Enlarge image
Investors need staying power for forest investments: Young forests often need decades to generate initial returns - there is a risk of total loss in the event of beetle infestation or fire.
Photo: Karin Jähne / imago images/Shotshop
Share prices are under pressure, inflation is rising: many investors are currently looking for alternative investment opportunities.
At first glance, forest investments seem to be an attractive option, after all, wood prices are currently skyrocketing.
The construction industry in particular suffers from the shortage.
The prices for spruce wood alone rose by 56 percent in February.
Pine wood has increased in price by 22 percent year-on-year, industrial wood received a premium of around 30 percent.
In addition to the acute shortage of building materials and raw materials, the trigger for the rising prices is also the energy crisis.
Due to the conflict with Russia, alternatives to gas and oil are also being sought in wood processing.
Added to this are cut Russian timber exports.
Some investors are therefore increasingly interested in wood: it is assumed that if the price of wood rises, the return on forest investments will also increase.
Some companies are currently advertising with a sustainable investment and high returns of up to seven percent.
But caution is advised for investors.
Forests only generate returns after a few decades
"Forest investments are interesting in terms of the idea," says Stefan Loipfinger, industry expert and founder of the "Investmentcheck" information portal.
Wood is a scarce commodity and alternative investments are on the rise.
"However, the care and costs associated with a forest are often underestimated," says the expert.
"Forests require special know-how that a private investor usually does not have".
Young forests in particular only generate returns after a few decades.
The risk is therefore significantly higher than with other investments.
The working group of forest owners also agrees.
"Forest ownership cannot be compared with residential property. Forests are not suitable for speculation due to the long development periods and long tree growth," says a spokeswoman for the working group.
Even the bark beetle can lead to total loss
Added to this is the uncertainty about the development of the market.
"Investors cannot be sure whether the current providers will still be around in five to ten years," says Loipfinger.
Environmental risks such as pest infestation, fire and natural disasters and political upheavals in the growing countries, which also lead to expropriation, can in the worst case lead to the total loss of the invested assets.
"Wood may be an interesting investment at the moment, but that's not guaranteed in the long term," says the expert.
"In my opinion, such an investment is therefore not suitable for a single private investor."
Institutional providers, on the other hand, could afford their own controlling and hire someone who could take care of the forest land.
"But here, too, I ask myself why an insurance manager with a portfolio worth billions should invest in wood in Paraguay," says Loipfinger.
Forest investments: Shares, direct investments or closed funds
The investment opportunities can be divided into three categories: forest shares, forest direct investments and closed forest funds.
In contrast to direct investments, investors in the closed-end fund do not invest directly in individual trees on specific areas, but in companies.
They buy forest land, reforest it and produce wood.
With many providers, investors conclude a service contract that includes the reforestation of the forest property and the subsequent timber harvest.
The investor does not have to be an expert in forestry and makes his money available to a company in exchange for the income from forestry, at least that is the promise.
However, the past has shown that forest investments can also lead to total losses.
The bankruptcy of the Frankfurt-based public limited company Green Planet showed the risks that investors take when investing directly in forests.
The company filed for bankruptcy in 2014 after tricking investors into teak trees in Costa Rica that the company didn't own.
The limited company Lignum Sachwert Edelholz, which promised returns of more than seven percent, also initiated insolvency proceedings in 2016.
The Bafin had prohibited the company from continuing to offer its precious wood systems to the public.
The company had advertised a stable market, growing demand and high-quality wood species.
However, some of the trees required for this were not yet available and were only to be reforested abroad in the next few years.
Intransparent forests abroad
Investments in foreign forests in particular involve a high degree of lack of transparency and high risks for investors.
In addition, many of the forest providers often do not adhere to the prospectus requirement, which makes the projects even more opaque for investors.
"Every investment offered in a standardized way for small investors that promises a certain return is obliged to do so by the Asset Investment Act," says Loipfinger.
If something goes wrong with a project abroad that does not feel bound by the prospectus requirement, insolvency administrators would then be faced with a jungle of contracts and investors would often be left with nothing.
German forests are at least clearer.
"Here, as an investor, I can check whether the forest exists and who owns it, since this is entered in the land register," says the expert.
But here, too, caution is advised.
Even if a direct investment initially appears lucrative.
Climate-resilient forest conversion takes time - and costs a lot of money
Above all, investors should not be blinded by the currently rising wood prices.
According to the Association of Forest Owners, due to climate change since the first summer of drought in 2018, the forests have been badly damaged: around 376,400 hectares have been damaged since 2018.
"So anyone who owns a forest has to invest money to promote climate-resilient forest conversion, to clear up damage and to reforest areas," says a spokeswoman for the working group.
Around half of the forest in Germany, around 5.5 million hectares, is managed by around two million forest owners.
Beware of unrealistic promises of return: Forestry companies expect 1.5 percent
The returns for a Central European forestry operation are currently between 0.5 and 1.5 percent on an annual average, and in exceptional cases even two percent.
"Every provider who promises higher returns should therefore be treated with the greatest caution," says Christoph Freiherr von Schenck, head of the "Castles and Mansions" division of the Engel & Völkers group, which also offers forest land for sale.
Caution applies in particular when fund models or offers that offer larger forest areas in small units with higher returns.
"Because the high administration and management fees of the initiators usually reduce the already small forest yield significantly," says Freiherr von Schenck.
Forests in southern countries often promise a significantly higher return: because the tropical climate allows the trees to grow four times faster and can therefore be harvested more often.
The German provider Miller Forest Investment promises an above-average return of between five and seven percent for the reforestation of forest areas in Paraguay.
However, in 2018 the provider was negative in the financial test by Stiftung Warentest.
The offers are too opaque for investors.
Miller Forest Investment is one of the largest forest investment providers in Germany.
The company sells or leases around 13,000 hectares, the equivalent of more than 18,000 soccer fields, to investors in the South American country.
An investment is possible from a one-time fee of 1285 euros or from 149 euros per month.
"We took the criticism at the time as an opportunity to make our forest investment even more transparent and to improve internal processes. In the meantime, all harvested timber quantities and the prices achieved are recorded for each quarter," says Pierre Gutwein, the company's sales manager.
"We only offer investments in our own reforestation in Paraguay," says Gutwein.
The reforestation areas would all be within a radius of around 35 kilometers from the main depot with an adjoining sawmill, a pile factory and a carpentry shop.
The acquired land is fallow land that is no longer used by the previous owners.
The previous owners were usually cattle ranches or large private landowners.
"The property is purchased through a Paraguayan notary and is accordingly deposited in the land register and cadastral office," says Gutwein.
Unlike many other providers on the German market, Miller Forest has filed the prescribed sales prospectuses and investment information sheets from the Federal Financial Supervisory Authority (Bafin).
This has permitted the investment offers for the market.
However, the supervisory authority only checks whether the information provided by the providers is coherent and not whether it is correct.