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Hainan Property Guide
27 May 2013
Sources: Hainan provincial government website
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Hainan Property GuideLIMI
May 2013
Table of Contents
PART A
CITY PROFILE ............................................................ 3 PART B
MARKET SEGMENTS................................................... 7 PART C
DEVELOPERS IN HAINAN ........................................ 12 Appendix
Appendix
Appendix
Appendix
1
2
3
4
RECENT POLICIES ..................................................................... 13
MAP OF FUNCTION GROUPS ...................................................... 15 TRANSPORTATION OVERVIEW ................................................. 16
OTHER ECONOMIC AND SOCIAL ISSUES................................... 17
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PART A
May 2013
CITY PROFILE
1. Overview
Hainan. Hainan Province, including the Island of Hainan, the Islands of Sansha and South China Sea,
is located at China’s southernmost point. Under its administration, there are three municipalities
(Haikou, Sanya and Sansha), six county-level cities, four counties and six minority autonomous
counties. The Island of Hainan is separated from mainland China by the Qiongzhou Strait. To the
west lies Vietnam, and to the south it faces Indonesia and the Philippines. The Island of Hainan has
an area of 33,900 sq km and accounts for 95.8% of the total land area of Hainan Province.
Demographics. Prior to 1988, the Island of Hainan was a part of Guangdong Province due to its
geographical proximity. The island was separated from Guangdong Province and became Hainan
Province in 1988 to spur economic development. At the end of 2011, Hainan’s population was about
9.1 million, accounting for 0.7% of national total population of 1.4 billion. Haikou, the capital city
of Hainan, has a population of 2.0 million and the highest population density in Hainan of 888
people per sq km, far exceeding the average figure of 253 in Hainan Province. Sanya, a popular
tourist destination, has a population density of 358. The population of Sanya has grown at an
average annual rate of 3.58% since 2000, 0.48 ppts higher than that of Haikou and the highest in
Hainan Province. This level of growth is expected to be maintained in the coming years as Sanya’s
comprehensive tourism infrustructure continues to support sector growth, leading to an increase in
employment opportunities. Among other cities, Danzhou (Hainan’s second most populated city as of
2010) and Dongfang saw their populations grow at an annual rate of 1.1% and 1.3% respectively
from 2000 to 2010.
Exhibit 1: Hainan’s population distribution and population density (2010)
Administration
Districts
Population
(unit '000)
Land area
(sq km)
Population Density
(person/sq km)
Total
8,672
34,211
253
Haikou
2,046
2,305
888
Sanya
685
1,915
358
Lingao
428
1,317
325
Wanning
546
1,884
290
Danzhou
932
3,265
286
Qionghai
483
1,693
285
Lingshui
320
1,128
284
Ding'an
285
1,187
240
Chengmai
467
2,045
228
Wenchang
537
2,485
216
Tunchang
257
1,232
209
Dongfang
408
2,256
181
Ledong
459
2,763
166
Changjiang
224
1,610
139
Baoting
147
1,161
126
Wuzhishan
104
1,129
92
Baisha
168
2,117
79
Qiongzhong
174
2,706
64
Sansha Islands
0.44
13
34
Source: 2010 Census
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Geographics. Hainan province is the only tropical province in China. The Island of Hainan is the
main island of the province and is on a similar latitude to Hawaii. Temperatures range from 17-29°C
during the year because of the tropical monsoon climate, and the coast line spans 1,528 km. The
combination of climate and ocean views makes the island an ideal place for tourism. The central part
of the island is rather mountainous with 81 mountain peaks above 1,000m in altitude. The island has
five national nature reserve areas and over 20 provincial reserve areas.
Exhibit 2: Geographical location of Hainan
Source: Google Maps
2. Economic overview
GDP. As of 2012, the GDP of Hainan Province was RMB285.5 billion, lower than the national
average, while GDP per capita was RMB32,374 representing approximately one-third of the GDP
per capita in Shenzhen and Shanghai. Tourism, hospitality, retail, transportation, telecommunication
and logistics are the mainstays of Hainan’s economy, with the tertiary industry accountingfor 47%
of GDP in 2012. In 2011, the detailed 12th Five-Year Plan for Hainan stated average annual GDP
growth from 2011 to 2015 to be around 13%, with local fical revenue growing over 20% each year,
fixed asset investment (“FAI”) growing at 23% while consumer prices remained stable.
In 2011 and 2012, Hainan recorded GDP growth of 12% and 9%; FAI grew 39% and 36%
respectively; and consumer price index rose 6.1% and 3.2% respectively, 0.7 ppts and 0.6 ppts
higher than the national figure respectively.
Hainan has a flourishing agricultural industry, accounting for nearly a quarter of its GDP. Because
of Hainan’s warm climate, the island has over 120 types of fruits, over 4,000 tropical plant species,
over 2,500 different herbs and over 800 types of trees suitable for commercial use. Crops with wide
plantation area and the highest economic value are rubber, coconut, oil palm, pepper, lemongrass
and cocoa.
Exhibit 3: Hainan statistics at a glance (2012)
Pop
GDP
(m)
(RMBb)
Hainan
8.9
285.5
Shenzhen
13.2
1,295.0
Shanghai
23.8
2,010.1
National
1,354.0
51,932.2
Source: National Bureau of Statistics
City
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GDP per capita
(RMB)
32,374.0
98,255.7
84,459.4
38,354.0
Primary Industry
(RMBb)
(% of GDP)
71.1
24.9%
0.0
0.0%
12.8
0.6%
5,237.7
10.1%
Secondary Industry
(RMBb)
(% of GDP)
80.4
28.1%
573.7
44.3%
791.3
39.4%
23,531.9
45.3%
Tertiary Industry
(RMBb)
(% of GDP)
134.0
46.9%
721.3
55.7%
1,206.1
60.0%
23,162.6
44.6%
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May 2013
Exhibit 4: Hainan and national GDP growth
Exhibit 5: Hainan and national CPI
RMB b
300
45% 30%
40% 25%
35%
20%
30%
250
200
25% 15%
150
20%
100
15%
10%
50
5%
0
0%
1990
1994
Hainan GDP (LHS)
1998
2002
Hainan GDP growth (RHS)
2006
2010
10%
5%
0%
-5%
1990
1993
1996
National GDP growth (RHS)
1999
Hainan Inflation Rate
2002
2005
2008
2011
National Inflation Rate
Source: National Bureau of Statistics, Wind
Disposable income of urban households. Per capita disposable income for Hainan has been lower than
the national average for the past 5 years, but a higher YoY growth rate has been observed since 2010.
As a result, the disposable income gap between urban households in Hainan and first tier cities has
narrowed.
Exhibit 6: Per capita disposable income for urban households
City
2009
2010
2011
RMB
YoY Growth
RMB
YoY Growth
RMB
YoY Growth
Hainan
12,497.0
9.1%
15,581.0
24.7%
18,368.0
17.9%
Shenzhen
29,244.5
9.4%
32,380.9
10.7%
36,505.0
12.7%
Shanghai
28,838.0
8.1%
31,838.0
10.4%
36,230.0
13.8%
National
17,174.7
8.8%
19,109.4
11.3%
21,809.8
14.1%
Source: National Bureau of Statistics
Macro monetary environment. The overall macro monetary environment appears moderately loose as
China’s recovery remains fragile. In 1Q of 2013, China recorded quarterly GDP growth of 7.7%,
0.2% lower QoQ and below market expectation. As the inflation rate dropped to 2.1% in March, well
under the the 3.5% target, we believe monetary policy in the near term will focus on driving
consumption growth. We believe the overall credit environment will remain loose, and the property
market is expected to benefit from the abundant liquidity in the market.
3. Hainan’s strategic position
3.1 International tourism island and shopping centre. In accordance with the “State Development’s
Opinion Regarding the Developing Hainan into an Inernational Tourism Island 2010” (“The Plan”),
the Island of Hainan is being positioned to become an international tourism hotspot by 2020, due to
its pleasant climate and natural scenery. The Plan focuses on building an internationally popular
travel destination through accelerated progress of Hainan’s tourism sector and the overall service
industry. At the same time, the Plan called for environmental protection and preservation, as well as
balanced growth during the process.
Building on tourism infrastructure. According to The Plan, by 2020, the Island of Hainan is to have a
sophisticated modern service industry; an upgrated international reputation as a desirable travel
destination; complete infrustructure 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.
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International shopping hub. In March 2011, Hainan started the implementation of an off-shore duty
free shopping policy as an effort to boost retail revenue from domestic consumers. The policy took
reference from similar policies implemented at Okinawa of Japan and Jeju of South Korea, two
tourism islands very similar to Hainan. The most recent policy allows non-local travellers, either
Chinese or foreign, who intend to leave the island but travel within China, to purchase duty-free items
twice a year with aggregate value no more than RMB8,000 per visit per person.
Comments. Since the launch of the duty free shopping policies, total tourist arrivals have recorded
stable growth between quarters. There does not appear to have been growth in foreign tourist arrivals,
which we believe is mainly due to the sluggish recovery of developed economies (Exhibit 7). Retail
revenue in Hainan has seen double-digit growth despite the volatile external environment (Exhibit 8).
We expect to see the growth rate pick up in the coming years as it takes some time for Hainan to
build up its reputation as a shopping centre and for the duty-free policy to take effect as well.
Exhibit 7: Hainan tourist arrivals
'0000 people
3,500
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
3,000
2,500
2,000
1,500
1,000
500
0
2007
2008
Hainan Total Tourists (LHS)
Exhibit 8: Hainan retail spending
2009
2010
2011
Total Tourists Grwoth (RHS)
2012
Foreign Tourists Grwoth (RHS)
RMB b
90
30%
80
25%
70
20%
60
15%
50
10%
40
5%
30
20
0%
10
-5%
-10%
0
2001
2002
2003
2004
2005
Total Retail Amount (LHS)
2006
2007
2008
2009
2010
2011
2012
Retail Amount YoY Growth (RHS)
Source: Bureau of Statistics in Hainan
3.2 Harbour Centre
Hainan also targets to become a shipping centre given its favourable geographical location.
Waterways provide major channels of transportation in Hainan because of the Qiongzhou Strait and
lack of cargo capacity at airports. The island has 24 ports, among which Haikou, Sanya, Basuo and
Yangpu are the largest. Hainan's ports are booming due to the increase in large construction projects
on the island, increasing demand for the island’s agricultural products from Mainland China and the
interaction with Southeast Asian countries. The total volume of freight increased at 10-year CAGR of
18.6% from 2000 to 2011, up 10ppts from the previous decade (CAGR of 8.7% from 1990-2000) and
waterway passenger traffic grew at 10-year CAGR of 10.6% from 2000 to 2011 (CAGR 1.9% from
1999-2000) Local government plans show that the development focus at the biggest five ports and
Sanya port will be for cruise ships.
3.3 Ecological centre
Hainan aims to become a leading ecological community in China. The project highlights that as
ecological health is the foundation of Hainan’s development; environmental protection is a basic
necessity. However, infrastructure development (including enhancement of the transportation system)
and oil and gas exploration may conflict with the process. There will be challenges for the Hainanese
government in balancing economic growth and environmental protection .
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PART B
May 2013
HAINAN PROPERTY MARKET SEGMENTS
Hainan society and economy in 1988. Hainan, previously a part of Guangdong Province, became a
separate province in 1988. Gross domestic product before the split was RMB5.7 billion and GDP per
capita stood at RMB14, 631. Hainan’s economy was dominated by agriculture with 50% of GDP
from primary industry, 19% from secondary industry and 31% from service industry. Since the
establishment of Hainan Province in 1988, the urban population percentage has increased over 30ppts
to account for more than 50% of total population in 2012.
Hainan province property bubble. After the separation of Hainan Province, land transfer was allowed
while the corresponding regulations were not there. Speculators flooded into Hainan and invested
heavily in the real estate market. Financial institutions led by the four major banks lacked risk
awareness/management, and speculators could easily secure funding over properties that only exist on
paper. The average selling price of properties surged by more than 5 times in 3 years as speculators
tried to change hands as quickly as possible before the music ended. However, due to the lack of
infrastructure and pillar industries, there was no real demand for real estate in Hainan, which finally
led to the burst of the bubble in the property market.
The central government released measures to cool the overheated Hainan property market in 1993,
which pricked the bubble, leaving 2.3 million sq m of unutilised construction land and 4.5 million sq
m of residences. In 1995, the provincial government created Hainan Development Bank, hoping to
solve the financial fall out of the bubble. In 1998, the bank was shut down by PBOC because of a run
on the bank. Average selling prices of property in Hainan collapsed to the pre-1991 level.
Long road to recovery after burst of the bubble. After the bubble burst in 1995, fixed asset investment
in Hainan’s residential sector decreased 56% and 53% in 1996 and 1997. FAI climbed back to
RMB3.7 billion in 2003, almost ten years after the burst. According to the provincial government, by
October 2006, about 98% of the unfinished buildings and unsold inventories had been processed.
Concerns over property market recovery. The property market of Hainan has recovered strongly since
2003. Starting from 2007, Hainan’s residential FAI has accounted for more than 10% of the
provincial GDP and increased rapidly to the current level of over 30%, far in excess of the national
average of 14% (Exhibit 9), raising an alarm signal for the island’s property sector. Hainan’s
population as a percentage of national population is stable at around 0.6% while the region’s
residential FAI as a percentage of national FAI shows huge volatility, surging from below 0.2% in
1999 to above 1.2% in 2011 (see Exhibit 10). This indicates that the real estate market in Hainan is
mainly driven by investment demand outside the province. It is worth noting that Hainan’s residential
FAI as a percentage of national real estate FAI reached a peak level in 1995 in line with the peak of
the property bubble.
Exhibit 9: Real estate FAI as % of GDP of Hainan vs. national
Exhibit 10: Real estate FAI and population of Hainan vs. national
35.0%
1.4%
30.0%
1.2%
25.0%
1.0%
20.0%
0.8%
15.0%
0.6%
10.0%
0.4%
5.0%
0.2%
0.0%
0.0%
1989 1991
1993 1995 1997 1999
Hainan Residential FAI as % of GDP
2001 2003 2005 2007
2009 2011
National Residential FAI as % of GDP
1989
1991
1993
1995
1997
1999
Hainan Residential FAI vs. National
2001
2003
2005
Source: National Bureau of Statistics
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2009
2011
Hainan Portion of National Pop
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May 2013
Current economy and market different from that of 1990s. Economic fundamentals have changed a lot
over the past two decades in Hainan. The province has transformed from an island separated from
mainland China, not easily accessible and heavily dependent on agriculture, into one of China’s
tourism havens. In 2012, the primary, secondary and service industries accounted for 25%, 28% and
47% of Hainan Province’s GDP respectively. Tourism, replacing agriculture, has become a pillar
industry of the province and the spillover effect has boosted other industries as well. Infrastructure
has been built up to make Hainan an ideal destination for vacation and retirement life, which leads to
increasing real demand from non-local buyers for properties in Hainan. 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.
The recent property boom is driven largely by outsiders as shown by Exhibit 11. Average selling
price in Hainan recorded a CAGR of 22.0% from 2007 to 2011 (+13.8ppts above national average);
while average disposable income of Hainan only experienced a CAGR 13.7%, indicating that locals
have become less able to purchase properties in Hainan. Exhibit 12 shows the average price of a 100
sq m home vs Hainan’s average annual disposable income; the ratio has risen to above that of
Shanghai, which is known for its high property price averaging RMB 13,566 per sq m by end 2012.
Moreover, there is an increasing gap between the price-to-income ratio in Hainan and national
average, indicating a low affordability ratio.
Exhibit 11: Disposable income and ASP of Hainan vs. national
RMB/sqm
Exhibit 12: Price of 100 sq m home to annual income
RMB
25,000
10,000
9,000
60.0
50.0
8,000
20,000
7,000
40.0
15,000
6,000
30.0
5,000
10,000
4,000
20.0
3,000
5,000
2,000
10.0
1,000
0
0
2005
2006
2007
2008
Hainan Disposable Income/Person (RHS)
Hainan ASP (LHS)
2009
2010
0.0
2011
2005
National Disposable Income/Person (RHS)
National ASP (LHS)
2006
2007
Hainan
2008
2009
2010
Shanghai
2011
National
Source: National Bureau of Statistics
Hainan property market in relation to market liquidity. Hainan’s property market attracts outside
investors for its unique location, warm weather and natural environment. Thus, money supply and
loan growth should serve as good indicators of average property price in Hainan (Exhibit 13& 14).
Also, Hainan’s property sector received stimulus from a sudden injection of a number of new projects
in 2006 and 2008, and government is planning in 2010 to build Hainan into an international tourism
hotspot. As inflation is well under control, we believe the money supply will not be tightened in the
near future given the fragile economic recovery. Thus price pressure will be limited.
Exhibit 13: ASP in Hainan and M2 money supply growth
Exhibit 14: Loan, loan growth and Required Reserve Ratio
RMB/sqm
RMBt
16,000
35% 35%
70
14,000
30% 30%
60
25% 25%
50
20% 20%
40
15% 15%
30
10% 10%
20
5%
5%
10
0%
0%
12,000
10,000
8,000
6,000
4,000
2,000
0
2005
2006
Hainan ASP (LHS)
2007
2008
2009
Shanghai ASP (LHS)
2010
2011
2012
Quarterly M2 YoY growth (RHS)
0
2005
2006
2007
Outstanding Loan (RHS)
2008
2009
2010
2011
Required reserve ratio (LHS)
2013
Loan growth rate YoY (LHS)
Source: PBOC, National Bureau of Statistics
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Market outlook. Exhibit 15 shows that average selling price of Hainan properties in a year is
followed by change in real estate construction with a one-year lag as developers initiate more
projects as property prices increase. With average selling prices on the rise since November
2012 (Exhibit 16), we believe developers may start increasing their project pipelines in Hainan
and the GFA 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
average selling price is likely to show a rebound in 2013, having decreased 18% in 2012.
GFA sold (LHS)
2013-03
Sales amount growth
2013-02
Construction area growth
0
2013-01
-20%
-30%
5,000
2012-12
2012
2012-11
2011
2012-10
2010
2012-09
2009
2012-08
2008
2012-07
2007
2012-06
2006
2012-05
-10%
-20%
10,000
2012-04
10%
0%
15,000
2012-03
20%
RMB/sqm
20,000
2012-01
40%
30%
Exhibit 16: GFA sold and ASP in Hainan
120% ('0000 sqm)
120
100%
100
80%
80
60%
60
40
40%
20
20%
0
0%
2011-12
50%
2012-02
Exhibit 15: ASP and GFA under construction growth in Hainan
ASP (RHS)
Source: Bureau of Statistics in Hainan
After the announcement of the “National 5 Measures” to curb ASP growth nationwide,
provinces are required to announce detailed plans for local level implementation. However,
Hainan has refused to adopt the new plan and will instead keep to the original curbing measures
they had. We believe this shows the local government’s strong intention to protect the property
market of Hainan and also indicates that there is little room for further tightening policies in
Hainan.
Cost analysis. Exhibit 17 shows from 1996 to 2011, total real estate revenue had grown at a
CAGR of 37.4% while cost had grown at a CAGR of 31.3%. The continuous decrease in
developers’ total cost indicates that their net margin from their exposure to Hainan has been
increasing.
Exhibit 17: Developers’ total cost as % of total revenue
180%
160%
140%
120%
100%
80%
60%
1995
1997
1999
2001
2003
2005
2007
2009
2011
Developers' total cost as a percentage of revenue
Source: Wind Datafeed
Construction material. Haikou cement price, as well as the national steel bar price has been
continuously decreasing since mid-2011 (see Exhibit 18), in line with the downward trend of
developers’ costs as a percentage of total revenue in Hainan. As the cement and steel industry in
China is still facing the problem of overcapacity and sluggish economic recovery is not likely to
bring down the inventory level in the near term, we believe the cost of construction materials
will remain stable or decrease further.
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Exhibit 18: Haikou cement price and national steel bar price
RMB/ton
RMB/ton
6,000
600
5,000
500
4,000
400
3,000
300
2,000
200
1,000
100
0
0
2007
2008
2009
2010
2011
National steel bar price
2012
2013
Haikou cement price
Source: Wind Datafeed
Residential proerties. The provincial data (Exhibit 19) shows that the newly started GFA for
residential properties picked up in 2011 after 2-years of consecutive decrease. However, GFA
completed and GFA sold softened in 2011, and ASP was slightly up mainly due to the stringent
government policy on the property market. As GFA sold is considerably higher than GFA
completed during the past years, we believe the inventory level of Hainan’s residential property
market will remain safe and there’s not much pressure coming from the supply side.
As is shown in the more recent city-level data (Exhibit 20), residential property transaction
volume has been bottoming out since 2012. ASP in Sanya stood at around RMB25, 000/sq m
while that of Haikou started to rise after having decreased slowly over the past two years. Since
Haikou and Sanya are the two major cities in Hainan, we believe the stable situation in these two
markets indicates the overall Hainan residential market has a stable outlook.
Exhibit 19: Residential Newly Start, Completed and Sold GFA Exhibit 20: Residential GFA sold and ASP in Haikou and Sanya
('0000 sqm)
RMB/sqm
1600
10,000
1400
9,000
8,000
1200
7,000
1000
6,000
800
5,000
600
4,000
3,000
400
2,000
200
1,000
0
0
2008
New ly start GFA
Source: CREIS
2009
2010
Completed GFA
RMB/sqm
30,000
100
25,000
80
20,000
60
15,000
40
10,000
20
5,000
0
0
2008
2011
GFA sold
('0000 sqm)
120
ASP
2009
2010
2011
2012
2013
Haikou Residential GFA sold
Sany a Residential GFA sold
Haikou Residential ASP
Sany a Residential ASP
Source: CREIS
Commercial properties. Since the Island of Hainan has a tourism dominated economy, hotels
comprise a large share of commercial properties in Hainan. Since 2004, Hainan hotel sector has
seen a CAGR of 25% in total revenue. The first five-star hotel started operation in 1995 and
currently there are more than 200 hotels in Hainan, of which 22 are five-star hotels. Despite the
surge in hotel supply, occupation rates have seen a continuous upward trend (even during the
financial crises), which indicates the strong demand on the back of Hainan’s booming tourism
industry.
As is mentioned previously, Hainan is positioning itself to become a shopping hub, which
provides a good opportunity in its commercial property development. As shown in Exhibit 22,
the commercial property GFA sold has increased significantly starting from 2010, accompanied
by the rising average selling price. The rising price of commercial properties has also led to
increasing supply as is shown is Exhibit 23, while newly commenced GFA of commercial
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property is increasing rapidly. As GFA sold is lower than GFA completed since 2008, we expect
an upward trend for the inventory levels in 2013 and beyond, while ASPs remain stable due to
the increasing demand.
Exhibit 21: Hainan hotel revenue and occupancy rate
Exhibit 22: Hainan commercial property GFA sold and ASP
RMB b
64%
12
62%
10
12.0
12.0
58%
10.0
10.0
56%
8.0
8.0
54%
6.0
6.0
4.0
4.0
48%
2.0
2.0
46%
0.0
60%
8
6
52%
4
50%
2
0
2004
2005
2006
2007
Hainan Hotel Revenue
2008
RMB/sqm
14.0
('0000 sqm)
14.0
2009
2010
2011
Hainan Hotel Occupancy Rate
0.0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Commercial GFA sold (LHS)
Source: Bureau of Statistics in Hainan
Commercial ASP (RHS)
Source: Wind Datafeed
Note: 2013 data only consist of January data
Exhibit 23: Commercial property GFA
('0000 sqm)
RMB/sqm
‘100
8,000
90
80
70
60
50
40
30
20
10
0
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2008
Newly start GFA
2009
Completed GFA
2010
2011
GFA sold
ASP
Source: CREIS
PART C
DEVELOPERS IN HAINAN
There are several Hong Kong listed developers that have a footprint in Hainan due to its unique
natural endowment and the huge growth potential. There are also a lot of unlisted local
developers in Hainan, among which Hainan Airlines Real Estate has the largest land reserve in
the province.
Recommendations. Of the companies below, we favour Guangzhou R&F. The Company is a
major listed Guangzhou developer with around 40% of its landbank in the Pearl River Delta
region, of which 11% is in Hainan as at end-2012. Most of its land bank is located in Chengmai,
Lingshui, Lingao and Wenchang, which are all along coastal areas and adjacent to Haikou and
Sanya. We believe the convenient transportation system and overcrowding in Haikou and
Sanya will contribute to higher growth in neighbouring cities. Considering R&F has been in
Hainan’s residential property market since 2006, we believe the company is able to capture
investor demand for high-quality residences for vacation and retirement. R&F’s previous
Hainan projects were well received by the market, especially the smaller-sized apartments.
R&F plans to launch 120,000 sq m of residential property in the second half of 2013 and we
believe R&F will maintain its good sales performance in Hainan amid the stable market
outlook. .
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R&F is also experienced in property investment. It plans to launch a five-star hotel operated by
Hilton with 300 rooms in Chengmai city, next to its previously lauched R&F Mangrove Bay
residential projects.Given the improving occupancy rate in Hainan, we believe the hotel
business will provide stable and growing cash flow to R&F.
Overall, we believe R&F is well positioned to capture the growth opportunity in Hainan with
diversed landbank.
Exhibit 24: Major HK listed developers’ land bank in Hainan (as of end 2012)
Hainan landbank
Total PRC landbank % of total PRC
Listed
('000 sq m)
('000 sq m)
landbank
Developers
Ticker
1578.0
3,358
47.0%
1 Citic Pacific
267. HK
R&F
2777.HK
3016.0
27,420
11.0%
2
CR Land
1109.HK
959.8
29,360
3.3%
3
Agile
3380.HK
450.1
34,920
1.3%
4
Shimao
813.HK
315.1
36,220
0.9%
5
Yuexiu
123.HK
98.0
14,400
0.7%
6
Sources: Company Data
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Appendix 1
May 2013
RECENT POLICIES
Exhibit 25: Recent policies on Hainan property market
Date
Authorities
Measures
May
Hainan Land Use
Landowners in Hainan will be fined 20% of the total price of any land that has not been used for more
2010
Bureau
than one year. The government will confiscate land that has lain idle for more than two years
September
Hainan Provincial
1. No less than 70% of residential land should be used for government subsidised housing and small
2010
Government
to medium residential housing.
2. The sales price land auction/tender cannot be lower than 70% of the benchmark price, and the
winner cannot make a deposit of less than 20% of the land price.
3. Developers with idle land bank who fail to pay the land premium will be prohibited from joining
land auctions/tenders for a designated period of time.
4. After land sales, developers have to sign contracts within 10 days and pay 50% of the sales price
within one month as the first installment.
5. With effect from 1 April 2010, all developers must submit the details of land use, including dates of
proposed commencement and completion, to the local land ministry. All users who cannot deliver
on time will have to apply for a postponement 15 days before date of commencement or
completion. Developers falling to apply through the system will be prohibited from joining land
auctions/tenders for one year.
6. Build a credit system for developers. Those who violate the rules and who do not pay land
premium will be flagged as a reference for future land tenders
February
Ministry of
1. Prohibit property sales to local households who current hold two or more properties.
2011
Housing and
2. Non-local residents can purchase only one property.
Urban-Rural
Development in
Hainan
March
Hainan Municipal
Percentage increase in average property price per sq m should not exceed increase in average city
2010
Government
resident disposable income for the year.
July
People’s Bank of
Increase benchmark interest rate for both deposit and loan by 0.25 ppt. All deposit and loan interest
2011
China
rate should adjust accordingly.
May
Ministry of Land
“National Land Utilization Plan 2011” listed target for 10 million units of public subsidized housing and
2011
and Resources
increase land supply for public housing and small-to-medium sized properties.
September
Ministry of
Student housing and cafeteria under colleges and universities are exempt from stamp duties and
2011
Finance
property taxes.
December
Ministry of
Official extended the policy that limits number of property purchases indefinitely.
2011
Housing and
Urban-Rural
Development in
Hainan
February
Ministry of
1. Ownership-style hotel can be built on land for commercial, residential and financial. Planning,
2012
Housing and
designing, construction and internal decoration should follow standards not lower than three-star
Urban-Rural
hotels. Matching service facilities should account more than 16% of total planned GFA.
Development in
2. Corporations or individuals who purchase ownership-style hotel units are the lawful owners of the
Hainan
units they have acquired. Corporations or individuals who develop ownership-style hotels and
matching facilities are the lawful owners of the hotels they have developed. Owner of a hotel
cannot sell or transfer their part of the ownership or put it up as collateral.
3. Ownership-style hotels should be properly identified when being approved by government
branches and being pre-sold. Units or suites of ownership-style hotels cannot be sold or pre-sold
according to gross floor area.
April
China Banking
Down payments for second home buyers are to be raised to 60%, while those for first time buyers of
2012
Regulatory
homes larger than 90 sq m will rise to at least 30%, up from 20%. Mortgage rates for second home
Commission
buyers will be increased to 1.1x of the current benchmark 6.55% (7.21%)
May
Provisions
Provisions designed to attract more companies to set headquarters at Haikou with incentives on office
2012
regarding boosting building, tax breaks and personal income tax cut on corporate executives.
number of
company
headquarters in
Haikou
July
Hainan Province
The document introduced plans to build 1,102 km of highway to connect major scenic attractions,
2012
Highway
resorts and enhance region’s tourism.
Development Plan
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August
2012
June
2012
April
2013
for Tourism
Ministry of
Housing and
Urban-Rural
Development in
Hainan
Sanya property
information
system delayed
Ministry of
Housing and
Urban-Rural
Development in
Hainan
May 2013
The office announced to build 100 city parks by year end and speed up province-wide city
infrastructure construction. The announcement also mentioned the office’s intention to keep healthy
growth in property market.
Because of technical difficulties, Sanya’s property information system project failed to start operation
by the end of June and did not announce a detailed schedule.
Refused to issue a local version of the “Five Policies Measure” to further suppress local property
market.
Sources: Various local and central government websites
Exhibit 26: 2010-2020 Hainan international tourism island development planning outline
1
By 2015, deregulation of tourism management, marketing, service and development, introduce market-driven practices and
increase level of internationalisation. By 2020, management and service stardards of tourism facilities should be the same as
global standard, finishing the initial stage in making Hainan a world class island resourt and tourism hotspot.
2
By 2015, the target is for tourism and service industry to account for more than 8% and 47% of provincial GDP respectively.
The target figures for 2020 are 12% and 60%.
3
Increase effort on developing modern service industry including media, logistics, tourism real estate, tourism insurance and
off-shore finance service.
4
Strictly enforce environmental protection laws and regulations; aggresively push for energy saving and emission reduction;
and improve pollution prevention and treatment.
5
Develop modern tropical agriculture specialty including tropical fruits, flowers, plants, and seafood. Establish organic
production example base and strengthen corporation with Taiwan.
6
Accelerate urban-rural integration progress. Establish various functional area of cities and optimise area planning. Improve
cities’ comprehensive service capability to attract businesses and populations and improve cities’ overall strength.
7
Increase infrustructure construction in transportation, renewable technology and internet equipment.
8
Develop industries in Hainan such as auto, luxury good manufacturing, medical research, information technology and marine
economy with focus on minimum environmental impact.
9
Finland, Denmark, Norway, Ukraine and Kazakahstan were added to Visa-free policy so that tourists from 26 countries do not
need a visa to go to Hainan.
Source: Hainan provincial government
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Appendix 2 MAP OF SIX FUNCTION GROUPS
Exhibit 27: Map of six function groups in Hainan
Source: Hainan Provincial Government
Northern Group Centered around Haikou, the northern group will focus developing effort on
sectors such as cultral and media, conferences and exhibitions, commercial retailing, financial
and insurance, education and training, real estate, auto manufacturing, pharmaceuticals, and
food processing.
Eastern Group Qionghai and Wanning should expand coast tourism, tropical agriculture,
processing and fishing. Bo’ao has become a desired destination for international conferences.
Southern Group Centered around Sanya, the southern group focuses on hospitality,
entertainment, rehabilitation, commerical retailing. Further build Sanya as a scenic attraction
and ultimately make Sanya a world famous coast tropical resort.
Western Group The western part of the island should rely on Yangpu economic development
zone and develop harbour industry and technology intensive industries. Build Danzhou into the
central city in western part of the island.
Central Group While balancing economic development and environment preservation, develop
tropical agriculture, forestry, ecology tourism and ethnic culture tourism.
Ocean Group The ocean group is comprised of Xisha, Nansha and Zhongsha islands. The
region should solidify position in fishing and transportation; expand exploring, extraction and
processing of off-shore oil and gas resources.
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Appendix 3 TRANSPORTATION OVERVIEW
Highway. Total mileage for highways in the Island of Hainan is over 17,000 kilometres including
a national level highway along the island’s coast, connecting every harbour and major city in
Hainan. Currently 318 towns, villages and attractions scattered over the island are accessible
through provincial level highways. There is also a circumferential freeway around the island,
with a journey time of 3 hours from Haikou to Sanya by east-line freeway, and 4 hours by westline freeway. The 12th Five-Year plan introduced construction of a 400-km highway costing
RMB60 billion, of which the main project is a national level highway directly connecting the
island’s west and east.
Railway. There are five railway routes, connecting Hainan with Xi’an (north-west), Shanghai
(east coast), Beijing (north), Chengdu (south-west), Changsha (central), all of which are
amongst the nation’s largest transportation hubs. The high-speed train from Haikou to other
cities started operations in 2011. The journey from Haikou to Sanya is 308km and takes 2hrs.
Other stations include Haikou East, Meilan Airport, Wenchang, Qionghai, Boao, Wanning,
Lingshui and Yalongwan.
Qiongzhou Strait Bridge. As of now, all vehicles and trains travelling from the mainland to
Hainan enter by ferry across the Qiongzhou Strait. The trip takes over 90 minutes each way.
Plans to construct a bridge across the strait were introduced in the 12th Five-Year Plan. The
project is still in planning stage due to be initiated in 2015 and completed by 2020.Once finished
it will cut the crossing time down to 20 minutes and 10 minutes for vehicles and trains to reach
the other side.
Waterway. The island has 24 ports, among which Haikou, Sanya, Basuo and Yangpu are the
largest. Total port throughput has increased significantly and local government plans show a
focus on ports at Yangpu, Haikou, Basuo and Sanya. Sanya port will be for cruise ships.
Air travel. Haikou Melan Airport and Sanya Phoenix Airport, the only two airports in Hainan
province, are expanding their capacity from annual combined throughput of 20 million
passengers to 50 million annually. Both airports are operating at over 100% designed capacity.
Haikou and Sanya are expected to complete airport expansion projects by the end of 2017 and
2013, respectively. Boao International Airport is expected to begin operation by the end of 2015
with passenger throughput at 0.5 million annually and cargo throughput around 1,400MT.
Danzhou Airport, located at western part of the island is now in early investigation stage.
Exhibit 28: Hainan transportation system
Source: Hainan Tourism Board
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Appendix 4 OTHER ECONOMIC AND SOCIAL ISSUES
Oil and gas resources. Hainan and its surrounding seas are rich in oil and gas resoruces and its
total reserve of natural gas ranks second in China, only next to Xinjinag. 5.52 billion MT of oil
and 12 trillion cubic metres of natural gas have been discovered in the three Cenozoic
sedimentary basins around the Island of Hainan.
In 2011, CNOOC invested RMB6.5 billion in Hainan for the Yangpu LNG project, which is
composed of terminal and trunkline project. The designed capacity for Phase I is 2MMT per
annum (“mtpa”), with 2 LNG tanks each with a capacity of 160,000 cubic metres. A berth that
can accommodate 80,000 – 267,000 cubic metre LNG tankers will be built inside the terminal
harbor. The first phase is expected to be completed in the early of 2014. The designed capacity
for Phase II is 3 mtpa and expected to be completed between 2017 and 2020.
Illegal industry. Hainan used to be a haven for smuggling, prostitution and gambling, but the
police force has been strengthend in order to block these illegal industries and enhance social
security in Hainan.
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