The billionaire William Han perches at the stern of Silver Fox II, his 20-metre powerboat, as it weaves through the kaleidoscopic coral wonderland that is Australia’s Great Barrier Reef to his personal island idyll, Lindeman.
After paying A$12 million (Dh40m) for Lindeman in 2012, the Chinese-Australian entrepreneur plans to spend more than A$200m building a luxury resort on the 8 square kilometre island, while keeping a prime secluded site for his own vacation retreat.
“When you first see the Great Barrier Reef, it blows your breath,” he says in cheerfully fractured English. “Buying Lindeman was a bargain. It took me 10 minutes to make up my mind.”
How much of a bargain is a source of debate within the cloistered world of private-island sales. In the past three years alone, four of the most desirable Great Barrier Reef islands, including Lindeman, have been sold for a total of A$25m – a fraction of their former valuations.
“These properties sold for pennies on the dollar, and we will see an upswing,” says Chris Krolow, the chief executive of Toronto-based Private Islands.
That is not a view shared by Farhad Vladi, the Hamburg-based founder of Vladi Private Islands, who says Great Barrier Reef sales reflect a global trend downward, as evidenced by Microsoft co-founder Paul Allen’s December sale of his Washington state island for US$8m – a third of its original asking price. “In the past, the market was artificially inflated by greedy real estate agents and overly romantic buyers,” Mr Vladi says. “Only now, when we’re seeing forced sales, is the true value revealed. I think prices will continue to go down.”
If ever a smart entrepreneur could make money while pursuing the island dream, it should be here, on Australia’s foremost natural wonder. Stretching 2,300km down the country’s north-east coast, this labyrinth of 3,500 coral atolls and coral-fringed continental islands is often described as the largest living structure on Earth.
Each year, 2 million visitors, from billionaires to backpackers, flock here. And some decide that the reef is just so special they must own a piece of it.
For one devotee, a A$500m investment in a 7.4 sq km dot called Hamilton Island, in the Whitsunday archipelago near Lindeman, has fulfilled his wildest island fantasies. Not only has the billionaire Australian winemaker Robert Oatley built what is quite possibly Australia’s swishest resort – an ultra-discreet, A$1,500-a-night, 60-pavilion retreat called Qualia – he has also developed the lavishly appointed Hamilton Island Yacht Club, which in October successfully bid to become the official challenger to Larry Ellison’s Oracle Team USA at the next America’s Cup.
For numerous other investors, however, the music of waves lapping against coral turned out to be a siren song.
As well as frequent typhoons, Great Barrier Reef investors must also battle what Australians sometimes call the tyranny of distance.
Australia is the size of the continental United States, and the reef itself, if transplanted to North America’s Pacific coast, would stretch from Vancouver to the Mexican border. Yet the domestic tourism market, still the main source of visitors to these parts, draws on a population of just 23 million. What is more, Australia’s distance from major foreign markets means it received only 6.4 million international visitors during the year ended in September, compared with France’s 80 million.
Even rich foreigners eager to buy private islands find the distance formidable, according to Mr Krolow. “Eighty per cent of buyers come from the US, Canada and Europe,” he says. “Simply getting them here to show them what’s available is a challenge. The distance is insane.”
Indeed, losses and bankruptcies have become so common that banks are increasingly reluctant to lend for island investments, says Wayne Bunz, a Brisbane–based senior director at CBRE Group, the brokerage that sold Lindeman to Mr Han. One of the tiniest of the resort islands has alone devoured at least A$150m of investments by successive owners over the past 20 years. Its name: Daydream.
Vaughan Bullivant, Daydream’s present owner, is a native New Zealander who sold his vitamin supplements business in 1999 for A$135m. He’s spent A$75m creating a 300-room resort with amenities ranging from an elaborate spa to a wedding chapel. At one stage, in 2002, Mr Bullivant was losing A$600,000 a month, says Phil Casey, the troubleshooter Mr Bullivant brought in as the chief executive to stem the losses.
“Daydream became Vaughan’s nightmare,” Mr Casey says in Mr Bullivant’s two-storey island penthouse, with its reverie-inducing views of the Whitsunday Passage. Mr Casey says he has since succeeded in turning around Daydream’s business. The resort, where rates average A$300 a night, delivered a net profit of A$2m on revenue of A$28m for the fiscal year ended on June 30, 2013, he says, and has no debt. However, Mr Bullivant wants out, Mr Casey says, and has been trying to sell for a fraction of the A$150m replacement value. Although Mr Casey will not disclose the asking price, he says Mr Bullivant recently turned down offers of more than A$30m.
When he does finally walk away with inevitably lighter pockets, Mr Bullivant will be in illustrious company. Even Rupert Murdoch, Australia’s most famous entrepreneur, managed to lose money on a Great Barrier Reef investment in 1998, when a company he half-owned – the now-defunct Ansett Airlines – sold the luxuriously appointed Hayman Island for A$61m, a fifth of the A$300m it had splurged on the resort barely a decade earlier.
In total, A$500m has been invested in Hayman since the 1980s, according to its current owner, the Malaysian tycoon Lee Seng Huang’s Mulpha International. Hayman will be closed until June 30 while it undergoes yet another, A$50m, makeover.
While Mr Lee persists with Hayman, some owners have simply walked away, leaving behind fully equipped resorts, as eerily abandoned as the Flying Dutchman. On Lindeman, Mr Han knows all about these sombre testimonies to the perils of investing in paradise. After we disembark, he leads me straight to one. In 1990, ClubMéditerranée paid A$15m to buy an existing resort on Lindeman and then spent an additional A$85m transforming it into a 218-room faux-Polynesian village. In 2012, the Paris-based operator shut it down – selling out to Mr Han two months later for less than an eighth of its A$100m investment.
Today, the abandoned Club Med property moulders away on Lindeman’s south shore. Guest rooms and restaurant tables gather dust. The swim-up pool bar is green with algae. Each day, the eucalyptus forest envelops more outbuildings. Soon, Mr Han will bulldoze the lot and start again with his own, more upmarket vision. “The risk of buying islands here is that the purchase price is just the small part,” he says.
“If you’re not careful, you can pour millions more into these places and then actually watch them go down in value.”
Mr Han believes he can lure China’s rich from their pressured, polluted cities to pristine Lindeman, where three-fourths of the land is a government-designated national park. He has already produced a master plan for a 400-unit resort he describes as six star.
“In Beijing and Shanghai, people work 15, 17 hours a day,” he says. “Now, they will be able to escape the noise and pollution and fly down here for five days or a week to recharge. There will be no loud karaoke here. Just blue sky, blue ocean and a feeling of luxury.”
He sees a bright future for his island adventure.
“Come back in two years, and you won’t recognise the place.”
In surroundings like this, it is hard not to be optimistic.
* Bloomberg News
