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OPERATIONAL FOCUS | 11

support the development as there was nothing in Australia to compare it with. A raging success in remote Tasmania? One would have thought highly unlikely, but in this case, fortune did follow the brave.

The likely reality, given the current climate and some of the struggles reported in the last ten years, other than club relocations, it is likely that only residential based golf will be built, not for golf but for the real estate dollars attached. That said, for these new courses with real estate to have a chance at success, there are a number of hurdles that they will still need to jump.

They are: • Location and market depth – both project scale and required lot pricing dictate that new golf/ real estate projects will need to be accessible to Australia’s current major population/employment centres. In order for the necessary market depth for real estate to exist, only certain areas will likely be suitable for development.

• Land size, value and project scale – the amount of land required to undertake a development that yields a feasible project is considerable and therefore the capital commitment required at the project front end is very high. The increasing value of and scarcity of land demands that a unique formula be adopted in order to create a feasible project and one must have a lot of cash to spend.

• The cost of tightening planning laws – tighter laws around planning legislation is resulting in longer, more demanding rezoning timeframes, which therefore require more skilled inputs and greater resource investment at the project front end. These timeframes impact a project’s feasibility, particularly if a project becomes politically unpopular.

So what determines feasibility?

Successful golf course development within a real estate community is not only about real estate premiums. There are a number of key variables to consider and it is the interaction

of these variables that will determine ultimate feasibility.

The key variables in the residential/golf equation are:

• Size of land - The smaller the piece of land, the higher the average lot premium will need to be as there is less land available to extract the necessary required value from.

• % Useable land - The higher the useable land figure, the higher the average lot premium will need to be as golf land could be used for residential land. (Golf gives up residential profit.)

• Lots per hectare - The lower the average lots per hectare the higher the average lot premium will need to be as there are fewer lots available to extract the necessary value from. Lots per hectare will be influenced by what the market is demanding.

• Golf course size - The size of the golf course will determine the level of average lot premium required, on the basis that the golf land can otherwise be used for residential purposes.

• Exit strategy - In the current market there is very thin demand for golf course assets and sale cannot be guaranteed.

The golf course construction challenge

But let’s assume that the hurdles above can be jumped and the formula above still produces a digestible number. The first or next challenge to be faced is the cost of golf course construction as the cost of modern day golf course construction can be a significant one. From a cashflow perspective it is very intensive in the early phases with little income able to be achieved from a new course until almost full completion.

Data available from one third of the courses opened over the last ten years reveals that the average cost of construction for these projects was around $15 million over an average two year construction period. That said

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