Latvian forest still attractive for investors – high growth at a good price

Skogssällskapet has been helping private individuals and companies invest in and own forest in Latvia since 2002. Tomas Landers, Skogssällskapet’s business area manager in Latvia, explains that the Latvian market is still an interesting investment opportunity for anyone looking to buy forest.

“Price levels in Latvia are extremely attractive – you get a lot of forest for your money. Land is always for sale, because many private individuals in Latvia want to sell their forest properties due to urbanisation,” explains Tomas Landers.

One big difference between Latvia and, for example, Sweden, is the size of the properties.

“The average size of privately owned forest properties is ten hectares. This might seem like a deterrent but is actually one of the factors behind the great potential in forest investment,” he says.

"Buy and build"

The many small properties offer an opportunity for building a larger, continuous holding over time. In the sector, this is called ‘buy and build’. Merging small properties into larger units offers good prospects for generating return from the wood production while greatly increasing the market value of the holding for later sale.

“Something to consider is that you need good people in Latvia who can help with everyday operations, because naturally there will be a lot of extra work involved with many smaller properties.”

Tomas Landers explains that, in Latvia today, there is broad political consensus on aligning with the Nordic neighbours when it comes to development of forestry. Fifty percent of forest land is owned by the state, which also takes responsibility for the stricter EU requirements regarding setting aside land for conservation. Around a third of privately owned forests already have foreign owners, two of the largest of which are IKEA and SCA.

“Anyone deciding to take the step and invest in Latvian forest therefore becomes part of a large community that is helping to create jobs and welfare in Latvia, while enabling new investments in the country’s forest industries.”

Strong market for birch

New forest owners in Latvia must be prepared to start by working intensively with young forest.

“If you buy forest today, it’s often young and unmanaged, so you’ll need to put a lot of effort into treating grass and brushwood. But once you’ve done that, at the right time, you can get fantastic forest growth,” explains Tomas Landers.

In addition to spruce and pine, a lot of regeneration currently involves genetically improved birch, and mixed stands with many tree species are common in Latvia.

“Working with deciduous trees is positive from various perspectives. Mixed forests give greater resistance to pests, diseases and climate change, and the shorter rotations give high levels of production. In addition, the market for birch is very strong in Latvia, with domestic veneer producers. In wetter areas, the common alder is planted, a species I feel will have strong economic potential in the future,” says Tomas Landers.

Carbon credits

Another growing market in Latvia is carbon credits, with many companies using international certification agencies to create and sell carbon credits in combination with afforestation projects.

“Already five years after afforestation, forest owners can reckon with selling carbon credits on the global market. Of course, this is less than the revenue from wood, but it does contribute to an early cash flow, making the forest investment even more profitable.

Better transparency and digitalisation

Many investors worry about the bureaucracy and paperwork involved when buying forest in Latvia, but Tomas Landers explains that much has improved in recent years due to greater transparency and digitalisation.

“Digitalisation in the forest sector has progressed quickly in Latvia in the past five years, so a lot can now be done remotely. It’s also useful to have a local forest manager who can speak the language, knows the culture, and is aware of what needs to be done and when. Forest ownership is secure and straightforward, even when done remotely,” says Tomas Landers.