Is the Hainan property bubble about to burst?

SANYA (China): Prices up 30 per cent in a fortnight. Luxury properties costing as much as the priciest Shanghai homes. Property sales at record levels. Developers hoarding flats in the expectation they will fetch more later. Land prices too rich even for Allan Zeman.

Is the latest property bubble in tropical Hainan about to burst? Or will prices for high-end properties keep on rising as the island builds the tourism infrastructure needed to meet Beijing's goal of turning it into a world-class destination?

Investors such as Xu Jianqing think prices can only go one way. The Paris-based mainlander, who is eyeing a Sanya Bay apartment costing 83,000 yuan per square metre (HK$8,750 per square foot), is betting on the development of casinos.

Property consultant Sam Crispins is slightly more cautious. "I see no danger of prices falling in Sanya," he said. "However, I do think prices have peaked for the time being and will take some time to consolidate."

Zeman has been put off investing. The chairman of Lan Kwai Fong Holdings had pondered expanding his luxury resort chain, Andara, to the island or building a theme park in Boao on the east coast. The plans were stalled by high land prices.

"The biggest problem is land price," he said. "It has gone crazy there. The government needs to take a hand in regulating the property market there."

If there is a property bubble on the South China Sea island, it won't be the first. Soon after being designated a special economic zone in 1988, Hainan suffered an economic bubble fuelled by a housing boom. It collapsed by the end of 1998, leaving 7.03 million square metres of unsold housing, a tenth of the national total.

In the 1980s the local government used infrastructure funds to import - duty free - some 90,000 Japanese cars from Hong Kong, then resold them elsewhere on the mainland at a mark-up of 150 per cent. It did the same with about 2.9 million TV sets, 252,000 videocassette recorders and 122,000 motorcycles. The business collapsed after the central government intervened.

Sanya and the province's other main city, Haikou , set new records last month for property prices and transactions. In the first two weeks of 2010 home prices jumped 30 per cent from December, according to a newly released report by Shanghai-based Crispins' firm Crispins Property Investment Management.

"The average residential price of Sanya housing has reached 9,000 yuan per square metre, with prime beachfront property selling for 60,000 yuan to 70,000 yuan per square metre, levels that wouldn't put Shanghai or Beijing to shame," said Crispins, its managing director.

The key factors supporting the price rises, especially in Sanya, were the latest government policies, he said. On January 4, the State Council released a plan for Hainan to become a world-class tourism destination by 2020. The policy is expected to see Hainan develop its roads and traffic management systems and build shopping malls and a new international airport terminal.

Shortly thereafter, the provincial government announced a temporary halt to new land sales, giving a further boost to the market.

Today, in addition to soaring property prices, sales have shot up as well. More than 700 flats at the Phoenix Island development in Sanya sold on the first day of a sale last month at an average price of about 80,000 yuan per square metre. Sales volume slowed a bit this month but prices continued to rise, with flats selling for as much as 130,000 yuan per square metre, comparable to the most expensive homes in Shanghai, agents said. Some developers have opted to halt sales in anticipation of even higher prices.

Built on reclaimed land in Sanya Bay, Phoenix Island comprises a luxury hotel tower, five apartment blocks and an international conference centre.

Hong Kong-listed Agile Property Holdings reported sales of 2.5 billion yuan last month. Of the total, 1.3 billion yuan came from the sale of more than 1,000 properties at its huge Clearwater Bay project in Sanya.

"I carried many customers from other mainland provinces to the city's different housing projects last month," said taxi driver Zhang Shenshan. "I am not sure if they bought or not, but their destination was always the primary housing projects being offered for sale."

Crispins said another key factor fuelling the market was the sheer volume of Chinese holidaymakers.

"Sanya is the one and only place in the whole of China with warm weather at Lunar New Year," he said. "Travel by Chinese citizens to almost any overseas destination requires visas and there are language difficulties."

Buying a second home overseas involves getting large amounts of cash out of China, which limits such flows. Even if mainlanders can do it, there are still the problems of dealing in a foreign language, different laws, visas and car rentals. Crispins said at least 80 per cent of homebuyers in Sanya are from other provinces.

"Owning an apartment in Sanya has become the latest status symbol," he said. "To own a property in Sanya is to be a member of the 'jet set'."

Originally, mainlanders chose Hainan for a second home or holiday getaway, but the island has started attracting more investors and speculators. Xu, the potential buyer from Paris, is a typical example.

He flew to Sanya to buy property and is considering a 63.74 square metre Phoenix Island flat for 5.3 million yuan, or 83,000 yuan per square metre. "With the luxury hotel and conference centre facilities, the price is still acceptable," said Xu. He predicts a further increase in the cost of housing and is betting on the potential development of casinos in Sanya as Hainan is turned into a major destination for international tourists.

Another potential investor, Gao Yuan, an entrepreneur who runs a construction business in Taiyuan, in northern Shanxi province, said: "Experience tells me buying property is a not bad investment."

Gao is looking for a 260 square metre detached house at less than 30,000 yuan per square metre, partly for investment and partly to serve as a holiday home.

"I very much regret I did not buy the unit in 2008," he said, referring to units in the first phase of development at Visun-Times Coast West in the city's downtown. "The asking price for a unit of that size was 4 million yuan. Now they are asking 9 million yuan, and all the units are sold." - South China Morning Post

Looking for properties to buy or rent? With >150,000 exclusive listings, including undervalued properties, from vetted Pro Agents, you can now easily find the right property on Malaysia's leading property portal EdgeProp! You can also get free past transacted data and use our proprietary Edge Reference Price tool, to make an informed purchase.