Questions to consider before buying a vineyard

Private Banking - 7/7/2016

With over 9,000 transactions in 2015[1], the French vineyard market is booming. This could be your chance to realise your dream or diversify your assets. But in the interest of avoiding any disappointments and obtaining a return on your investment, it is best to anticipate potential pitfalls. Interview with François des Robert, Senior Banker at Edmond de Rothschild (France).

François des RobertIs this the right time to invest in a vineyard property?

François des Robert: The economic climate is conducive to acquiring a vineyard. First of all, today you can borrow at historically low interest rates. Second of all, the profitability of traditional asset classes is slipping, prompting some to turn to higher risk investments with greater expected returns.

Vineyards, which are defensive, long-term investments, represent the ultimate property asset. For this reason, many well-off families choose to invest in these properties in order to pass them down to future generations.

Another mark in their favour: property sales are increasing as baby boomers reach retirement age.

That being said, this market is no bed of roses. Unpleasant surprises can be very costly for unprepared investors. The number one risk posed by this type of investment is allowing yourself to become carried away to the point of disregarding the financial aspects. That's why it isn't a good idea to go it alone.

How does someone find the perfect property?

François des Robert: You will never be able to take advantage of a great purchasing opportunity without access. When it comes to the secretive world of vineyard transactions, discretion is the order of the day. Many sales are only registered with a single agent. The names of vineyards up for sale are kept under wraps to avoid tipping off distributors and partners.

This is why you must rely on experts with privileged access to this exclusive market. Knowing the right people is not enough; the agent must also have their complete trust. This doesn't happen overnight. Twelve years of working with the wine industry has taught me that like a good wine, these relationships get better with age!

Once a property is in your sights, avoid making the mistake of focusing solely on the purchase price.

You should also think about whether the vineyard is right for your plans, as this will be the deciding factor for the purchase. This is why you need to be clear about your goals, your time frame and your ability to invest over several years before you commit.

Choosing the right ownership structure is also important, as this impacts expected returns as well as the conditions for passing down or reselling the property. Here again, it's important to consider your options and ask for help from experienced tax experts.

How can vineyard owners grow their business?

François des Robert: Between the purchase of a property and the actual distribution of the wine, there are a thousand steps with which you may not be familiar.

Running a vineyard is a business endeavour requiring the involvement of experienced professionals. Passion and enthusiasm are no substitute for expertise. That is why you need to surround yourself with the right partners.

Our approach involves putting clients in touch with legal advisors and trusted experts who know about managing vineyards and making wine. We also help our clients build a reliable distribution network.

Working with these professionals before purchasing enables you to audit the property, draw up a business plan and calculate the required investments. After all, buildings, machinery, workers and vine stock all cost money.

Note that only very high-end wines, with their status as luxury products, enjoy large profit margins. Wines in other categories must be more modestly priced, a fact that some newly minted winemakers don't fully take into account.

How soon can one hope to earn a profit on the investment?

François des Robert: The winemaking world isn't the place to turn a quick profit!

If you are building the vineyard from the ground up, understand that it may take seven years before the first usable grapes are produced. Not to mention the time needed to refine the quality of the wine over several vintages. Even those hidden gems, vineyards with working infrastructure already in place, require significant investments that will only be repaid after several years.

With the right planning and support, you too can savour the unique pleasure of purchasing your own vineyard.

The commentaries and analyses featured in this presentation are for general information purposes only and constitutes neither a product of service recommendation. They shall not under any circumstances be construed as comprising any sort of undertaking or guarantee whatsoever on the part of the Edmond de Rothschild Group or of its subsidiaries, nor a customised investment advice or a general investment recommendation.
Any investment is always subject to risk. It is up to each investor to analyse the risk associated with such an investment by listening to the views of expert counsels, namely in order to make sure that it is in line with his/her financial situation and objectives. The Edmond de Rothschild Group is not responsible for any decision to invest, sell or hold a security based on the afore-mentioned commentary and analysis.