14/03/2008
With open spaces of green, well-cut grass and lifestyle benefits to boot, many suburbs throughout Australia are being transformed by the addition of newly developed deluxe golf resort properties decorating the fringe of the fairway.
The occupiers of these sorts of dwellings are generally motivated by the luxurious lifestyle environment that these estates represent – even if they don’t play golf, says Ian Pepper, CEO of property finance and advisory group Property Penguin.
“For people that don’t play golf, there are other attractions such as swimming pools, tennis courts and restaurants, which along with the picturesque scenery of the golf course, give it a real resort-like feel,” Pepper says.
Investors who are contemplating buying into a golf course development must weigh up a range of considerations before taking the plunge.
Unlike standard property transactions, the decision to invest in a golf course development may not be purely financial – the lifestyle benefits attached to the development, and the opportunities for the investor to holiday at the property, are also a major consideration.
Therefore, emotions can come into play, so it’s very important to conduct due diligence and complete your own independent research before committing to the purchase. Never rely solely on the information presented to you by the developer, and check the quality of the project by researching the reputation of the builders and developers involved.
Location, location, location
Properties within golf course estates aren’t solely purchased for their lifestyle attractions, as the capital growth on offer to investors can be exceptional.49Property analyst Michael Matusik researched the performance of golf course estates over a five-year period, between 2001 and 2005, and he found that the best performing golf estate properties, in terms of capital growth, were located on the waterfront.
He also discovered that the better performers had plenty of open space, meaning that the estates with a smaller number of dwellings grew in value faster than those that were congested with a higher density of dwellings.
However, Matusik also has a word of warning for investors who might be considering a property on the fairway, saying that some ‘name’ golf courses, which are designed or endorsed by celebrities or athletes, “are becoming saturated”, which can diminish the ‘novelty factor’.
Benefits of golf estates
Golf estate property investments are similar to holiday home purchases, in that investors should consider the lifestyle elements the property offers as well as the bottom line.
The quality of lifestyle on offer will make a huge difference to the value of the property, says Pepper, and because golf course estate properties provide
a good lifestyle and a community atmosphere, their values tend to outpace the general market.
“Property prices in golf course estates generally attract a premium to the surrounding area, and that premium can be as high as 100% for the top properties in the estate,” Pepper says.
For example, if the median house price in a particular area is $250,000, properties in a quality local golf course estate could range between $350,000 and $500,000.Lifestyle features can include swimming pools, gyms, recreation facilities and even restaurants, in addition to the golf course itself. These types of facilities boost the attractiveness of the properties and, therefore, boost their value.
The benefit for investors is the access they gain to all of these facilities without having to pay exorbitant maintenance fees. Pepper says that management and body corporate fees for golf estate properties are usually on par with standard apartment and unit investments.
“Most courses will have body corporate [expenses] to share the maintenance costs of roads and common areas,” he says.
“However, the golf course itself and the facilities will generally be separately maintained and managed from the residential areas.”
Potential dangers
The main factor threatening to dampen growth in this sector is over-supply.
The heavy development of golf course estates in recent years, particularly along the coast of Victoria, has come under heavy scrutiny from state governments.
The Victorian state government believes that many estates are too isolated and are at risk of ruining the government’s long-term planning and development initiatives.
Pepper urges investors to take heed of the government’s warning, and reiterates that an estate’s location is one of the most important factors impacting growth.
“Coastal golf courses have historically been popular due to the tourist activities within close proximity to the course, so location and outlook are highly important to ensure capital growth,” Pepper says.
Enzo Raimondo, CEO of the Real Estate Institute of Victoria (REIV), urges investors to put aside the emotional aspect of investing in golf estate properties and crunch the numbers to ensure the investment is viable.
“Golf course developments have proven to be successful in many parts of Victoria, but the market for sale and resale is fairly limited,” he warns.
“As an investment goes, be careful, as the link between lifestyle choice and real estate may limit the market for resale. In that context, it’s important to consider the lifestyle choice you’re making by buying one. If you like golf, why not? But if you don’t, I’d steer clear of them.” Investors also need to consider the type of rental structure they wish to use. If you purchase a golf resort investment and you plan on letting the property full-time to permanent residents, make sure you speak to several local real estate agents to ascertain the level of interest from renters for these types of properties. In more isolated regions, you may be better off renting the property on a holiday-let basis if the demand from full-time tenants isn’t strong.
Obtaining finance
Obtaining finance for a golf resort property can be quite complex, depending on the property type and your personal financial situation.
Phil Ezzy, general manager of Refund Home Loans, says lenders will look closely at the title of the property when processing your application.
“It depends on the way the title has been structured on the property,” Ezzy explains. “The title could be freehold or leasehold. Leasehold basically means that you’re entering into a very long-term lease, so lenders tend to look at these applications on a case-by-case basis.”
If you buy a leasehold property, you don’t actually own the property – instead, you own the right to live in (or rent out) the property for a specified period of time.
According to Adelaide-based legal and finance group Fletcher and Lawson, a leasehold property is normally bought by the payment of a single premium.
However, a ground rent may be payable, and this ground rent may be anything from a peppercorn rent of a few dollars, to a more substantial amount of money.
As a result, Ezzy says it’s “much easier to get finance for freehold property”, as stricter lending criteria may apply to leasehold property purchases.
Ezzy says the type of rental arrangement – whether it’s permanently let or holiday let – may also be a factor when applying for finance.
“Also, a full deposit may not be necessary, as the borrower might be able to use existing security to release some equity; but again, that would be determined on a case-by-case basis.”
Where to buy – see Your Investment Property magazine Issue No 9 (March 2008) p 52 where we’ve profiled three unique developments to show you how a golf resort purchase could fit perfectly into your long-term property strategy.
