Discount rates used for forest valuation – results of 2023 survey

Authors: Bruce Manley
Publication: New Zealand Journal of Forestry, Volume N.Z.J.For. 2024, Issue N.Z.J.For. 69(2) 2024, pp Pages 31-38, Aug 2024
Publisher: New Zealand Institute of Forestry

---

Abstract: A total of 21 forest valuers responded to the survey and provided information on 12 New Zealand and two Australian transactions from 2022 to early 2024. The reported implied discount rate (IDR) for the New Zealand transactions is in the range 4.5% to 10.3% for current rotation pre-tax cashflows (eight transactions) and 5.2% to 10.7% for multiple rotation pre-tax cashflows (six transactions). Overall, averages are 6.4% (current rotation) and 7.4% (multiple rotations) compared to 6.2% and 6.6% in the 2021 survey. Given the small number of transactions and the variation in IDRs, the differences in mean IDRs between 2021 and 2023 are not statistically significant. Forest valuers also provided the discount rate they use to estimate the market value of a forest. Valuers apply an average discount rate in New Zealand to current rotation pre-tax cashflows of 7.0% for medium-large forests and 7.8% for small forests. They use an average discount rate for multiple rotation pre-tax cashflows of 6.6% for medium-large forests and 7.4% for small forests. Similar discount rates are applied to Australian forests. Some 18 of the 21 valuers included in the 2023 survey also participated in the 2021 survey. There has been an average reduction of 0.1 percentage points in discount rate for the 17 valuers of New Zealand forests and 0.3 percentage points for the nine valuers of Australian forests.

---