Lucrative Resort Living in Hainan IslandHainan Island has often been referred to as the Hawaii of China. Anyone that’s been to Hainan and Hawaii will be able to tell it’s not, but it’s as close as the Mainland comes to it. China’s most tropical, most southerly province is also the country’s smallest, with only nine million residents — low density by China standards. Strangely it has developed outside standard industrialisation, with agriculture being its main economic drive until recently, and it boasts a high level of environmental quality. Hainan consistently has the cleanest air in China on any given day.

From the Ground Up
A part of Guangdong Province until 1988, Hainan Province is technically comprised of several hundred small islands in the South China Sea, but it’s generally the main island that comes to mind when the name is uttered. It’s on the main island that Haikou, on the north side, and popular Sanya in the south are found. Because of its tropical climate, sandy beaches and clean natural environment, it’s unsurprising Hainan has become a major tourist destination. Among the major brands already operating on the island are the Conrad, Ritz-Carlton, Banyan Tree, Mandarin Oriental, Shangri-La and InterContinental. Though Hainan posted an average of nearly 65 percent occupancy and recorded 30 million visitors in 2011, the vast majority of those were from the Mainland; only 3 percent were overseas arrivals.

Nonetheless, Hainan is being groomed to be an international hotspot by 2020. Government plans, “[Focus] on building an internationally popular travel destination through accelerated progress of Hainan’s tourism sector and the overall service industry,” noted Hong Kong-based financial advisory Platinum Broking in its May Hainan Property Guide. “The Island of Hainan is to have a sophisticated modern service industry; an upgraded international reputation as a desirable travel destination; complete infrastructure for fast and convenient travel between attractions and cities; further opening up of the tourism sector including visa exemption and free flow of capital and resources; optimised attractions with diversity and quality; introduction of tourism management and modernised sales and marketing from corporations with internationally well-known hotel management groups and travel agencies.” Ambitious to be sure but if anyone can realise massive projects, it’s China.

Perhaps based on those plans, Jones Lang LaSalle rates Haikou as a Tier 3 Early Adopter city in its most recent China50, which are described as “Cities … beginning to have success in creating commercial real estate demand from domestic and pioneering foreign companies, who are looking to establish ‘first mover’ advantage.” Though transparency is lower than in Tier 1 cities like Beijing, they’re still worth investment consideration. JLL also notes that Sanya is “bubbling beneath the China50; cities which did not quite ‘make the cut’, characterised by strengthening economies and emerging commercial real estate activity, often in specialist sectors.” It doesn’t get much more specialised than Sanya.

Course Correction
But Hainan has already seen its share of devastating boom and bust property cycles, one in the late-1980s and early ’90s following provincial establishment and again in the late-2000s, after the government announced those tourism plans. Property sales skyrocketed almost 75 percent and prices rose 48 percent in Sanya alone, creating the spectre of a bubble. When Beijing imposed across the board cooling measures in 2010, Hainan’s bubble burst and prices dropped quickly: 28 percent in 2011 as reported by Bloomberg.

In 2012 Hainan was considering a tax on vacant holiday homes in travel hotspots to discourage continued speculation. Advisor and Hainan University professor Wang Yiwu claimed nearly 80 percent of new residences in Haikou and Sanya were sitting empty. The vacation home market has been blamed for driving prices up and out of reach for locals, despite increasing household disposable income. In 2013, the average price for property in Haikou is roughly RMB8,300 per square metre (HK$780 per square foot) with Sanya luxury clocking in as high as RMB90,000 per square metre, or HK$11,000 per square foot. The appeal of a resort home there is clear.

Despite the island province’s rocky property history and its current woes — developers are discounting flashy developments still lingering from the boom days, leading to oversupply — it still has a bright future according to Platinum. Economic fundamentals have changed since it was part of Guangdong, and with tourism now a pillar industry the trickle down should have a positive effect on other industries. “We believe the current property market boom is backed by the economic growth of Hainan and is much healthier than that of 1990s, despite the early signal of overheating,” Platinum’s report stated.

“With average selling prices on the rise since November 2012 we believe developers may start increasing their project pipelines in Hainan and the gross floor area under construction may see a recovery in growth in 1H14. With robust demand and lower inventory levels after a drop in GFA under construction since 2010, we believe the average selling price is likely to show a rebound in 2013.” It may not be Hawaii, but it may soon be priced like it.