Real Estate

Hainan Island property shows China’s lines in the sand


It could be any top-end second-home destination in the world: a tropical island with beach resorts, year-round high temperatures and — bolstered by new visa-waiving rules for 59 nationalities — a ready stream of Russian holidaymakers. Sanya, the southernmost city on China’s Hainan Island and the miles of coastline around is, depending on your perspective, either China’s Florida or Moscow-on-Sea.

Good luck buying a second home there, however. Days after the Chinese government announced the island would become a free-trade zone by 2020 and a free-trade port by 2025, homebuyers faced draconian restrictions. In Sanya, those not in possession of a hukou — the household registration document that confers residency of an area — must prove they have a family member who has paid local income tax or social insurance for at least five years.

Rumour-fuelled anticipation of the economic blessing conferred by Beijing had sent price gains into overdrive in the previous months. In the year to April, average sale prices in Sanya gained 14 per cent, reaching Rmb29,866 per square metre ($4,400), according to fang.com, the Chinese property portal.

The curbs stopped Sanya’s second-home buyers in their tracks though, says James Macdonald, head of Savills Research in China. “Non-locals and foreigners — especially those from Taiwan and Hong Kong — had become very active across Hainan. These strict restrictions have stopped nearly all buying from this group.”

Map showing Hainan Island
Map showing Hainan Island

Plenty of opportunities remain for renters: on the 30th floor of a high-rise building overlooking Sanya Bay, Rmb1,300 ($190) per month can bag you a one-bedroom flat with a balcony. Plusher opportunities exist on Phoenix Island, an artificial island peppered with flashy hotels and apartment buildings. Here, as across Hainan, online property searches yield swaths of computer-generated images, offering homes in apartment complexes currently under construction. At various points across the bay, cranes tower over building sites, while, on the beaches, tourists stretch out on the sand.

Besides the looser visa rules for foreign visitors to the island, there is speculation that gambling, outlawed across most of the country, will soon be allowed on Hainan. The move is expected to attract droves of domestic tourists from the multibillion-dollar casino industry in Macau, providing a gift to local developers as well as operators of seaside resort complexes — such as the MGM Grand Sanya, one of the many internationally owned developments — that stud the surrounding coast.

The government’s latest buying curbs are designed to combat a common cycle linking government pronouncements to China’s over-heating property markets. “Investors, predicting price growth on the basis of central government policy announcements, rush in sending the market into overdrive,” says Macdonald. Soon after, the local government issues restrictions, filtering eligible buyers on measures as diverse as marital status, education level and tax history.

Guanyin statue in Nanshan Buddhist Cultural Park, Sanya © Shutterstock / Valery Bocman

Sixty or so miles southwest of Beijing, Xiong’an provides another example. The 39 square mile area will serve as the development hub for the “Jing-Jin-Ji” mega region that will join Beijing, Tianjin and part of Hebei province in a new metropolitan cluster. “Following the announcement, planning permissions and real estate sales were frozen; with the exception of major infrastructure projects the vast majority of construction in the area was suspended,” says Xin Sun, lecturer in Chinese and East Asian Business at the Lau China Institute at King’s College London. Under a plan approved by the government, infrastructure projects will soon get under way, while property development will remain “strictly restricted”, he says.

Macdonald cites Tongzhou — designated the second administrative seat of Beijing in 2015 — and the Shanghai Free Trade Zone, created in 2013, as earlier examples. “With growing price inflation in China’s major metropolitan property markets, the delays between policy announcements and buying restrictions have steadily fallen,” he says.

Glass walkway in Yalong Bay forest park © VCG via Getty Images

This isn’t the only peculiarity of China’s property sector on which buyers — and renters — must keep a close eye. Property prices are guided not so much by the free market’s “invisible hand”, described by Adam Smith, as the unmistakable grip of government dictate.

The hukou provides another vital lever by which authorities control local markets. The residency permit — which historically worked to separate rural from urban residents — largely controls access to certain public services, including education and healthcare.

The system may not be totally effective — many migrants without hukous have built successful lives in China’s cities paying privately for services such as education — but it is a powerful lever designed to divert urbanisation towards smaller cities.

Tropical beach, Sanya © Shutterstock/fuyu liu

“Today, Tier 1 cities issue virtually no new hukous, Tier 2 cities issue very few; Tier 3 and 4 cities are still open,” says Kent Deng, professor of economic history at LSE in London.

Another vagary of China’s property market concerns the economics of urban development. Increasingly, this is pitting local governments thirsty for cash against their national party masters in Beijing anxious about the social impact of runaway property prices.

“Local governments, which are the monopolistic suppliers of urban land, have become dependent on their revenues from this source,” says Sun. Such revenues, which include land sales and taxes, have climbed steadily and now account for more than half of total local government revenue in many cities, he says. Land also provides much of the collateral for the bank loans that local governments rely on to fund infrastructure: high land prices therefore enable authorities to borrow more.

Dragon statue in Yalong Bay, Sanya © Getty Images/Sino Images

“Local governments don’t want to suppress demand for property but they face stiff pressure from central government who view rapidly increasing house prices as politically risky,” says Sun.

Recent cooling measures in the major cities range from minimum holding periods to higher deposit requirements. At a national level, however, investors seem undaunted. Half of home purchases in the first half of this year were for investment purposes, according to a survey by Southwestern University and Finance and Economics in Chengdu.

The buying restrictions in Sanya have, as yet, done little to curb the surge in demand across Hainan. In July, average sale prices in the coastal city gained 3.7 per cent, the fastest single month gain of any of the 70 Chinese cities surveyed by the National Bureau of Statistics.

Construction of Haikou Meilan international airport © Luo Yunfei/China News Service/VCG via Getty Images

Renting guide

What you can rent for . . .

$665 per month A two-bedroom apartment in Vanke Forest Breeze Resort Park, north of Sanya

$1,800 per month A 150 square metre apartment with three bedrooms on the Banshan peninsula

$7,400 per month An eight-bedroom house in Tianya, Sanya Bay

More homes at propertylistings.ft.com

Follow @FTProperty on Twitter to find out about our latest stories first. Subscribe to FT Life on YouTube for the latest FT Weekend videos





READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.