China: it's over

[Mark Bourgeois]

http://danwashburn.com/forbiddengame/has-the-big-china-golf-course-boom-finally-gone-bust/

[Tom_Doak]

Over for good?  Probably not.

Stopped for now?  Pretty much from everything I've been hearing and seeing over there this year. 

As the letter-writer reports, they have closed down just enough projects to make any potential developer nervous.  Equally important, they have punished enough government officials that those remaining are now afraid to look the other way and let a new project proceed.

[Mark Bourgeois]

Not for good, no. But forgetting the moratorium for a moment, real estate development in general faces big, market-driven headwinds. Overcapacity and high debt, shadow banking frozen, etc.

EDIT: by "not for good" I mean not forever. I am not sure how much of a constraint the moratorium / crackdown presents, as opposed to the slowdown + anti-corruption (which definitely won't last forever).

[Mike_Young]

The interesting thing to me about China golf is that we never hear about the number of players.  The US golf problem was due to RE development.  Why should it be different there?  How many people can learn to play golf on the courses being built?  It doesn't work.

[Mark Bourgeois]

Mike,

The golf model there seems to have been exported from here: build housing, use a golf course to sell it. Unlike here, a lot of that housing was built for "investment" purposes ie people bought because of limited investment opportunities and on expectation of appreciation.

The number of golfers was irrelevant (at least on the way up).

[Mark Bourgeois]

By "unlike here" I mean actually putting tenants into the housing was not seen as necessary and in certain areas was seen as devaluing!

[Don Mahaffey]

Shit
Does that mean "they" are all coming home? China was such a good place for them.

[Mike_Young]

Mark,
I sort of look at the whole thing as though there was an abundance of cash on the sidelines and the proformas from the MBA's showed that these developments produce a good return so the investment bankers put money into these things becuase all are/were under pressure to place $$$$$...now the chickens come home to roost...the number of players was also irrelevant here...I can show you old marketing studies that were required for projects in the 90's where they were exactly word for word of another project....US developers were the first to not worry about whether they had players or not...IMHO

[John Kavanaugh]

Mark,
I sort of look at the whole thing as though there was an abundance of cash on the sidelines and the proformas from the MBA's showed that these developments produce a good return so the investment bankers put money into these things becuase all are/were under pressure to place $$$$$...now the chickens come home to roost...the number of players was also irrelevant here...I can show you old marketing studies that were required for projects in the 90's where they were exactly word for word of another project....US developers were the first to not worry about whether they had players or not...IMHO

I always hoped that educating all those foreign students at our Ivy League schools was a CIA plot to bankrupt their economies.

[David_Tepper]

I started a thread here on Dan Washburn's book several months ago, when it was reviewed in The Economist (or maybe the Financial Times?). There is also a recent Geoff Shackelford "State of the Game" podcast with Dan Washburn that is very interesting.

http://www.geoffshackelford.com/homepage/2014/10/27/state-of-the-game-podcast-47-dan-washburn-china.html

[John McCarthy]

Any sandy seaside spots in Burma?  While poor they might have the land.

[Kerry Gray]

I live in China. Many courses were tied to real estate (housing) deals and most of the ones I have seen have a occupancy rate of about 20%. The rest of the "villas" are sold but unoccupied. This has always made us ask how it can appreciate when nobody actually wants to live there. But many people have been predicting doom and gloom for this market for 20 years and it has not come to pass. I believe a correction may be in order but no collapse.
That said, people are still finding ways around the moratorium. An 18 hole course was recently completed in my city, it's called an Environmental Park. Another 18 holes is planned for that site and it appears to be under construction. One other course in the area is being asked to relocate, the city wants the land it currently holds to be developed for other use as its on a famous lake. So the city has offered them another parcel of land to rebuild. That's potentially good for the locals as that course is not very good.
Most courses are private or semi private. Memberships are bought and sold and I have not heard of anyone who has lost money selling a membership. A local course here was about $120k USD to join 7 years ago and now it's over $150k. Some have appreciated much more. Several of my business friends a have multiple memberships because they feel they are good investments. Courses are very busy on weekends and not so much during the week, not unlike Toronto where I lived before coming here.
I believe the game is growing here, a friend works with a company that teaches golf and they are very busy. Some Chinese companies will send many execs to learn the game together. The company buys a corporate membership and the management all benefit. My city has about 6.5 million people and 8 courses within 40 minutes. Of the 6.5 million I would guess approx. 1 million can afford to golf. I think that is reflective of many of the eastern cities.
I believe if the courses are developed in the right areas, the landowners being moved are treated fairly and environmental concerns are fully covered that the business can thrive in China. Unfortunately that has not always been the case. Hence the government has stepped in to slow down development.

[Peter Pallotta]

Kerry - thanks, very interesting/informed post. We just sent the leader of the government I work for to China with a delegation of clean tech and green-build companies, promoting our jurisdiction's strengths in these sectors as well as infrastructure and financial services etc.  In preparing briefing materials, I noted that in 1993 Shanghai had just begun developing its subway system. Not 20 years later it now has 14 lines with well over 300 stations/stops and some 350 miles of track -- i.e. the longest municipal system in the world (and one that makes ours look like a kid's amusement park ride in comparison). All of which to say, the world has never seen anything like modern-day China for getting things done (for better or worse)....and I couldn't even begin to guess what will happen there with golf course development, or with anything else.

Peter

[Bill_McBride]

In Vancouver there are literally thousands of condo apartments owned by Chinese investor/owners who are only in the city a week or two each year.   Looks like too much money in China chasing too few investment opportunities. 

[Joe Zucker]

I listened to the Shackelford podcast on China a few weeks ago and it was interesting.  They talk a lot about working around the government regulations by building courses, but not calling them golf courses (as Kerry mentioned).  Growing the game in China seems like an extraordinarily difficult proposition.  Creating a game that can only be played by the elite seems like a recipe for disaster in the long term due to the expense/country club environment, but it seems like there are few other options.  The middle class in the major coastal cities might be able to afford some reasonably priced golf, but logistically how would that work?  The population is so dense in many parts that it would be worse than golfing in New York City, which is possible, but tough.

Its also important to note just how poor the average Chinese person is.  The per capita GDP in China is still only ~$7,000 USD, which means that the vast majority of the country isn't even close to being able to afford golf.  Those who live in areas more suitable for affordable courses are the least likely to have enough money to play the game. However, all that being said, the game started in the clubs in the US and now can be played by all, so maybe the same will happen to China in 100 years.

[Jaeger Kovich]

Peter - Trust me, riding a train in China isn't much fun!


One problem with growing the game is that people can't class jump. Another problem is 90% of their caddies, which are required, are female with no interest.

[Kerry Gray]

Joe,
The middle class is growing quickly but China still has about 600 million rural people, mostly farmers so the avg GDP is pretty low.
But in the big cities wealth is growing quickly. Although the overall percentage of upper middle class people is low it is growing with something like 1 million people per year joining the middle class and a significant number making even more than that. In terms a pure numbers, their will be enough people to support golf, although as a percentage it may remain low.
Jaeger,
I agree more caddy programs would be good. When I first came here in 97 every course had caddies that played. Now we rarely see it and most caddies today are women with no interest. If am not sure what you mean by class jumping. My experience is that it not like India with the caste system at all.

[Joe Zucker]

That's a fair point Kerry.  It's hard to wrap your mind around China's size.  There is a lot of discussion here on making the game affordable for the average person and that's not a realistic goal in China, that's the point I was trying to make.  But even if only 10% of the China can afford golf, that's a massive number of people as you point out.

[SB]

Memberships are bought and sold and I have not heard of anyone who has lost money selling a membership. A local course here was about $120k USD to join 7 years ago and now it's over $150k. Some have appreciated much more. Several of my business friends a have multiple memberships because they feel they are good investments. Courses are very busy on weekends and not so much during the week, not unlike Toronto where I lived before coming here.

There's a recipe for disaster.  See:  Japan in the early 90's.

[David Kelly]

By "unlike here" I mean actually putting tenants into the housing was not seen as necessary and in certain areas was seen as devaluing!

I've read where condos were bought, re-sold and re-sold again without plumbing fixtures having even been installed.

[David_Tepper]

Sounds like the prospects for golf in China have definitely taken a turn for the worse:

http://danwashburn.com/forbiddengame/has-the-big-china-golf-course-boom-finally-gone-bust/

http://www.geoffshackelford.com/homepage/2014/12/24/wsj-golf-as-its-now-played-in-china-doesnt-have-a-promising.html