Property Market Gains on China's Largest Tourist Island

Buyers and developers are hanging on property market prices on the tropical island of Hainan, China's largest Special Economic Zone (SEZ), expecting a gain spurred by the designation of several promising new industries to be set up on the island that may strengthen a weakening economy there.

Buildings, not fully completed and wrapped in gauze, still dot the downtown Haikou area, capital of the southernmost China's island province. They are the visual reminder of the poor status of Hainan's real estate market, which has suffered the most serious glut in the country during 1994-1996.

However, signs are suggesting that the market may recover, as the promotion of leisure tourism, high-yield tropical agriculture and marine industries have started bringing in investors and visitors.

The whole island is a tourist resort with spectacular landscapes, beaches, endless orchards, rain forests and dead volcanoes. Tourism has become a major contributor to the province's GDP growth, contributing 15 percent.

In recent years, fashionable tourists tired of busy sightseeing have turned to the enjoyment of leisure tours on the island. Witnessing the trend, some smart realty developers renovated a number of villas facing the Dadonghai Bay, the most picturesque site in Sanya, southernmost of the island, into a four-star hotel last year. The revenue shot up in the first six months of operation with the price of a standard room running as high as 788 yuan (94.9 US dollars) per night.

Nowadays, a considerable part of Hainan's 2.7 million square meters of tourist housing was transferred from stagnant estates, according to government sources.

The other two industries are equally effective in boosting the real estate market. With one-third of the country's fertile tropical land and 44 percent of the sea territory, Hainan has become China's largest winter vegetable and fruit grower and it is being built into a processing center for offshore natural gas and marine resources on the South China Sea.

Owners of most of the 210 Taiwan-funded businesses in Hainan mainly engage in growing fruit, fishing and aquatic processing, own their own homes, offices and rent workshops. Shi Yong, a former chairman of Taiwan Enterprises Association in Hainan, set up a realty firm, despite friends' warning of Hainan's property market risks.

He said that so long as Hainan keeps its blue skies and clean sea water the prospect of new industries will soon be recognized by investors.

The climbing real estate price has proved his words right. The apartment price in the downtown area of Haikou has climbed to 1,400 yuan (168 US dollars) per square meter, compared with below 1,000 yuan (120 US dollars) a few years ago.

The solid economic growth along with the resolute property market reform such as property right clarification and loan repayment have helped sell more than 1.6 million square meter stockpiles since August of last year, which has accounted for over 20 percent of the total oversupply.

The State Council, the country's highest governing body, decided in July this year to designate Hainan as the national demonstration to experiment with handling the oversupply of real estate. A special fund will be earmarked by the central government to embark on the plan and preferential policies will be implemented on a trial basis in Hainan to encourage housing sales.

When the Hainan SEZ was established in 1988, the other four SEZs had taken on a promising trend after nearly a decade of construction. Hainan has tried to adopt more open and flexible policies to lure investors. The 34,000-square-kilometer island, covered by forests and agricultural fields, were soon turned into the country's largest construction site. Investors flocked in to build more houses than it could sell in this decade.

With only 0.6 percent of the country's population, the smallest province in China, in term of land coverage, has 10 percent of the country's total housing stockpile, 70 million square meters.

The fall of the property market has plunged the SEZ experiment into the doldrums in 1995, when it recorded the lowest GDP growth among provinces in country, compared with the highest in 1992. The economic fluctuation has scared away many investors.

However, the mammoth investment during the construction craze has helped shape up a sound infrastructure and communications condition on the island. High-rise buildings have taken the place of shrimp ponds and expressways run through woods and orchards.

Urban residents in Hainan live in spacious houses with a per-capita floor occupancy of 14.8 square meters, the highest among cities in China.

An investigation from Hyogo-ken County, Japan, who are looking for an estate for retired people to live in has just concluded an investigation of Hainan's real estate market. They said that they plan to take Hainan into consideration, because the environment is ideal for human settlement and the low price is appealing to elderly people on a fixed income.

Although it is still too early to predict the success of the SEZ's property market reform, it is a good sign that the recent recovery has been solidly supported by new pillar industries, said Mao Zhijun, vice-chairman of Hainan Provincial People's Congress.

He said it is a hard lesson for Hainan to learn that the real estate market can not be solely dependent on the expectations of preferential policies but the development of its own economy.



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