How to start a property company investing overseas?

I have this great idea, but I don't know how to go about it.


I would open a company, and buy forestland overseas with my company. I would then sell shares of the company, and with the money made from selling shares, I would I would buy additional forestland. Profits would come from the sale of the wood, so for the first 5 years or so there wouldn't be any profits. Overall, the profits would be about 4-5%, but most of the payments would come after 20 years or so.


This is not a scam. How should I go about it? What kind of company would I need to open? How much would it cost to open, and how long would it take?


What would be the best way to sell shares? I would start with buying the first woodlot myself, to have something to sell when I sell the shares.


Any comment/advise?


Thanks!

Is this tried and tested?

There are many scams involving forests and timber.


The numbers never quite stacked up for me.


And what exit do you plan to offer for your investors?

This i a common structure used for everything from forestry to bamboo to real estate generally. The promotor buys the asset, sells it to investors (retaining the management rights) and then buys the next asset. Sometimes it works out well (Walton has a good reputation) and sometimes it doesn't (as OffThePeak says, there are a lot of scams out there).

Yes, thanks. I have come across something like this for forestry already, but never made the plunge because I was afraid they are scams. Usually they offer investments in Thailand, Sri Lanka, or ... Panama. All tree places screems SCAM louder than a loud screem, and I am not keen in throwing my money from the window. I would buy forestland in Europe, North America, NZ, etc. which may tranquilise the investors a bit. The first would be in the UK. The forestland also would be managed by established independent companies (not by my company).


Apart from my questions above, how easy would it be to find investors? How could I go about it?

Returns on Forestty are very low in the UK.

Because of the favorable inheritance tax treatment, people bid the price up.

And who will manage it?

You cannot just leave a forest alone

There are companies in the UK that manage it (for a fee). Yes, returns are low, in the range of 1-2% a year. One has to hope for an increase in the price of the wood.


I found higher returns in France, but I was unable to find companies that manage it. Do you know any reputable company able to manage forests in other (reputable) countries?

If you are going to sell shares publicly in HK I believe you need to be SFC registered (big bucks)... but I do believe you can offer shares to people that you are acquainted with.


I suggest you have a word with a corporate lawyer before embarking on this --- the SFC has serious penalties for those flogging unregistered investments.

Thanks. Before paying a lawyer I am looking for free advise through asiaxpat :)


Any other advise?

Buying a forest sounds like a ridiculous risk. These types of assets are highly political and there is always the non-zero probability that a government / activist group will take-over your forest and leave you with squat.


Two other things:


1) lots of people coming to asiaXpat these past few months asking the same question about buying forests. Are these the same people or is there some HK Forest Scheme being advertised around town that I am not seeing?


2) your name is really long and it's broken the formatting on the mainpage

You can check here http://en-rules.sfc.hk/ - I think specifically here http://en-rules.sfc.hk/en/display/display_main.html?rbid=3527&element_id=3679


I am 99.9% certain that you must be registered with the SFC if you want to offer shares publicly...



I think a corporate lawyer would give you this initial advice free of charge - the assumption being that if you did go ahead and register he/she'd get the business and be more than happy to trade an email to get the big fees involved in SFC registration...

The legal bits:


1. if you offer an interest in a collective investment scheme to the public in Hong Kong, then the scheme/the scheme's offering document must be authorised by the SFC under either the Companies Ordinance or the Securities and Futures Ordinance (depending on structure of the investment vehicle). If you are not offering to the public (i.e. private placement), then the scheme/its offering document do not have to be authorised by the SFC;


2. the position with regard to licensing to act as a manager of a collective investment scheme is more complicated. The short version is that if all you are doing is managing a forestry plantation which is located outside Hong Kong and which is not part of a scheme which has been authorised by the SFC, then you probably do not need a Type 9 (asset management) license from the SFC;


3. the question of whether you need a license for promoting a collective investment scheme to Hong Kong investors is somewhat complicated. Assuming that the scheme is not being offered to the public in Hong Kong there are some exemptions from the requirement to be licensed which you may be able to use (with the right structure and safeguards against inadvertently offering to the public).


Given the consequences of breach, I strongly suggest taking legal advice before doing anything.


As a practical matter, most people I have seen raising their first fund either rely on a track record built up while working for someone else (usually one of the bigger banks) or have contacts at institutions, family offices or UHNWIs who will provide them with seed capital.


Lucanane01's comment on political risk is spot on. Two issues I have seen inflict pain on investors in recent years are loss of land use rights and changes to regulations governing carbon credits.

Personally I think something like this just sounds far too risky and much too difficult to do given the potentially low returns. As has already been indicated, setting this up legally is going to cost you much time, money, effort and heart ache. As simple as the procedures might sound, there are always complications that will make it far more time consuming and difficult than ever anticipated.


And on top of all of that is the incredible political risk involved with all natural resources. Even "simple" natural resources like farmland in the US are now too risky in my opinion - all it takes is one tree hugger to claim that the Brazilian Spotted Brown Fir Tree Frog inhabited your land 20 years ago and then the EPA will swoop in and declare the entire area a protected wetland for endangered species and then you are f*cked. I'm honestly not even exaggerating, the US Government actively shuts down entire swathes of farmland on trumped up claims like that.


http://reason.com/blog/2012/02/29/delta-smelt-v-central-valley-farmers-the


http://youtu.be/f8qxyY2k70g?t=23m20s


If something as "innocent" and "wholesome" as farming or housing is under attack by land-grabbing governments and environmentalists then something as "evil" as forestry is certainly at risk (which it is). Unless you are a big time player with lobbyists / local strongmen then I would not even contemplate buying a forest.


In times like this with governments broke as a joke and powerful as ever, investing in a giant immovable asset is like putting a massive bullseye on yourself and saying "come and rob me." And if you invest in a more third-world country then you risk inadvertently participating in some really terrible things like forceful relocation of villagers. Do you want that on your conscience?


I'd avoid this investment like the plague unless it was less than a fraction of a percent of my total net worth and only in areas I fully know I can be sure of legal title and lack of conflict with locals & villagers.

Where's the return?


You say "asset class" returns in the UK are 1-2%.

After you charge your fees, there will be almost nothing left.


Who is going to want an illiquid investment, with no defined exit strategy, which is reliant on capital gains. They'd be better off buying a liquid futures contract, or even an illiquid one, like lumber futures


Chart of Lumber Futures : http://finviz.com/futures_charts.ashx?t=LB


5-year Chart : http://img837.imageshack.us/img837/3774/n4ov.png

Ed, Trainee, Lucane, OTP... Thank you all for your comments. Yes, I think this is not appealing enough for investors, and actually difficult, time consuming, and expensive to set up. Thanks again!