{"id":732,"date":"2011-11-14T19:21:14","date_gmt":"2011-11-15T00:21:14","guid":{"rendered":"http:\/\/johnstrawn.com\/?p=732"},"modified":"2011-11-14T19:21:14","modified_gmt":"2011-11-15T00:21:14","slug":"the-china-golf-market-an-interview-in-china-real-estate-business","status":"publish","type":"post","link":"https:\/\/theaposition.com\/johnstrawn\/golf\/732\/the-china-golf-market-an-interview-in-china-real-estate-business","title":{"rendered":"The China Golf Market: An Interview in China Real Estate Business"},"content":{"rendered":"

This interview first appeared in “China Real Estate Business,” a Chinese-language newspaper with a national circulation in China, on November 12, 2011.<\/em><\/p>\n

1. <\/strong>When did your company start to focus on the Chinese golf industry? \u00a0 Did you focus especially on golf course management and operations? \u00a0 What kind of problems have you discovered?<\/strong><\/p>\n

JOHN STRAWN: \u00a0Hills & Forrest is a golf course architectural firm, so our focus is on designing courses.\u00a0\u00a0 We have also formed a joint venture with two Chinese partners, one of which, Cheng Jun Golf, does own and operate courses.\u00a0\u00a0\u00a0 The courses they operate are private membership courses, and have been popular because they have good teaching academies as well as good restaurants in the clubhouse. \u00a0 The Tianan Club in Beijing, not far from the main airport, is a Cheng Jun course.<\/p>\n

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Tianan Golf, Beijing<\/p><\/div>\n

We focused on China because we believe the Chinese golf industry will grow substantially in the years ahead.\u00a0\u00a0 But to do so successfully, the China golf industry needs to focus on how it can stimulate demand and attract more players.\u00a0\u00a0\u00a0 Right now, all of China\u2019s golf courses are private membership clubs, with the exception of a few resort courses open for green fee play.\u00a0\u00a0 But the concept that is most popular in the USA, the so-called daily fee course, has not made any inroads into China yet.\u00a0 Most towns and cities in the US own and operate golf courses for their citizens, not expecting them to make a profit but simply to cover operating expenses.\u00a0 Sometimes they are even subsidized, just as a recreation center or swimming pool would be, but that is rarer these days.\u00a0\u00a0\u00a0 Still, most golf courses in the US manage an operating profit, but the real value of golf courses over the last four decades to developers has been their contribution to real estate values.\u00a0\u00a0 Houses on golf courses sell for higher prices than houses without access to golf.\u00a0 This is partly just because golf provides a beautiful landscape\u2014a kind of garden, with grass and trees and clean air.\u00a0\u00a0 The recreational aspect is a bonus.\u00a0\u00a0 Golf is also good for a player\u2019s health.\u00a0 Walking especially is good exercise.\u00a0\u00a0 I see many Chinese courses using golf carts, and I don\u2019t think this is a good tendency.\u00a0\u00a0 The best courses are walkable, and walking should be encouraged, especially given the availability of caddies in China.<\/p>\n

<\/strong><\/p>\n

2. <\/strong>According to research institutions, 80% of the golf courses in China don’t make money. Does this research match what you know about China? What is the reason for this situation?<\/strong><\/p>\n

JOHN STRAWN: \u00a0To understand this situation, you have to think through what a golf course has to sell.\u00a0\u00a0 A golf course owns tee times.\u00a0 Every day, it has so many available times for people to play golf.\u00a0\u00a0 Let\u2019s assume that we want to put groups out at ten minute intervals.\u00a0 That is six groups of four players every hour, or 24 players per hour.\u00a0 (This is an optimal spacing\u2014eight minute starts are more common in the US.)\u00a0\u00a0 If an average round takes four and one half hours, and the first round goes off at 7 a.m. and the last at 4 p.m., that means the course has 216 tee times to sell that day. (9 hours of starting times X 24 players per hour.)\u00a0\u00a0\u00a0 The maximum revenue yield would be based on \u201cselling\u201d all of those tee times.\u00a0\u00a0 That is what well-managed daily fee golf courses do in the US.\u00a0\u00a0 They can discount last minute rounds, for example, or offer specials via the internet.\u00a0\u00a0 In China, because the courses are not based on daily fees, the operations have to be supported by collecting monthly dues from members.\u00a0\u00a0 Fundamental Rule: It costs the same to maintain a course at a proper standard whether anyone plays it or not.\u00a0 If you are not filling up the tee times, the cost per round to maintain the course goes way up.\u00a0 At some point, this is not sustainable.<\/p>\n

3. <\/strong>What are the attributes for a successful golf course? What kind of business pattern would make a course to be successful?<\/strong><\/p>\n

JOHN STRAWN: \u00a0We must first define what our expectations are.\u00a0\u00a0 For a members\u2019 course, the measure of success is different from a course based on daily fee play which must make a profit.\u00a0 Members\u2019 or private courses may measure their success on the prestige of their membership, or on tournament play.\u00a0 But a daily fee course is strictly a profit-making entity whose success is measured just as any other business measures success\u2014return on investment.\u00a0\u00a0 If developers de-couple the golf course from the real estate returns, then the golf course functions more like infrastructure.\u00a0\u00a0 It is like having roads and power and water service\u2014it is necessary for the overall success of the project\u2014that is, for selling real estate at good prices\u2014but doesn\u2019t bring in a direct return.\u00a0\u00a0 We don\u2019t expect roads and power lines to \u201cmake money,\u201d and if we divorce the real estate from the golf operations, and don\u2019t put the golf course on a business basis, it makes no sense to expect the golf course to somehow succeed as a business.<\/p>\n

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China's Grandiose Approach to Golf: Luxury as the Highest Value<\/p><\/div>\n

4. <\/strong>Golf courses in China depend too much on combining with real estate. \u00a0 Is this healthy? \u00a0What’s the difference between China and other countries in regard to golf and real estate?<\/strong><\/p>\n

JOHN STRAWN: \u00a0As we have noted already, golf courses need to attract more play to succeed as stand-alone businesses.\u00a0\u00a0 If the only model is the private membership club, this won\u2019t happen.\u00a0\u00a0 Some clubs in Europe and the US are what are called \u201csemi-private\u201d\u2014that is, the course has members but also allows outside play.\u00a0\u00a0 This is done in some cases in China, also, but the highest status golf courses are still private members\u2019 courses.\u00a0\u00a0 This does not have to be the case.\u00a0\u00a0 In the US, there are many famous private clubs, but there are also resorts which are prestigious to play and earn substantial profits.\u00a0 Examples of this would be Pebble Beach, Pinehurst, and perhaps the most important and creative golf development of the last twenty years, Bandon Dunes Resort in Oregon.\u00a0\u00a0 It has no real estate to sell, only lodging in hotel rooms and villas, and its four courses earn millions each year for its developer.<\/p>\n

5. <\/strong>To get out of this dilemma, what should Chinese golf courses do for a positive future?<\/strong><\/p>\n

JOHN STRAWN: \u00a0I believe the Chinese golf industry needs to focus on developing a platform for popular golf\u2014that is, inexpensive, accessible public courses.\u00a0 These can be 9 holes, for example, with a driving range.\u00a0\u00a0 Many, many smaller US cities feature 9 hole courses.\u00a0 Developers and members\u2019 courses should contribute to the development of daily fee, muni-type courses to develop the next generation of golfers.\u00a0\u00a0 Cities and towns should look to developing golf courses as public amenities, like parks.\u00a0 This will also create jobs, and inspire a new generation of Chinese golfers, who can take their place on the world golf stage.<\/p>\n

\"\"<\/a>

Never too Early to Start<\/p><\/div>\n

China is already arguably the most important contributor to the world golf economy.\u00a0 Why?\u00a0 Because most of the clubs, balls, bags, shirts, hats and shoes are made in China and sold to golfers all over the world.\u00a0\u00a0 I don\u2019t know what the dollar volume of the China golf manufacturing is, but surely it is in the billions.\u00a0\u00a0 If China wants to encourage domestic consumption of articles made in China, the golf industry is a good place to focus.\u00a0\u00a0 There is a potential demand for golf in China that would make it the number one golf country in the world within thirty years.<\/p>\n

6. <\/strong>Do you know the details about profits, quantity and the potential developing space of golf courses in China?<\/strong><\/p>\n

<\/strong><\/p>\n

JOHN STRAWN: \u00a0China has some of the most beautiful landscapes in the world, but clearly not all of it is available or appropriate for golf.\u00a0 Worldwide, we know from surveys that golfers prefer to play on seaside courses.\u00a0 Pebble Beach, Bandon Dunes, St Andrews and the great Scottish links, such as Aberdeen and Turnberry, and\u00a0 the great Irish courses, such as Ballybunion or Lahinch, are along the sea.\u00a0 China has an immense coastline, where golf could be developed.\u00a0\u00a0 Lake-side courses are also popular.\u00a0\u00a0\u00a0 Core courses must be a key component of China\u2019s long-term golf strategy, along with a focus on public golf.\u00a0\u00a0 China must find ways to stimulate demand.\u00a0\u00a0 In so-called \u201cdeveloped golf countries,\u201d such as the UK, the USA, and Sweden, about 7% of the people play golf.\u00a0\u00a0 That\u2019s roughly 27 million people in the USA, which has about 18,000 golf courses (on only a slightly larger land mass than China.)\u00a0\u00a0 China has 1.3 billion people.\u00a0\u00a0 If 7% of Chinese people played golf, that would be 91,000,000 golfers\u2014more than twice the total number of golfers in the world today!\u00a0 Even if only 1% of Chinese people played golf, that would be 13,000,000 golfers.\u00a0\u00a0 The rule of thumb is that you need roughly one golf course per 1,500 golfers.\u00a0\u00a0 If China reaches a golf participation rate even of 1%, according to this formula it would \u201cneed\u201d more than 8,000 golf courses.\u00a0\u00a0 So the potential for growth in China is enormous.\u00a0 What China must do to encourage golf development is to support public golf, and develop and operate golf courses using only the very best sustainable designs and management practices, to assure that the water supply is clean and preserved, and that the environment will benefit from a healthy landscape. \u00a0 The knowledge of how to do this exists–it just needs to be applied with conviction.<\/p>\n

 <\/p>\n

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