21 February 2019

Beware of Hainan housing bubble

As investors, property developers and travelers flock to Hainan, China’s southernmost province which is being developed as a tourism hub and duty-free shopping center, a real estate bubble is taking shape in the tropical resort haven.

Based on the master plan of the provincial government, the total amount of land available for construction in Hainan is about 650,000 mu (40,000 hectares). But over 440,000 mu has already been approved for use.

Such massive enclosure of land could take us back to before 2010 when provincial officials were racking their brains to push forward GDP growth. At that time, property developers were allowed to bag up to 70 percent capital gain from land. The government also promised not to revoke the land use rights if the property was left undeveloped for more than two years.

As a result, lots of developers swarmed into the province, causing widespread land hoarding. Thirteen major property players in Hainan sat on a combined land bank of 180,000 mu in 2010, the 21st Century Business Herald reckoned.

CITIC Pacific (00267.HK), Guangzhou R & F Properties Co. Ltd. (02777.HK), Agile Property Holdings Ltd. (03383.HK) and the Greenland Group — the controlling shareholder of Greenland Hong Kong (00337.HK), have been the major landlords in the island.

However, an oversupply problem is beginning to surface at present. Other than plenty of land lying idle, there is now the growing phenomenon of ghost towns. According to real estate information provider CRIC, the new housing inventory in Hainan is more than sufficient to meet the expected demand in the next 10 years even if there are no fresh projects.

To make the matter worse, property-related non-performing loan ratio on the island is rising, Business Herald noted. The situation suggests that some developers there may have encountered difficulties in selling their housing units.

– Contact the writer at [email protected]


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