A bumpy ride

In Spain property prices are about 40 per cent down on the 2007 high, so those in the market for a golfing home could pick up a bargain

According to one idea, the world is a flat dish supported on the back of a giant turtle. And when a child asks: “What does the turtle stand upon?” the stock response is, “Oh, it’s turtles all the way down.” Much the same deep faith applied to the business model upon which the leisure resort property sector was based during the past decade. Playing the role of a dish-shaped world were luxurious golf courses, marinas, ski resorts and luxury spa hotels with clubhouse facilities for owners. A column of off-plan house sales was supposed to support them.

“The historic development model was that you sold enough residential property so that the developer ended up with a hotel for free at the end,” explains Richard Hwyell Evans, the architect behind several such schemes. “In an ideal world the developer then operated the hotel for a few years before selling it together with, if possible, the leases of the houses, for a tidy profit.”

What happens when the property market turns turtle and capsizes? From Anguilla through St Lucia and the Grenadines to Grenada, the Caribbean has enough carcasses of business models of this type to warrant their own island. Most were marina-resort developments designed to lure in wealthy “weekend” sailors with a guaranteed berth in the backyard of a tropical second home. Hwyell Evans, however, suggests that it wasn’t just the global economic crisis that toppled the precariously balanced combination of leisure resort and house sales. “The Caribbean was littered with all these have-a-go developers who thought ‘how hard can this be?’” he says.

Charles Weston-Baker, of Savills International estate agency, agrees. “Traditional developers who’d done extremely well on the leisure side in the UK and elsewhere saw the higher sales prices being achieved in the Caribbean and thought they’d do a project out there,” he says. “But those projects were generally based on unrealistic sales values and are mostly now on hold waiting for the market to return or if there are major borrowings involved will change hands – mostly likely to the bank.”

The numbers of unfinished marina complexes in the Caribbean are, however, dwarfed by the those of golfing resort developments in Florida and Spain that look increasingly unlikely to be built, meaning that thousands of homebuyers will have lost millions of dollars and euros.

In 2004 Britons returning from Florida seemed as likely to have bought a holiday apartment on a golf resort as a Mickey Mouse T-shirt. At the time Chris Jerrey was running the successful UK-based agency Living Florida. He now operates an internet design business and many of the homes he marketed for sale are in the hands of the Floridan banks that loaned the money on them – assuming the banks themselves haven’t gone under. Not that these banks are selling homes right now, according to Jerrey.  “Although the banks have to pay the property tax and homeowners’ association dues on what they own, if they released more homes on to the market it would drive the price down and reduce further their asset,” he explains.

That is why, despite the fact that Jerrey reckons properties he sold for about $200,000 in 2004 could now be picked up for closer to $40,000, prices still have further to fall. “It really was like a game of pass the parcel,” reflects Jerrey. “We knew that you can’t have 40 per cent [property price] inflation indefinitely and that the oversupply of resorts was not reflected in the prices – that it was all going to go horribly wrong at some point – but you just hope that when the music stops you’re not the one holding the parcel.”

The delusion that building golf resorts was the path to untold riches similarly seized the mindset of developers in Spain. “Our problem today is that so many developers crowded around the same strategy during the boom,” says Mark Stucklin of Spanish Property Insight, an independent property information website. “Back then it was assumed up and down the Spanish coast that golf developments were the way forward: that golfers are rich, that they’ll spend money and will come out of season to continue spending their money.”

This belief has cost the whole golf leisure sector dear, Stucklin says. “There is a very good golf market around Sotogrande and on the Costa del Sol, which has a great name and will always be fine,” he says. “But the newer entrants into the sector who all just jumped on to the same bandwagon are in both an overcrowded sector and increasingly out-of-the-way places.”

Stucklin cites the Valencia and Murcia regions as the twin epicentres of “follow the crowd” golfing development. Both regions have large numbers of stalled schemes at various stages from planning and building and until the European economy changes radically few appear likely to reach completion. “The golf sector is still in a difficult situation. Consequently, at a time like this you don’t want to be taking risks, so focus on the quality resorts,” advises Stucklin. “Make sure that you buy into a scheme that is already built and where the developer has been seen to look after the resort, because if you buy from a developer who runs out of money before delivering then you’re in trouble.”

Throughout Spain property prices are about 40 per cent down on the 2007 high, so those in the market for a golfing home could pick up a bargain. Bear in mind, however, that Stucklin believes prices could have even further to fall. 

The Portuguese Algarve has as many golf courses as parts of Spain but the picture there is somewhat different as supply is not so out of kilter with demand for second homes as in Spain. Although bargains can be had now that the whole sector has faltered, James Harrison, sales director of Algarve resort operator Pestana Golf, says the fundamentals of buying property in the region have returned. “The bubble was inflated in Portugal, as it was in other parts of the world, by the numbers of speculators buying with cheap money and driving prices sky high,” he says. “On the western Algarve there is a lack of supply and a scarcity of planning for new resorts. Those that are up and running are currently a good deal and attracting wealthy people from the Netherlands and Germany as well as the UK.”

Harrison’s other advice is to avoid guaranteed rental schemes and places providing smart spas. “The moment you start adding unnecessary frou-frou to a resort the running costs go through the roof and, at the end of the day, most people just want to play golf and enjoy the social life that goes along with that.”

Far from being dispirited by the long-term prospects of the leisure resort property sector, many developers and agents seem to feel that it will return – and with gusto, especially at the luxury end. Soneva Group’s development at Soneva Kiri on the Thai island of Koh Kood, for instance, represents an expansion of its Six Senses spa treatment resorts in the Maldives.

Nine of the 20 villas have been sold already despite starting prices of $5m, the global downturn and political problems blighting the region.

“There has been a fundamental shift towards people buying second homes attached to hotels,” says Sonu Shivdasani, chief executive and founder of Six Senses Resorts & Spas. “The baby-boomer generation is coming to an age when they’ve sold their businesses and want to buy residences where everything is perfect.”

In Shivdasani’s opinion providing working air-conditioning and a butler is the way forward in a world where people live busy lives and have grown used to modern conveniences. His prediction might seem premature in a sector still coming to terms with the fallout from the economic crisis. “Before the true scale of the credit crunch became apparent many developers boasted that their development would weather the storm quite happily,” says Rob Green, director of Cluttons Resorts.

“They believed that the pool of wealthy buyers would not be diminished but the picture has been quite different.”

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Go for the tried and trusted

Sports fans who remain keen to invest in a leisure resort home can avoid many of the sector’s issues by buying into an established, long-running development where there are both resale properties and new homes available.

Portugal

Prices at Pestana Resorts’ Vale da Pinta development in the Algarve start at €150,000 for a two-bedroom apartment and €495,000 for a villa. tel: +351 282-340 900, www.pestanaproperties.com

Spain

Catalonia: at PGA Golf de Catalunya, two-bedroom apartments start from €300,000 and townhouses start from €650,000. Tel: +34 972-472 577, www.pgacatalunya.com

Sotogrande, Costa del Sol: prices start at about €500,000 for a two-bedroom apartment. Tel: +34 956-790 300, www.sotogrande.com

Barbados

Royal Westmoreland: prices start at $429,000 for one-bedroom apartments, from $865,000 for two-bedroom apartments and from $995,000 for plots for bespoke villas. Cluttons Resorts, Tel: +44 (0)20-7584 3050, www.cluttonsresorts.com