The tropical island of Hainan in southern China has long been a place for dreamers. The white beaches, clean air and temperate climates have attracted waves of migrants from the north of the country.
But it has also seen those dreams turn into nightmares. In 1993, Hainan became the site of China’s first property crisis in modern history, following a construction boom catering to the influx of new residents. Real estate prices cratered and 95 per cent of developers in the capital Haikou collapsed after Beijing raised interest rates.
While today’s property crisis in China is not concentrated in Hainan, there is evidence of the national trend and challenges ahead for policymakers. Prices of existing homes in 25 large cities around China have fallen by 25 to 30 per cent from a peak in July 2021, according to data from the Beike Research Institute cited by Nomura. Another problem is the glut of unfinished pre-sold homes, particularly in low-tier cities where money has run out to complete the projects. Nomura economists estimate that there are 20mn units of pre-sold homes that have not been delivered on time due to a funding gap that is equivalent to Rmb3tn.