Golf courses stuck in financial rough

By Kim Tae-jong

The nation’s golf courses are suffering massive drops in revenue and membership amid the sluggish economy, market figures suggest. An increasing number of courses have also failed to repay bank loans and some of them owe far more than the value of the property.

According to the financial authorities, 69 percent of local courses, or 344 of 426, took out loans worth 5.7 trillion won as of March.

But the their bad debt ratio stood at 4.9 percent due to repayment overdue for three months or longer and drops in land value, which is much higher than the average ratio of nonperforming loans at 1.5 percent.

The increasing bad debt is largely attributed to the fact that a number of new courses have been built over the past few years. The number increased to 426 in March, up from 395 in 2011, 339 in 2009 and 250 in 2006. The number will soon stand at 501 when taking into consideration those under construction.

Market insiders are concerned that local golf courses are facing a similar situation to Japan in the early 1990s.

The number of golf courses plunged from 1,750 to 800 when the country’s so-called bubble economy collapsed after real estate and stock prices were greatly inflated in the late ‘80s and early ‘90s. The average price of golf club membership fell by 90 percent during the collapse.

“Many local golf courses’ net profit has plunged and membership prices have also dropped, like in Japan a decade ago,” an official from the Financial Supervisory Service (FSS) said. “Now, it is said about 10 golf courses would not be able to repay their loans even if they sold the land they are on.” Recent data also revealed that 116 golf courses have been running at a deficit for the past three years and the loans extended to them stand at 1.95 trillion won.

Woori Bank has extended loans to 51 golf courses but 21 of them have run at a loss for three years.

“We acknowledge that it could be a problem,” an official from the bank said. “But there is no golf course that has failed to pay the interest. But as the financial authorities have requested us to do so, we will keep a close eye on this matter.” The FSS last month ordered 10 commercial banks to strengthen their risk management on loans extended to golf courses which have posted losses over the past three years.

The financial health of golf courses will be even worse as a number of their members now want to their “admissions deposits” back.

According to conventions regarding membership trades, people have to pay a deposit and can request it be returned after five years if they leave the club.

Banks estimated that 46 golf courses, which opened in 2007, may have to return about 2.5 trillion won to those who leave this year. Banks also have to deal with increasing default rates on loans extended to people who have borrowed money offering their golf club membership as collateral. A total of 600 billion has been extended and the default rates stood at 3.8 percent, almost three times higher than the average rate.

Golf club memberships used to be popular investment items among the rich here in the past, with some enjoying very large investment returns, but their prices have almost halved and the trades are slow.

The most expensive membership in the country is for Namboo Country Club in Yongin, Gyeonggi Province, where the fee once soared to almost 2 billion won in 2008 but has dropped to 950 million won, according to Ace Golf, a membership trading portal.