Tourism-dominated island guards against real estate bubble reminiscent of 1990s speculation

10:39, March 21, 2010      

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Cai Hui, 47, a businessman from Fuzhou in Fujian Province, marveled at the rocketing home prices in south China's Hainan Province, after the central Chinese government in January announced to turn Hainan into a global tourist resort.

He bought an apartment at 3,500 yuan (512 U.S. dollars) per square meter in Jiusuoxin District in Ledong County at the end of last year and sold it at about 10,000 yuan per square meter at the end of January, pocketing about 600,000 yuan in merely a month, almost doubling the money he spent. "It's like a dream," he said.

The fast expansion of real-estate market in the island drew wide attention and worries that the island might repeat its boom-to-bust trajectory in real-estate market in the 1990s. Hainan finished 6.44 billion yuan of property development in the first two months this year, up 180 percent from the same period last year, according to the Hainan Provincial Bureau of Statistics Thursday.

Real-estate sales jumped 380 percent to 2.21 million square meters in floor space and rose 750 percent to 24.33 billion yuan in trade volume in the first two months from the same period last year.

The government should intervene to map out policies and guarantee healthy development of real-estate industry in Hainan, said Zou Deci, an academician member of the Chinese Academy of Engineering and honorary chairman of China Academy of City Planning at the Boao International Tourism Forum, which opened Saturday in Sanya, a tourist resort in Hainan.

"For example, many international tourist resorts encouraged foreign tourists to come and live, but did not allow them to buy homes. Regulations like that are necessary in Hainan, otherwise the market demand might balloon to a degree that could never be met," said Zou at a sub-forum on tourism property.

Many experts, however, argued Hainan would not repeat the real-estate bubble of the 1990s style as the situation now is quite different from that in the 1990s. "Hainan will not repeat the real-estate bubble burst in the 1990s," said Jiang Sixian, Vice Governor of Hainan Province.

He believed four reasons resulted in the property bubble in the 1990s, which no longer existed now, including loose regulations when Hainan Province was just set up then; some banks' blind loans and even direct involvement in real-estate market; immature plans on Hainan provincial or county-level developments and low national GDP basis which led to low demand from across the country for property in the island.

The boom-burst circle in the 1990s was recorded in soaring home prices. Home apartment price was 1,350 yuan per square meter in 1988, but soared nearly 500 percent to 7,500 yuan per square meter in 1993, according to the 1996 Year Book of China Real Estate Market compiled under the supervision of the China Real Estate Association.

The bubble exploded in June 1993 after the central government suddenly declared to tighten lending to real estate developers. Many developers abandoned numerous unfinished buildings and left behind 30 billion yuan of bad bank loans in the development projects.

Hainan property market picked up in 2007 after ten years of recovery, especially at the end of 2009, sparking off wide worries and doubts from the society, said Jiang. Despite worries, many experts argued the current real estate boom was quite different from that in the 1990s.

"Most money flowing into the real estate in Hainan came from banks in the 1990s. But now individual investors rushed in, about 70 percent of the second-home buyers in Sanya did not use mortgages and paid off full amounts of home prices in one time," said Zhu Zhongyi, vice chairman of China Real Estate Association, "Thus the situation poses little threat to national financial system, though some to individual assets now."

"Market demand changed totally. Few Chinese could afford a second home in the 1990s, but now potential buyers are enormous. In the 1990s, most buildings were made for offices and bought by enterprises, but now most are tailor-made for individuals and used as second-homes," said Chi Fulin, president of the Hainan-based China Institute for Reform and Development.

The boom in Hainan property is part of a near country-wide housing hike since the government introduced an economic stimulus involving 4 trillion yuan late in 2008.

Fearing speculation, the central government has introduced a series of policies to curb housing prices, including improved sales tax and more affordable housing supply for the disadvantaged. The latest move came Thursday when the state-assets watchdog, the State Assets Supervision and Administration Commission (SASAC), told major state-owned enterprises whose core business is not real estate to quit the market.

Hainan has about 1,528 kilometers of coastal lines and about half could accommodate real estate construction, said Jiang.

Hainan was designated a province in 1988 and became China's largest special economic zone the same year, enjoying preferential development policies.

The 35,000-square-kilometer island, with about 8.7 million permanent residents, boasts year-round sub-tropical beaches, forests and diverse ethnic cultures.

The central government Jan. 4 announced in a guideline that it aimed to turn Hainan into a top international tourist destination by 2020.

Source: Xinhua
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