Thursday, April 9, 2009

Why is timber a great investment?

Timber is extensively promoted as an economic crises "friendly" investment.

But why, who wants to buy timber right now - sales from furniture shops have fallen, construction has fallen and neither of these are likely to rise any time soon.

But of course investing in timber is not about the price of timber today.

Forestry analyst George Nichols, in a recent study has shown that the price of timber itself only accounts for a third of the return an investor makes on it.

The most important aspect of timber investing is the growth of the trees themselves.

Nichols points out that steady long-term biological growth accounts for 61% of the returns an investor makes on timber. Meanwhile, the quality of the land a forest covers accounts for just 6% of the return – it only really matters to the extent that it allows the trees to thrive (unless that land is development land as in our unique investment opportunity Finca Di Pacifico Dos)

In other words, if the forestry investors are not satisfied with the prevailing timber prices at the time of the proposed harvest, they can of course choose to allow their timber to continue to grow. And the longer they grow, the more valuable they become.

Trees do not know about banking crises, and global economic conditions, they just continue to grow on regardless.

Timber also has a great long-term track record between 1910 and 2000, timber prices rose at an annual rate of 3.3% above the rate of inflation. So if you’re prepared to wait, timber will be a very rewarding investment.

The United Nations Food and Agriculture Organisation estimates that world consumption of wood products will rise by 60% over the next 25 years. China alone has increased its appetite for wood 16-fold in the last 12 years.

China’s building boom may be tapering off for now. But building homes, and panelling public offices for an urban population that is forecast to swell from 530 million to 875 million by 2030, will still put pressure on the world’s supply of timber. China’s growth has already contributed to deforestation that has seen one tenth of global forests disappear in the last 25 years.

Burning wood for biofuel will also tax timber resources. Burning wood pellets or chips has proved a useful source of renewable energy, creating little in the way of polluting waste.

So the outlook for timber as an asset class is excellent.

The outlook for teak within that timber asset class is even better. Currently less than 5% of the world's teak production comes from plantation sources. The balance comes from natural jungle sources. World opinion has moved against the logging of our natural jungle reserves creating a shortage of teak.

Combining an existing teak investment with development land in a fantastic location in Costa Rica may just be "the perfect" investment and Finca Di Pacifico Dos, our premier project offers the best of both investments - development land and teak.

1 comment:

  1. One thing that’s more appealing in timber investment, aside from the satisfying return on investment, is its good effect on the economy. It balances the relationship of the supply and demand. Plus, you don’t have to worry about business failure because the trees just continue on growing.

    Sabrina Garza