GOVERNMENT has entrusted the Malta Tourism Authority (MTA) with the project of the proposed golf course at Ix-Xaghra l-Hamra in Manikata. MTA is paying all the expenses that are being incurred on the project and Government has promised that all these funds would be recovered once an entrepreneur takes over the construction and the development of the golf course.
Top officials at the MTA say that an environmental impact assessment has to be carried out before this project can go ahead. But Government has committed itself to go ahead with this project without a feasibility study being carried out to explore whether a golf course is in fact financially viable in Malta.
This is very dangerous and short-sighted. This philosophy of "If we build it they will come" has led to very serious mistakes and huge financial losses. Not only, the anti-golf lobby states that in many countries golf course resort development (including timeshare resorts) has often resulted in widespread speculation and dubious practices and is frequently a hit-and-run business. The speculative nature of memberships and associated real property transactions also makes the industry very high risk.
Goldman Sachs has a fund specialising in purchasing and restructuring Japan's spectacularly bankrupt golf courses. Many Japanese golf course and resort companies have become bankrupt, with investors and banks bearing the losses. Japanese golf courses have had to be redeveloped as pensioner villages, with hub-and-spoke medical, shopping, and community facilities.
Japan's golf courses are not the only ones facing very serious difficulties. Take China, where many investors with a blind faith in golf jumped into the market in search of cheap land, which they then developed into expensive villas and golf clubs in the hope of pulling in huge returns. These grand plans have not lived up to expectations. Now course owners are finding it hard to overcome their financial straits, and players complain that charges for a round of golf are just too high.
Almost half of China's more than 200 courses are running a deficit, as hasty golf course development, coupled with the country's immature market, have led to blind land requisition and unbalanced consumption. Still, the blind frenzy continues, as in addition to the country's more than 200 operational golf links, 500 to 1,000 more are already under construction.
Closer to home, in Britain, the same frenzy resulted in many bankrupt golf courses in the last decade. Addressing a seminar to promote golf course development in Budapest in June last year, Colin Hegarty of the British-based Research Group in the Business of Golf admitted: "There was huge growth in golf courses in the UK in the 1990s, we were adding 800 per year at one point but almost 90 per cent went bankrupt. We made a lot of mistakes."
After a number of years promising entrepreneurs huge profits in gold business, business consultants have become more cautious as recent studies suggest that the golf course bonanza has proven mostly illusory. Many golf courses in major resorts are having difficulty in surviving as income falls due to the lack of maintaining the viable level of membership because of higher costs. Golf courses require considerable amounts of maintenance, and cannot use large equipment, which would damage the playing surface, with the result that all golf courses are labour intensive.
The current costs of joining a new private club in Europe are in the region of Lm10,000 for a club of 700-900 members with annual fees of Lm500-Lm600 and playing fees for each use of the course (termed green fees), about Lm10. Such high fees are proving a further brake on overall expansion of the market. A golf course has a lot more problems surviving in Malta as local membership is small and it would need a steady and constant flow of foreign golfers to sustain it. Government has said that a local golf course would automatically attract 30,000 foreign golfers a year to Malta. How much of this wishful thinking is based on reality?
Is property speculation the real agenda?
THE viability of golf courses is also subject to the laws of economics. Success cannot be guaranteed. This should be obvious to everybody who does not have blind faith in golf course development. In 13 days' time a business seminar on "Golf development, Integrated Resort and Golf Real Estate development in Cyprus and South Eastern Europe" will be held in the Intercontinental Aphrodite Hills Resort Hotel in Cyprus to discuss the "Key Factors for Successful Golf Course Business".
The seminar will address these questions: What measures are needed to kick-start the emerging European 'golf destinations' in an environmentally sustainable, profitable and intelligent way? Why are many European courses going bankrupt or facing financial troubles and what are the key factors for successful golf course business?
The organisers of the seminars know that some golf courses are most profitable; others are far from making any money at all. Studies say, and reality proves, that a high percentage of European golf courses are in financial trouble. Several golf course operations went bankrupt during the past years or were subject to takeovers. The key factors determining the business success of all golf courses will be closely examined:
1. Location (accessibility, site, catchment area, competition, etc.)
2. Product (philosophy, design, construction standards, maintenance, etc.)
3. Management (owner, operator, finance, business administration, marketing, etc.)
It is true that destination and golf resort development represents a huge growth sector especially in emerging tourist locations. Demand for golf resorts is growing exponentially in south-eastern Europe. The increasing number of retired and second home buyers in northern Europe and the overcrowding of the South of France, Portugal and Spain have resulted in the need for more golf resort projects in south-eastern Europe. Countries such as Cyprus, Greece, Croatia, Turkey and Bulgaria are well positioned to offer highly attractive golf resort development projects because of unspoiled nature, very good year-round climate, relatively low costs and hospitable culture.
We do not have thousands of northern European pensioners rushing to retire in Malta to play golf. Our golfers would have to come from increased tourism. We have to improve our product and address the serious problems that we have as an expensive mediocre destination before we succumb to the illusion that a golf course would solve our problems. We cannot simply build a golf course and hope for the best. How much does it cost to build? How much will it cost to run? What level of income does it need to make it sustainable? We cannot simply extrapolate these figures from other golf courses elsewhere as every golf course is unique with its own construction and maintenance costs.
We need serious feasibility studies on the economic sustainability of golf courses in Malta and Gozo before we destroy more of our countryside. Unless the real agenda is for property speculation, build a golf course, build the villas to go with it, then as the golf course goes bankrupt, and develop the whole area as an exclusive residential zone.
evaristbartolo@hotmail.com