Forest Valuation and Market Value Assessment

Forest Valuation Why? Valuation methods Effects of taxes Forest valuation in practice

Basic concepts Forestland: land covered with forest (forested land) or reserved for the growth of forests (bare forestland) Forest (FAO definition); land spanning more than 0.5 hectares with trees higher than 5 meters and a canopy cover of more than 10 percent, or trees able to reach these thresholds in situ. Forest valuation (appraisal) = estimation of the value forest estates (including both forests and bare forest land)

Why valuing forests? There is a need for the monetary value of a forest estate taxation Compensation with damages Sale/buy The monetary value of a forest estate is not known

Allmnna Fastighetstaxering Taxeringsv rdet best ms s att det motsvarar 75 procent av enhetens marknadsv rde Med marknadsv rde avses det pris enheten sannolikt betingar vid en f rs ljning p den allm nna marknaden Marknadsv rdet best ms med h nsyn till det genomsnittliga prisl get tv r f re senast fastighetstaxering f r fastighetstypen i fr ga Lantbruksenhet: senaste taxerings r 2018, Taxeringsv rdeniv 75 % av prisl get 2016

Why does a forest estate has value? Does a forest estate ahs the same value to different people? Market value of a forest estate: the most likely price of a forest estate in an open market at a given point of time."

A forest estates market price consists of The value of forestland, buildings, and so on The value of forestland include timber production value and value of non-timber products and services (such as hunting and recreation opportunities,)

Skogssllskapets Skogsindex (mars 2018) marknadspris avkastningsv rde Skogsindex 9/2017 Norrbotten 26880 21830 1,23 1,27 Mellannorrland 42700 37290 1,15 1,22 Uppland 86840 47010 1,85 2,00 V stsverige 103200 80110 1,29 1,45 Sydsverige 112390 81190 1,38 1,55

Valuation Methods Market price based methods Estimate the price of an estate based on the market prices of similar estates Regression analysis NPV based method A estate s price = present value of all the projected net benefits to be obtained in the future

Skogsmarksprisernas reala utveckling i sdra, mellersta, norra och hela Sverige fr n 2003 till 2013 angivet i kr/m3sk (LRF- konsult, 2014).

Axel Wretemark 2014, Skogsfastigheters totala produktionsf rm ga som f rklarande variabel vid priss ttning Marknadspris = a*produktionsf rm ga + b * virkesf rr d

Beskrivning av datasetet som anvnts fr regressionsanalys frdelat p regionerna och Sverige som helhet (2010-2013)

Resultat region produktionsf rm ga virkesf rr d G taland 2706,69 399,65 Svealand 4918,97 126,89 Norrland -209,93 239,85 Sverige 5147,1 169,47

Timber production value (Avkastningsvrde fr virket, AVV) AVV = net present value of all future timber production profits from the estate AVV depend on how the forest is managed To estimate the AVV one needs to know future forest management plan

Timber production value (AVV) Case 1. Timber production without restrictions Case 2. Timber production with stand-level restrictions Case 3. Timber production with forest-level restrictions

Fall 1. Virkesproduktion utan restriktioner AVV = sum of the NPV of individule stands M = ( ) AVV A W a k k = 1 k M = number of stands in the estate Ak= area of stand No. k (ha) ak= age pf stand No. k W(ak) = per ha NPV of an ak-year old stand

Example: NPV (Best ndsv rde) Average age Age-class Area (ha) (SEK/ha) 1000 SEK (years) 27784 277,84 35-45 40 10 37339 373,39 46-55 50 10 37261 372,61 56-65 60 10 38717 387,17 66-75 70 10 52032 520,32 76-85 80 10 69018 690,18 86-95 90 10 - Summa - 60 2 620

Case 2. Timber production with stand-level restrictions Examples of restrictions: naturv rdsh nsyn vid f ryngringsavverkning l gsta till ten slutavverknings ldern krav p f ryngringsmetod och intensitet Such restrictions limit the possible choices of silviculture measures and/or final harvest age Could also directly affect the revenues/costs Estimation method is the same as in case 1. W(ak) should be estimated taking into account the relevant restrictions

Case 3. Timber production with forest-level restrictions Restrictions at the forest-level imply that what one can do in a particular stand depends on what activities have been adopted for other stands Management program for different stands should be determined simultaneously

Case 3. Timber production with forest-level restrictions AVV = NPV of timber production profits during a finite time horizon + Value of stands remaining at the end of the time horizon In general, value of stands remaining at the end of the time is estimated as in Case 1 or Case 2.

Effect of av restrictions No restriction can increase the market value of a forest estate Every restriction can reduce the market value of a forest estate Forest owner s requirements and requirement of forest regulation: which should be taken into account?

Effect of taxes Skatt p verkar b de inkomst och kalkylr nta Efterskatt nuv rde av ett best nd kan vara h gre eller l gre n nuv rde f reskatt R kna man med skatt i v rdering kan minska eller ka v rde av en fastighet Med eller utan skatt?

Forest valuation in practice BM-Win (Best nd metoden) SLUMP (Sveriges Lantbruks Universitet Marknads Pris)