Investing in forest properties is a strong choice against inflation.
Precise information on forest property price development
The continuous and rapid rise in forest property prices during the 2000s has provided an excellent hedge against inflation, according to a recent report by Suomen Sijoitusmetsät. Timber prices have also risen faster than inflation. However, pulpwood prices have only begun to outpace inflation within the last ten years.
While future inflation protection from forest property investment cannot be predicted, the report covering 1995–2022 speaks for itself.
“Forest land prices rose steadily until 2019, after which the growth in average prices per hectare clearly accelerated. Since 1995, the price of forest land has risen by a total of 215 per cent, or an average of 4.3 per cent per year,” says Eero Viitanen, Head of Forest Information at Suomen Sijoitusmetsät.
The rise in forest property prices has been particularly strong in recent years
When the impact of inflation is removed from price development, the per-hectare prices of forest properties have risen by 160 per cent in real terms between 1995 and 2022. This corresponds to an average annual growth of 2.7 per cent.
The price level of forest properties rose especially at the end of the review period. The most recent real annual change from 2021 to 2022 was 6.8 per cent.
In a recent Maaseudun Tulevaisuus article, Viitanen explains the factors behind the 2023 Market Price Index compiled by Suomen Sijoitusmetsät. Currently, the index shows a seven per cent price increase on an annual basis.
National Land Survey and Luke data: logs held their value better than pulpwood
Nominally, the stumpage price level rose by 68 per cent during the review period, or an average of 1.9 per cent per year. Adjusted for inflation, the price level rose by 12 per cent, or 0.3 per cent per year. With inflation accelerating, real stumpage prices already fell 2.4 per cent in 2022.
Differences between timber assortments can be found when the average stumpage price development is divided between logs and pulpwood.
The price development for logs was clearly better. Log prices rose nominally by 87 per cent, or 2.3 per cent per year. Log price development was also positive in real terms throughout the entire period, whereas the combined price development for pine, spruce, and birch pulpwood was faster than inflation only during the last ten years.
The report also compared timber price development and inflation.
Stumpage prices, which describe the price of roundwood, fluctuated more annually than forest property prices, but as a whole, stumpage price development during the review period rose fairly steadily in line with the consumer price index.
The forest property market picks up towards summer
The first quarter of the year is traditionally the quietest time in the forest property market. In January–March of this year, the most properties came onto the market in March. During the quarter, more properties were put up for sale than in the same period in 2021 or 2022, but fewer than in 2020.
The atmosphere in the forest property market is clearly calmer than, for example, in the housing market, which has experienced a shock in terms of both demand and price levels.
“The forest property market has had a much easier time. Early summer is traditionally a busy time in the forest property market. Now we are waiting with interest to see how trading begins and at what price,” Viitanen says.
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