Hainan Pledges No Letup in Property Curbs
China’s tropical island of Hainan has no plans to relax its stringent controls on the local property market despite the slump in investment, home sales and tax revenue caused by policies aimed at reining in house prices, the province’s governor said on Monday.
“Economic development that depends on real estate is not sustainable,” Shen Xiaoming, governor of Hainan province, said at a press briefing (link in Chinese) held by the State Council Information Office. The island is turning to a new development model but the transition is taking time and the province is now going through a “painful” period of adjustment, he said.
The southern province is trying to diversify its economy into new areas such as medical tourism, technology innovation and services, as well as continuing to develop the tourist industry. In April 2018, President Xi Jinping designated the island the country’s 12th free trade zone (FTZ), saying this would allow it to serve as testing ground for deeper reform and greater environmental conservation as well as a center for international tourism.
Shen said Hainan had to turn away from its dependence on real estate, which at its peak accounted for roughly half the province’s investment and tax income, despite the short-term hit to the economy — In the first eight months of 2019, Hainan’s property sales plunged 52% by area and 50% by value, Shen said.
“Growing demand for land for property development put increasing pressure on the region’s environment, and led to a decrease in Hainan’s land resources,” he said. “The environment just didn’t have the capacity to cope.”
Speculators pile in
As China’s only tropical island, the country’s residents, especially retirees, have flocked to the province over the years, prompting a series of property booms and busts, including a spectacular collapse in the mid 1990s and a slump in 2003. Since 2005, prices have soared — with average prices in the southernmost resort town of Sanya surging to 25,794 yuan per square meter in 2017 from 2,429 yuan in 2003, data compiled by CEIC show.
Sanya and the provincial capital Haikou have both introduced restrictions on home purchases, especially by nonlocals. The controls were expanded to the entire province in April 2018 after Xi’s announcement of the FTZ as speculators piled into the market on expectations that demand for housing would increase. For 2018 as a whole, home sales dropped 37.5% by area and 23.2% by value.
But the market is still rising — data from the National Bureau of Statistics show that in June, new-home prices in Sanya increased by 3.8% year on year, although that was down from a 15.7% pace in December. Year-on-year price gains in Haikou moderated to 10.1% in June from a 22.1% pace in December.
Hainan has been one of the provinces most heavily dependent on real estate investment to drive growth. The share of property investment in its gross domestic product (GDP) peaked at 46% in 2015 and dropped to 35.5% in 2018 amid the government’s tightening controls over the real estate market, according to Caixin calculations based on data from the National Bureau of Statistics. In the first half of 2019, property investment plunged by 31.4%, dragging overall fixed-asset investment down by 23%. The slump fed through to the province’s GDP, which expanded by just 5.3% in the first half of 2019, trailing the overall national GDP growth rate of 6.3%.
Hainan’s GDP increased 5.8% last year, missing the 7% target set by the provincial government. Earlier this year, officials set a range of 7% to 7.5% for GDP growth in 2019.
Contact reporter Liu Jiefei (firstname.lastname@example.org)
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