Economy
China's Hainan hopes to avoid property crash
(Agencies)
Updated: 2010-05-05 17:26
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"Both sides will wait and see for a while," Fu said.
Cao, in her mid-30s, flew more than 1,700 km with two friends from Sichuan province to buy a flat so her son could enroll at a prestigious middle school in Haikou.
Hainan's warm weather, lush landscape and clear sea only add to the island's attractions as a holiday or retirement retreat.
Would-be buyers like Cao expect their properties to going up as the island executes its ambitious development blueprint.
But with memories of the US subprime crisis and Dubai property crash still fresh, the Hainan authorities have taken various measures to clamp down on speculation.
In mid-January they suspended the approval of property construction and the allocation of land for development until the end of March to give investors time to think twice.
The tightening campaign by the central and local governments drove transactions down as some investors took to the sidelines.
Ma Xin, a client manager with China Everbright Bank's Haikou branch, has seen the number of mortgage applications he examines a week fall from over 100 in January at the peak of the frenzy to just several in April.
"In the medium- to long-term, property prices in Hainan will move upward, despite short-term uncertainties," he said.
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The trend started to reverse by March 2009 in response to massive monetary stimulus and steps to help the property market.
By the second half of last year, prices had soared past their pre-crisis levels, driven by a shortage of flats on the market and rising demand as a hedge against inflation risks.
The question for global markets is whether the latest tightening will topple the market, crushing China's demand for materials such as steel, cement and copper, and whether Chinese banks will be lumbered with a new bundle of bad loans.
Andy Rothman, China macro strategist with brokers CLSA in Shanghai, judges that Beijing wants to cool, not kill, the residential property market.
"The impact of the new rules will not be dramatic in most cities," he said in an April 20 report.
A survey by CLSA in 60 cities in late March and early April showed about half of families in second- and third-tier cities had paid for their first and second homes entirely in cash.
The proportion was even higher in Haikou. Guo Zhenxi, a local real estate agent, said all his clients paid the full amount in cash, making it easier when they want to sell out.
To get a mortgage in Hainan, banks insist that the family liabilities of a borrower do not exceed half their income. Otherwise, they require a higher initial down payment.
Cash buyers, or those not borrowing much, will return to the market if prices fall because the new rules do not raise the cost of holding property once it has been purchased, analysts say.
Ren Zhiqiang, chairman of Huayuan Property, said prices might even stage a "revenge" rally later this year as developers slow their investment, exacerbating the shortage of new properties.
He said Beijing would turn supportive if the market overreacted.
"If property prices drop to the desired level or farther than expected -- if there's a panic fall -- the authorities will change policies," Ren said in a blog.
