Metla Project 3421

Forest property valuation as a study subject in FRI

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Duration: 2006   Keywords: National Land Survey, forest property, Expropriation, compensation value, forest policy, international valuation standards, market value
Research project group: Distinct projects - Forest-based enterprise and business activities

Objectives

The task is to make a detailed plan, how forest property valuation studies should be arranged in FRI and within its co-organisations. The most important viewpoint is in practical needs to develop information systems based on market prices, and how they can be used in different kind of situations. The organisation within FRI and needed resources will also be included in the plan. The plan is needed because the corresponding senior researcher will be soon retired.

Private people in Finland own over 400,000 forest properties and the amount of owners is about double. This is 61 percent of the total forest area in the country and makes 11.43 million hectares. The average size of a forest property is 26 hectares.

Forest ownership is often based on inheritance or transactions in families. The aging of the population and the ongoing movement to population centres result in more and more properties going for sale. The majority of the valuation need lies in reorganizing the ownership of private people. The new nature conservation programs have also resulted in biologically valuable forest areas being bought up by the state and communities. The demand for valuation is growing and valuation practises have to be standardized to correspond to the requirements of the common property valuation standards.

Valuation situations fall into two main groups in practice depending on the unit and its marketability. The first group includes whole real estates and parcels. Group number two is for small lots and forest covered stripes as road lines and areas where trees have been damaged for some reason. Valuation methods used in the latter case are also suitable for cases where forestry is restricted in one way or another.

Sufficient market data of forestry properties transacted are normally available, which means that the sales comparison method to get the market value can be applied when whole properties and larger areas are valued. In practice summation method and income capitalisation method are also often applied. By stripes (often compensation) the summation method based on costs and incomes is normally applied.

Forest valuation is needed when preparation work is made fore property transfer or in taxation, or in cases where forest is considered as a security for a loan, exchange between relatives, transfer to a descendant, in cases of real estate exchange, in parcelling or annexing and in breaking up of co-ownership. In practice, taxation requires the valuation of property as the seller (conveyer of the land) normally have to pay tax on the conveyance profit. The buyer usually pays a special transfer tax, (4 percent of the assets price), on the deal when the transfer is registered and legalized.

Project leader: Hannelius, Simo
The Finnish Forest Research Institute, Vantaa Unit, PL 18, FI-01301 VANTAA, FINLAND
Phone: +358 10 211 2329 Telefax: +358 10 211 2202
E-mail: simo.hannelius@metla.fi

Other researchers: Tuuri, Aleksi (2006)


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Updated 30.12.2009
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