There is high cost to regenerate the land to pasture/ cropping (at a guess $2.5k ha, basically what, if not more than what the land is worth)
- Often they were not planted on prime agricultural land.
- Cost to process will be high as they are outside of key growing regions.

However looking at the returns, it appears that the returns can be about $7,000 a ha, although the reference I have is from 1999, prior of the collapse of MIS’s. http://www.agric.wa.gov.au/PC_92525.html

Calculations based on the first property below (really rough guesses, round figures, does not taken into account inflation and there are a lot of unknowns):
Purchase price $300k ($265,000 + costs)
Interest @ 7% = $21kpa
Holding (rates, maintain fences etc) $3k pa
Harvest after trees are 30 years old (currently 15 years old)
So 15 x $24k pa = $360k costs, plus purchase of $300k, less residue value ?? $200k (as pointed out above the can be stuffed after having pines on)
Yield 90ha @ $7k ha = $630k
Profit (300+360-200-630) = $170k over 15year = 4%pa

Here are some links to examples of places for sale which I found of interest (all are in the SA/ViC border region)
http://www.realestate.com.au/property-horticulture-vic-edenhope-7248512
http://www.realestate.com.au/property-mixed+farming-sa-western+flat-7361521
http://www.realestate.com.au/property-other-sa-bangham-7214563
http://www.realestate.com.au/property-other-sa-western+flat-7318170

Link to a PIRSA (Primary Industry and Recourses SA) of discussion on pine plantations, relevant to the geographical areas where the above properties for sale are.
http://www.pir.sa.gov.au/__data/ass...S09_Growing_Trees_in_the_Upper_South_East.pdf
http://outernode.pir.sa.gov.au/fore...eStudies/upper_south_east_radiata_pine_survey

Anyway I thought I would see what others thoughts are on this type of investment. More just to chew the fat and generate some discussion.

Me personally, there is to much unknown to make the numbers stack up. However in terms of a lifestyle/ weekender type place (I have never been much of a beach man haha), at least there is some potential for a return (possibility significant)

Cheers
Pat

 

[brawlo]

This kind of intersts me as well. I had a friend approach me about a year ago to have a look at a similar proposition. I am a land surveyor. The property was planted out to pine for I think half of the land. The land had frontage to a significant river in the area and was DA approved for subdivision into 6 blocks, hence him approaching me.

There was a contract apparently in place to log the plantation over a 3 year period to a signed value in excess of what the seller was asking. That would theoretically mean that you could purchase the land, make a profit from the land after 3 years, and then have a sizeable block for recreation. You could do the subdivision and almost come out even, then sell the blocks to make a clear profit on what you sold. The setup seemed all to easy and my friend backed away. There seemed to hint that there were issues that weren't disclosed.

It could all be good, but it would pay to do some in depth research.

 

[DaveM]

The setup seemed all to easy and my friend backed away. There seemed to hint that there were issues that weren't disclosed.

It could all be good, but it would pay to do some in depth research.

There is still ongoing litigation with the MIS timber schemes, most signficantly Wilmott Forests which collapsed last year.

The not disclosed thing was probably the liens that the investors have over the trees and land, which may render you unable to log the trees as expected.

 

[Reality Cheque]

I've been interested in this sort of thing for a while. The figures sound good but then I've got a mate who has a radiata pine plantation on his property and he reckons no one wants it.

I found a pine plantation that had been split up into 5 acre blocks for $30,000 a block. Thought it might be a cheap way to test things out without going in boots and all.

RC

 

[Aaron_C]

Too much uncertainty with the Great Southern and Timbercorp debacle, plus potential litigation against the assets etc. Also, these are not good investment because you never know how much you can sell your trees for - since the company you are selling to is basically your only buyer - and they can screw you when the time comes.

 

[pats]

Agree that the collapse and sale of the MIS plantaions brings great uncertainy as to the value of standing timber.

To clarify the propeties in the links below, as far as I am aware were not MIS plantations so are unemcumbered.