Feeling the … crunch

2008-10-03 00:00

In economic times like these one is best served by a healthy dose of discretion when buying into struggling golf estates.

IT is certain that by the time this global credit crunch is over, it will have gathered in its grim embrace many South Africans who ignored the evidence that they were participating in some sort of asset bubble. One does not have to look far for the first victims in our sporting life.

They will be those golfing estates that have been built on the assumption that there was an endless supply of mugs prepared to invest a million rand or more for a plot of barren earth in the middle of nowhere.

The successful golf estate developments have been those built close to major cities where they have satisfied the security fears of home owners. Invariably, these estates have been financed by large corporations with pockets deep enough to cover the initial development and running costs until the home owner base is large enough to take over the project.

Those estates that have catered to golf lovers who have fancied a second home in a seductive location have not done so well. The most famous and spectacular of such estates in South Africa must be Fancourt, just outside George. It contains four courses, three of which are world class, and is one of the most popular golfing destinations in the country.

The early days of Fancourt, however, were troubled by financial problems and its first developer ran out of money. The project was eventually rescued by the German software billionaire Hasso Plattner, who subsequently poured much of his fortune into its completion and subsequent expansion.

Fancourt now is a stunning example of a successful development that has encouraged imitators in many different parts of the country. It is the more recent developments for which one now fears.

There are several within two hours’ drive of Johannesburg that face difficult times and I suspect there are others elsewhere in the country that are also confronting severe cash flow problems.

Recently I was up at Euphoria, designed by Annika Sorenstam, the world’s former top women’s golfer. Situated in prime bushveld just outside Mookgopong (formerly Naboomspruit), this course is scheduled for its official opening next month.

The course itself is imaginative and fun to play, but the Erasmus family, who are the developers, have hit a problem. Sales of stands, not cheap by any standard, have slowed down to a barely discernible trickle.

This means the developers have to bear most of the running costs and the considerable costs of completing the project. The calculations of few developers have taken into account the possibility of a sales drought.

This means the developers’ bankers could face the prospect of pulling the plug or financing the project. In times of plenty, this has not been a problem but those days are over for the moment. Bankers are more interested in shoring up their balance sheets than running golf clubs.

The same story is being repeated across the country. The Dullstroom project, featuring an Ernie Els signature course, has foundered. A development outside Magaliesburg has been stillborn. The Elements estate near Bella Bella has run into all sorts of trouble, despite the golf course itself being regarded as one of the best in the country.

Some of the recent developments on the Cape south coast have also experienced a standstill on sales. This has not stopped the flow of glossy advertisements designed to entice unwary golfers to part with their money. Where such developments have many unsold stands or a large number of re-sales, potential buyers should be careful.

The received wisdom on golf course developments is that it is often only the third owner of the development who will make money. There was a massive boom in golf course developments in Japan prior to that country’s credit squeeze.

An American investment bank acquired over 150 of such developments at little over 10 cents in the dollar. This illustrates that developing a golf course estate is not a passport to riches.

Another difficulty faced by such developments is that the dream many people have about retiring to a life filled with golf is unrealistic. Unless golf is learned at a young age, the chances of it ever being played without frustration are slim. Proficiency at golf is not easily obtained at any stage in life, let alone during one’s later years. The result is that most latecomers to the game give it up after just a few years of trying to come to grips with its basics.

Those golfers thinking of acquiring land in a new development should make sure certain boxes are ticked off before committing their money. The developer should have very deep pockets.

The development ought to be close to a major town, in order to capture the security-phobic market. It should be large enough to obtain the size of membership that can support a golf club.

Developments offering a change of lifestyle such as those in the bush or the mountains can be very seductive but even if successfully brought to fruition those who fall for their charms must expect to pay heavily for their privilege.

In times such as these, one is best served by a healthy dose of discretion.

•Ray White is a former UCB president and a championship golfer.

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