The UK housing crisis. Global climate change. Two of the biggest issues facing the next generation. What if there was a potential solution to both, in the form of a tax efficient investment that delivers impressive returns to investors?
Too good to be true?
Not according to leading alternative investment manager FIM Services Limited. Growing timber is their solution. And it’s a compelling case.
Timber is one of the world’s most environmentally friendly raw materials. Trees absorb carbon dioxide, the primary greenhouse gas contributing to global warming. Whilst making money from growing trees, investors are profiting from benefiting the environment.
The UK timber market is particularly strong. According to Farmers Weekly, investors have seen strong returns for two decades, and despite some predictions that the top of the market may be close, few are choosing to cash in their chips.
So how can timber help solve the UK housing crisis?
There is a structural deficit, not only in the UK housing market, but also across Europe and in the US. Only 170,000 new homes were constructed in the UK during 2016 – well below the estimated requirement of 300,000 per annum needed to solve the crisis.
Modular housing (prefabricated housing) is being hailed as the key to meeting the challenge. Modular Houses are quick to build, and the UK housing industry currently builds 5,000 modular homes per year. The UK Government want to scale this up to 50,000.
Timber is the preferred choice for modular housing and FIM expect to see a significant shift in the demand curve for this underrated raw material – and the big investors are already getting involved.
Who is already investing?
Prefabs have been noticed already as a significant growth area. The second largest investment management firm in Europe, Legal and General, already plan to invest £650 million in UK modular housing. Furthermore, The China National Buildings Materials Group has also announced a £2.5 billion investment to open 6 house building factories in the UK, producing 25,000 new prefabricated homes per year.
What about the raw material?
Global timber demand is growing in line with increasing urbanisation in the the developing world. Rising demand is coinciding clashing with reducing supply as forests are reducing in size and remaining timber is increasingly inaccessible.
Timber prices are a key driver on the return from forestry. So how can savvy investors get involved? Investing in a forestry fund is one option, which is the area FIM specialise in.
FIM have a unique, proven structure which allows a wide range of investors to access the fundamental attributes of forestry, subject to a minimum investment of £93,200. FIM’s three forestry funds have delivered impressive returns to investors over a number of years, with low volatility.
How does the current offering work for investors?
The current offering for FIM Forest Fund I LP builds on an established, diversified portfolio of UK forests independently valued at £84 million.
The Fund has provided a blended post-tax annualised return of 11.8% since formation in 2008. This return is particularly competitive as it provides tax-free income and capital growth from the trees. As investors are acquiring a stake in the business, it will also qualify for Business Property Relief from Inheritance Tax after a two year qualifying period.
The new issue will raise capital to expand the Fund by acquiring further forests across the UK.
Edward Latter, Fund Manager, believes that now is an opportune time to issue further shares in what has been a high performing investment to date:
“New investors will benefit from a top quality asset base of some 28,000 acres, an experienced management team and with further investment opportunities available this is an ideal time to gain exposure to the competitive returns and tax advantages offered by this vehicle through investment in UK forestry.”
Jim Church, a retired stockbroker from Kent, has been investing in FIM Funds for decades:
“I was asked why I invested in forestry and the answer was not difficult to find. First, it combines, as little else does, both capital growth and income with environmental good. Secondly, from the purely investment point of view, it has a characteristic which few other forms of investment have, and that is it has an underlying asset (timber) which grows and grows and grows. The price of that asset will vary and will not always increase, but the size of the asset will grow year in and year out, if properly tended. Little else, in my view, can offer such a future.”
Partnership Shares in FIM Forest Fund I LP are available until 30 November 2017.