The price of the Finnish forest rose at a fierce pace, now a worrying turning

In forest and wood shops A huge boom began about five years ago. The price of the forest country rose from 2019 to last year by more than 40 per cent. Equal increase in the value of the Finnish ear has never been seen before.

The rise of forest land is one of the rise in the rising prices of wood. But there is another reason for this: the rise of mutual funds investing in forests.

At about the same time as ordinary banking customers started selling special investment funds investing in housing and commercial properties, funds investing in forest properties also included.

Forest funds The popularity grew rapidly. The OP forest owner-owner investment fund is the largest of consumer forest funds.

From time to time, it has even closed the fund’s new entries, as the profitable purchase has not been found at the same pace as the investments had come.

Nonetheless, the value of the fund almost doubled from the end of 2020 from 285 million to EUR 545 million last June.

When capital flows into the fund, it must be found to buy. OP’s fund are ownership have been able to buy columns of less than ten hectares at their lowest. Ten hectares are a square with a side of 316 meters.

According to a report by the end of June last June, the fund owned about 1,300 forest columns of about 100 hectares.

Forest funds According to information compiled by the National Land Survey of Finland, the share of all forests in Metsämaa rose to about 45 % in 2022.

According to messages from several private forest owners, the funds competed for the columns on sale at a price. It quickly raised the price of the forest land.

Since then, the pace of shops has slowed down and the price of the forest has started to decline.

What about the valuation of forest funds?

OP Forest Owners’ Fund’s portfolio manager Tapio Tilli In mid -January, at HS, estimates that there is nothing in sight that would change the development of the price of wood and the value of the forest.

Dill The price of wood is likely to remain high in the future.

Indeed, wood has been in Finland in recent years. First, from 2020 onwards, the corona epidemic caused a timber demand peak and, for example, e -commerce growth fed the demand for cardboard factories in Finland.

Then the interest rates rose and the rest of the economy fell into a downturn. In Finland, however, the rise in the price of wood only accelerated. It was because the Russian border, which had been brought across about one tenth of wood used in Finland, was closed.

At the same time, a huge new pulp mill in Metsä Group was completed in Kemi. There was a shortage of wood in Finland, which further fed prices.

The tight market situation is likely to continue unless the expensive and poor availability of wood forces the industry to close the pulp mills. UPM is already like that warning.

But the price of wood is not the only reason that the forest has been so tilted so dramatically in recent years.

Natural Resources Center senior researcher Esa-Jussi Viitala has closely followed the development of forest funds. The first funds started their operations about 15 years ago.

According to him, forest funds were influenced by forest giant UPM’s decision to start selling its forests mainly in northern Finland. The company closed the Kajaani paper mill in 2009 and no longer needed saloma surrounding the factory.

First, international and then Finnish funds invested in forests appeared as forest buyers. Ten years ago, special investment funds for retail investors also included.

UPM sold quite large areas at once, thousands of hectares. When nearly 400,000 hectares of forests had been sold around 2018, the company stopped sales.

But The popularity of forest funds was just getting up to speed. At the ever -accelerating pace, investors’ money flowed into them and had to find more forests to buy.

The funds began to compete for every small sale of Metsälän for sale. Often a private buyer candidate was second when forest funds raised their offers. The price was easy to justify with the tilt of wood and low yield clothing.

Five years ago, the value of the forest land, which has remained quite stable for a long time, started to rise rapidly.

Of course, forest owners became enthusiastic about selling as prices rose. While in 2010, about 1,500 more than 10 hectares of forest sales were made in Finland, in 2021 they were made over 3,000.

In 2022 The number of shops started to decline and prices also stopped. Is it really that the price of wood is sufficient to keep forest fund values ​​high, even if the shops are reduced?

OP Group former CEO Reijo Karhinenwhich is also a big private forest owner, commented on OP Till’s estimates skeptically in the message service X. “A pretty strong view,” Karhinen wrote.

Natural Resources Center Three years ago, Viitala and his colleagues wrote a 150-page analysis of forest funds and its effects on the Finnish forest market.

In his view, it is quite clear that the activity of the funds has influenced price development.

According to Viitala, one might think that if the price of the wood remains high, it will support the value of the forests. On the other hand, there are questions about the valuation methods of the funds.

According to Viitala, the funds use very different methods to appreciate their forest assets. In one way or another, everyone is based on the amount of wood in the forest. It is very laborious to obtain reliable information. It is even harder to evaluate wood sales revenue for decades.

“This is problematic for investor protection. It is impossible for a private investor to compare fund returns when valuation methods are different, ”he says.

By mere On the other hand, the change in the approval method has been able to significantly increase the value of forest assets.

“In 2022, Tornator announced that it would move from forest -based valuation to comparable purchase prices. As a result, Tornator recorded the value of its assets about EUR 500-600 million, or 25 % higher, ”says Viitala.

According to Viitala, it contributes to the risk of fund values. As forest trade rates decline, the risk of decreasing the price of forest land is also obvious.

Tornator is a company specializing in forestry. It owns forests in Finland, Estonia and Romania.

OP Forest Owner Fund The rules state that the value of the fund is calculated according to the wood reserve and the value of the seedlings in the forests of the fund.

The value of the seedlings is distinguished according to the different parts of the country. Instead, the value of the wood reserve is calculated according to the average stock prices in Finland. However, the fund owns forests mainly outside southern and central Finland, where prices are the highest.

One might think that the value of the funds of the fund does not reach the national average. The portfolio manager Tilli no longer agrees to give the interview, but the questions will be answered by email from OP Group communications.

“To the national The use of one price has been decided because the price of the wood does not have a nationwide major regional variation, according to statistics from the Natural Resources Center (Luke). In particular, the prices of pulpwood are the same in different parts of Finland, ”OP replies.

According to Luke’s statistics, the price difference between spruce fiber wood in Southern/Central Finland and Ostrobothnia, Kainuu, Lapland in December was three per cent. The difference in the price of the log was almost 5 %.

20 % of the Forest Owner Fund’s funds are placed in Tornator, where valuation was bounced by about 25 percent with a change in appreciation alone. Is there a risk of this?

OP represents that the value of Tornator ownership will be directly influenced by the change in the market price of forest properties in the future.

Last Much has been written over the problems of funds investing in housing and commercial properties. Most real estate funds have temporarily stopped paying redemption to investors, as the fund’s ownership cannot be sold at a reasonable price.

So far, there are no similar problems in forest funds. The Financial Supervisory Authority also monitors monthly redemption of forest funds. The redemptions have not increased significantly.