Developer turns to cryptocurrencies to revive Australia resort

It is a perfect blend of nature and luxury featuring pristine beaches, coral reefs and a golf course designed by Greg Norman, the Australian golfer and friend of US president Donald Trump. But a proposed A$300m ($216m) resort on Great Keppel Island, a former tourism hotspot near the Great Barrier Reef, has sat on the drawing board for a decade.

To break the logjam, Tower Holdings, a Sydney developer, says it is using cryptocurrency to sell its 1,000-hectare landholding. The plan is to deliver a project the Queensland state government hopes can boost the A$6bn reef tourism industry and revitalise island communities.

“Since the financial crisis it’s been difficult to raise funds,” said Anthony Aiossa, chief executive of Tower Holdings. “Now we have been approached by a consortium that plans to use blockchain technology to finance the development.”

PropertyBay, a company leading the group, plans to issue tokens backed by the land to institutional investors in an initial offering and later open the tokens to trading by retail investors. The tokens would allow people to trade in and out of the investment, said the developers, and capitalise on the fascination with blockchain assets.

The plan is ambitious and untested. It also underlines the difficulty developers face attracting investors for resort projects, even when located near the largest reef system on the planet. 

Great Keppel Island was at the centre of a 1980s tourism boom for Queensland, which was mainly financed by Japanese money and promoted under the slogan: “It’s a great place to get wrecked”. But since then almost half the 35 tourism island resorts in the region, including Great Keppel, have closed due to financial problems, damage caused by cyclones and a lack of tourists. 

“A lot of these island resorts were built by Japanese investors in the 1980s and suffered when Japan’s real estate boom turned to bust and competing destinations began emerging in south-east Asia,” said Pierre Benckendorff, associate professor at the University of Queensland Business School. 

Resorts in Indonesia, Fiji and the Philippines have become lower-cost destinations for Australian travellers, making many of Queensland’s islands — with the exception of Hamilton Island — too expensive for mass market consumers.

Resorts have pivoted to the luxury market but strict environmental regulations, the high cost of basic services on islands and a strong Australian dollar over recent years have deterred investors. 

Weather has caused problems, with abnormally high temperatures causing coral bleaching in 2016 and 2017, which killed almost a third of the coral on the Great Barrier Reef. Since 2011, three big cyclones have buffeted the region, causing billions of dollars in damage to vital infrastructure. In 2017, luxury resorts on Daydream Island, South Molle Island and Hayman Island were forced to close after they were hit by Cyclone Debbie. 

But there are signs island tourism may finally be recovering, with a depreciating Australian dollar attracting more foreign visitors, particularly from the US. The Queensland government has also injected A$50m in water, waste and electricity infrastructure on the islands, generating interest among investors from China and elsewhere. 

Hotel occupancy rates have increased 15.1 per cent in the Great Barrier Reef over the first seven months of 2018, compared with the same period a year earlier. Revenue per available room has surged 19.2 per cent to A$297.49 in the same period, according to Smith Travel Research and JLL Hotels & Hospitality Group. 

“Times have changed, the market is shifting and valuations are rising,” said Tom Gibson, vice-president of hotel investment Asia-Pacific at JLL, a real estate agency. He said Asian groups were showing interest in long delayed resort projects in the region. 

Resort revival

Great Keppel Island

Great Keppel Island was once at the heart of the luxury resort industry but foreign competition caused the resort to close in 2008. Tower Holdings is in talks with a cryptocurrency consortium that wants to build a A$300m resort with a golf course designed by Greg Norman

Hayman Island

The first resort on Hayman Island was built in the 1950s by the businessman and aviator Reg Ansett. The resort closed after Cyclone Debbie in 2017. But Malaysia’s Mulpha is overseeing a A$100m redevelopment, which will open in 2019 under the InterContinental Hotels brand

Daydream Island

China Capital Investment bought Daydream Island for A$30m in 2015 and South Molle Island for A$25m a year later. Both resorts, with a combined 450 suites, were hit by Cyclone Debbie and have been closed. Daydream Island is undergoing a A$50m refurbishment and is due to reopen in early 2019

China Capital Investment, a Shanghai-based investor, spent A$55m in 2015 and 2016 acquiring resorts on Daydream and South Molle islands, shortly before Cyclone Debbie caused extensive damage and closed the resorts. The company is investing a further A$50m to refurbish Daydream, which is due to open next year. 

Mulpha, a Malaysian property developer, is close to completing a A$100m refurbishment of Hayman Island, which will be managed by InterContinental Hotels. Chinese media tycoon William Han plans to build a A$600m luxury resort, golf course and air strip on Lindeman Island. 

Whether this recent spending splurge is enough to persuade investors to plough hundreds of millions of dollars into a cryptocurrency token project aimed at returning Great Keppel Island to its former glory remains to be seen.

“Island resorts are challenging businesses given the logistic difficulties of getting supplies, tourists and infrastructure in place,” said Daniel Gschwind, chief executive of the Queensland Industry Tourism Council. 

“But the fact these islands are located in the most pristine reef environment on the planet is a very significant advantage.”

How Great Keppel token would work

  • A consortium sells blockchain-backed tokens through a fund manager to institutional investors. They may then be sold to the public
  • Tokens have to be licensed by Australia’s market regulator. Backers say it is safer than an initial coin offering
  • Unlike typical cryptocurrencies, the tokens will be backed by hard assets, in this case land, which gives investors claims on the project’s profit
  • The issuer hopes to make the Keppel Island token tradable on any cryptocurrency exchange

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