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Discount rates used for forest valuation - results of 2021 survey

Authors: Bruce Manley
Publication: New Zealand Journal of Forestry, Volume N.Z.J.For. 2022, Issue N.Z.J.For. 67(2) 2022, pp 36–44, Aug 2022
Publisher: New Zealand Institute of Forestry

Abstract: A total of 23 forest valuers responded to the survey and provided information on 25 New Zealand and four Australian transactions in 2020 and 2021. The average reported implied discount rate (IDR) for the New Zealand transactions is in the range 3.4% to 9.5% for current rotation pre-tax cashflows (17 transactions) and 4.7% to 8.4% for multiple rotation pre-tax cashflows (14 transactions). Overall, averages are 6.2% (current rotation) and 6.6% (multiple rotations) compared to 7.3% and 7.1% in the 2019 survey. IDRs for the transactions of medium or large forests are, on average, lower than those for small (<1,000 ha) forests, 5.3% vs 6.9% for current rotation pre-tax cashflows and 6.3% vs 7.3% for multiple rotation pre-tax cashflows. Forest valuers also provided the discount rate they use to estimate the market value of a forest. Valuers apply an average discount rate to current rotation pretax cashflows of 7.3% for medium-large forests and 7.8% for small forests. They use an average discount rate for multiple rotation pre-tax cashflows of 6.8% for medium-large forests and 7.4% for small forests. Some 20 of the 23 valuers included in the 2021 survey also participated in the 2019 survey. There has been an average reduction of 0.3 percentage points in discount rate for 19 valuers of New Zealand forests and 0.2 percentage points for eight valuers of Australian forests.