Forestry groups, or rather GFI, have seen their collections multiply by 7 in 3 years. Modeled on the SCPI model, they provide the opportunity to invest in French and European forests, with an annual return objective of 2.5%. With a big bonus: a tax reduction of 25% and a reduction for transmission of 75%.
This is called diverting a measurement from its objective. Until the 1950s, forests were subject to inheritance tax. To pay for them, the heirs cut down wood, says Nicolas Agresti, director of studies for the Safer federation, the organization which supports agricultural activity and the development of rural areas. Financial constraints meant that decades of silvicultural work were being destroyed.
The state therefore set up a dedicated tax regime, by creating in 1954, forestry groups, a sort of real estate civil society for the woods. Five years later, the Monichon Law introduced a 75% reduction in free transfer taxes (donation, inheritance, etc.). It is not a classic good, justifies the Safer expert. The device was intended to avoid damaging it. The measure worked, better protecting the plots. But it gave ideas to investors. Because the law does not impose a retention period for shares, the GFI constituted a great optimization for transmitting one’s capital. Favorable tax measures always create opportunity purchases, analyzes Nicolas Agresti.
It’s the same principle as SCPIs: GFIs diversify geographical areas and species to limit risk.
The good plan has spread widely. Large fortunes have begun to be interested in this type of property. Then as for real estate, the offer has become more democratic. Forest land groups emerged, then forest investment groups (GFI) in 2014. Modeled on the SCPI model, GFIs allow you to acquire shares in mutual funds. It’s the same principle as SCPIs: GFIs diversify geographical areas and species to limit risk, summarizes a specialist. Some vehicles will even buy forests in Northern or Eastern Europe.
Income tax: deduct 25% the year following the investment
Investors benefit from the Madelin law for investment in SMEs. They can therefore currently deduct 25% of their investment the following year, within the limit of the tax shelter ceiling (10,000 euros). This has generated a particular attractiveness for large forest areas, which has resulted in a significant increase in value, notes the Safer specialist.
Even taking into account wood inflation, the sale price is now decorrelated from the technical valuation of the goods. ric Bengel, associate director of France Valley, overwhelming leader in forestry investments (4 billion euros and 41,000 hectares under management), does not deny a speculative effect: There is a market bias. Wealthy people are ready to overpay for a land asset, to the extent that the tax leverage will be even greater. Recently, a prestigious massif was priced at 80 million euros. It was finally sold for more than 200 million, a possible reduction of 150!
An overall yield of 2.5%?
The hard way is precisely the basic principle of GFI. Tax exemption imposed at least 5 years of holding the shares. By investing in 2023, you are locked in until December 31, 2028. During this time, you receive dividends decided at a general meeting each year. There are multiple sources of income. The majority comes from the sale of wood, but this is irregular, depending on an obligatory sustainable management approach. Then, leases are granted for hunting and fishing. Finally, each GFI maintains a cash fund to ensure liquidity, which generates a small remuneration.
The performance lever is the revaluation of the share price
But make no mistake: in total, these dividends do not exceed 1% or 1.5% on average! The performance lever is the revaluation of the share price, points out the associate director of France Valley. Their largest vehicle has seen its shares gain 11% since mid-2022. The objective of this type of investment is an IRR [taux de rendement interne, NDLR] of 2.5%, average annual return net of all fees. Even if in recent years, France Valley has rather delivered between 4 and 4.5% net.
The tax reduction therefore boosts this performance. And if we add the transfer allowance, it is a very powerful tax exemption product, judges Pierre Garin, director of the real estate division of the broker Linxea. The most surprising thing is that it is possible to make a purchase one day, and ensure its transmission the next day!
Sustainable management
GFIs are often presented as conviction investments. All citizens are sensitive to the fort, which covers a third of the territory, says Rick Bengel. But precisely, by earning money by hunting and cutting wood, this investment is enough to repel nature lovers!
Hunting is part of forest management, assures Nicolas Agresti. Animal pressure is one of the threats to the renewal of afforestation. What about cutting wood? It’s not destruction, but sustainable management, he says. Managers drive it hard to have a continuous source of income. They are not looking for a big hit in one year. All this is very regulated: a simple management plan is imposed from 20 hectares. It defines the silvicultural management policy over the next 15 to 20 years.
Forestry groups are responsible to the administration for the practices put in place, continues Nicolas Agresti. Eric Bengel goes in the same direction: France Valley does not have the right to raze its plots! We cannot cut more than the volume of natural growth of all forest assets. Which makes Safer say that GFIs have an interest in the ambient environment. The strong, despite their will, become fragile. They are the ones who were affected by the big fires in the south of France. While good management provides suitable access, firefighting…
Fees and taxation: a complexity to understand before investing
From the point of view of investors, GFI France Valley (more than 80% of the market) are very similar to SCPIs. We buy shares, the cost of which is 1000 euros. Entry fee is 10%, but the tax saving applies to the entire payment, so 25% is written off straight away. However, there is not much point in getting out quickly, judges Pierre Garin de Linxea. If you continue to hold them for a few years, you will continue to receive dividends from time to time. Subsequently, it is only necessary to provide management fee of 0.5% per year.
THE investment limit to benefit from the income tax reduction is 50,000 euros, or 100,000 for a couple. Warning: taxation is a headache: the dividend is affected by three taxes! For the cutting of wood (the vast majority of the sum), a cadastral fee (around 4%) is exempt from any other tax or social levy. For their part, hunting and fishing leases are considered land income. Finally, the small portion of income derived from cash flow is subject to flat tax.
There remains one element, far from being negligible: GFI shares are exempt from real estate wealth tax (IFI).
There is therefore no great point in getting out quickly. If you continue to hold them for a few years, you will continue to receive dividends from time to time.
Fiscal advantages
To claim to be eligible for the tax reduction, the law requires that vehicles do not exceed 15 million euros. At France Valley, this corresponds to a pooling of 7 to 12 massifs. When the collection is complete, the manager has 24 months to invest. Then, after 6 years, the leader of the GFI proposed merging the small fund with a parent fund called GFI France Valley Patrimoine. It represents a little more than 350 million euros and 107 forests, specifies ric Bengel. The merger is done at no cost. Mechanically, we benefit from greater diversification. Once in the large fund, the investor can easily sell his shares: each merger causes a movement of new shares. And it is frequent, since 10 vintages have been completed over the last three years.
For the transmission, the system is also a little complex. The 75% reduction only concerns the forestry portion. At the start of their life, the new vehicles have not yet been able to buy many forests. Therefore, it is better to wait until the GFI has been absorbed by the parent fund, which is made up of 85% forest assets. In this case, the reduction will ultimately be 63% (75% of 85%). Some have another tactic: rather than waiting 6 years, they buy shares in France Valley Patrimoine directly. The minimum stake is 33,150 euros, and it does not qualify for tax exemption. But it is not a priority in a transmission project. The GFI is a very good setup for people who have already made other arrangements, notes Eric Bengel. It remains one of the only levers still accessible regardless of the age of the subscriber. We are doing files for people aged 80 or even 90!
Risks partially covered
Despite everything, the GFI carries different risks. Some are covered by insurance, such as fire, storm or hail. On the other hand, this is not the case for phytosanitary problems (parasites, fungi, etc.). If a forest is affected, this will lower the price of the share, even if pooling limits the impact. To prevent this problem, France Valley seeks to vary the species: In a highly diversified forest, there is no possible contagion factor.
Another element that is not taken into account enough according to Safer is global warming. We can imagine that some trees will be in pain, supposes Nicolas Agresti. The value of the fort will then be weakened. Eric Bengel agrees, but suggests that over time, trees evolve to adapt to more difficult conditions. And managers are pursuing a policy of replanting more southern species.
Finally, the last risk concerns the evolution of laws, in particular a possible removal of the reduction on transmission. In this case, the big fortunes would move away from the market, which would cause prices to fall… Like a bubble bursting. But the actors of the GFI want to believe that this system, which appeared almost 70 years ago, is taken. This reduction makes sense, defends ric Bengel. When we decide to plant trees, we receive no income from them for 80 to 100 years.
Promising prospects for wood-paper?
conversely, elements could boost the market. Beyond the evolution of the value of wood (demand exceeds supply), Safer raises the subject of remunerated carbon storage. It is possible that tomorrow, forest owners will be able to sell carbon credits under certain conditions, rejoices Eric Bengel. This would greatly boost profitability.
Nevertheless, the GFI remains confidential, even if the collection increased in three years to 37,250 million euros, including 205 for France Valley. We are in a narrow market. We could not afford to invest billions of euros. And as is the tax exemption season, everyone gets busy at the last moment. The limit for investing is December 27. While stone-paper is experiencing some upheaval, it may be time to try wood-paper!
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