Epsilon Archive for Student Projects

Abstract

The world economy of today is in an extensive financial crisis which has lead to the fact that people seek well placed investments and securing of capital, something that by many people can be found in forest investment. The price of forest estates has increased with 90 % during the last 5 years and marketing polls indicate a positive belief in the future among forest owners. The development of timber prices has not increased to the same extent as the forest property prices which implies that the property price not only reflect the yield value from the forest but also that the lumber value does not have such a meaningful role in the pricing of forest properties as proven earlier. This fact means that forest owners either invest their capital in forest in a speculative point of view or that the purchasers of forest properties invests in non monetary benefits that lacks a direct yield value. The purpose with this degree thesis is to increase the understanding of the pricing of forest properties with focus on the above mentioned fact. The research was based on interviews conducted on ten forest estates buyers. A yield value was also calculated for each forest property. The property purchases had taken place in Örebro and Uppsala as well as in the counties of Östergötland and Södermanland during 2008. The results display the complexity that characterizes the decision making and the motifs behind a forest property purchase. All in all, five out of the ten buyers had interweaved motifs between non monetary and monetary as a basis for the purchase. Three of the buyers considered the non monetary benefits as the most important reason for their property purchase while only two valued the monetary aspects. This demonstrates that it is possible to distinguish the fact that the monetary benefits play an important role in the pricing of forest estates. The result from the yield valuation displays that buyers in average pay 28 % more than the demonstrated yield value and that the difference between the yield value and the marketing value is greater for small forest properties. The results also show that the property acquisitions made without mortgage tend to show greater difference between market value and yield value than for cases where the purchase was financed with credit. Speculation was proven to be an important motif in purchasing, when most of the interviewed buyers consider their forest domain investment as a long term investment. The speculations are primarily based on the fact that the forest owners motivate their positive belief in the future based on the historical development that the forest estate market has experienced. Considering this fact it is interesting that the study has shown that only one out of ten forest buyers could consider selling their property. Thus, the timber values seams to be the most important monetary benefit when buying forest properties since most buyers do not have the motif to realize a potential increase of the market value of the property. The result also demonstrates that the interviewed forest buyers symbolize a financially strong group that have low demands on proceeds of the invested capital and that the advance ratio generally is low.