Fantasy island

Worries of a property bubble in sunny Hainan

Fantasy island

Speculating on the beach

Think tropical idyll, and think of lazy days with little to do but read, nap and sip on a pina colada?

Not if you are a property speculator recently arrived on the southern island of Hainan, which is often touted as China’s answer to Hawaii.

Locals and visitors alike have succumbed to the feverish bout of speculation that has swept a number of mainland cities in recent weeks.

Real estate values in the provincial capital Haikou are up a third on last year. In Sanya, the beach resort area to the south of the island, prices have risen faster, says the South China Morning Post. Soufun, a Beijing-based real estate consultancy, estimates that in the 10 days to January 20, the average property price rose 18 %.

Hainan is hardly alone in experiencing a rapid pick-up in prices. But the buying spree has been given extra zip by a recent government announcement that the island would be developed as an international tourist hotspot by 2020.

This included permission for the local authorities to “explore and develop” horseracing and instant sports lotteries.

That then led to immediate speculation that Hainan might be given the provisional green light to start building casinos on the island. Gambling is currently illegal in the People’s Republic.

The Hainan government is downplaying the rumours: “We’ve been given more space than other parts of China to explore the lottery market, but it doesn’t mean Hainan will break China’s laws,” says the island’s governor Luo Baoming.

But the rumours were still sufficient to draw hordes of speculators to the region.

Since the announcement, more than 200 property buyers have been arriving each day, Li Zhuo, a salesman with Rongyu Project in Haikou, told the the China Daily.

Phoenix Island, a new luxury residential project in Sanya received more than 100 orders on its first day of sale, at prices comparable to property in first-tier cities like Shanghai and Beijing.

“Frankly speaking, for such a high unit price, there is not much room for value appreciation, but it seems that those investors just want to find a place to put their money,” was the response of an unusually candid salesman.

“There is a bubble forming, and it is bound to burst if effective measures are not applied soon,” agreed He Qi, vice secretary general of the China Real Estate Association.

Buyers from Zhejiang province bordering Shanghai, and northeast provinces like Heilongjiang, Jilin and Liaoning are said to be behind the skyrocketing prices.

In an effort to calm the frenzied mood, the provincial government has called a halt on land sales for new residential projects.

Housing authorities in Sanya have also imposed a quota on outside investors (non-Sanya residents) limiting the amount of property that can be bought there to five per person, China Business Network reports. Local residents are angry that they have been priced out.

Some are worried that the latest attempts to cool the market may do more harm than good. “It may lead to a second wave of price hikes,” says a property agent surnamed Wu.

Hainan is no stranger to property bubbles. The island experienced a real estate boom in the early 1990s when housing prices quadrupled in less than three years. More than 20,000 companies in property development, sales or brokerages sprang up to serve an island with a population of around 8 million, the China Daily reports. The market then collapsed, leaving a series of unfinished developments across the island, as well as more than Rmb30 billion ($4.38 billion) in bad debt.

Almost twenty years on, Hainan may be having difficulties recalling its post-boom hangover. For the moment, property investment continues regardless, accounting for 31% of the province’s fixed asset investment in the first three quarters of 2009, much higher than the country’s average of 20%.

So what’s next? Much of the state media sees trouble ahead. “Sizzling Hainan evokes Dubai” was the headline in this week’s Global Times, for instance

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