Phoenix Island, China’s ‘Dubai,’ falls into property flames

A victim of downturn, real estate prices crash in once hot market



It was billed as China’s Dubai: a cluster of sail-shaped skyscrapers on a man-made island surrounded by tropical sea, the epitome of an unprecedented property boom that transformed skylines across the country.

But prices on Phoenix Island, off the palm tree-lined streets of the resort city of Sanya, have plummeted in recent months, exposing the hidden fragility of China’s growing but sometimes unbalanced economy.

A “seven star” hotel is under construction on the wave-lapped oval, which the provincial tourism authority proclaims as a “fierce competitor” for the title of “eighth wonder of the modern world.” But the island stands quiet aside from a few orange-jacketed cleaning workers, with undisturbed seaside swimming pools reflecting rows of pristine white towers.

Chinese manufacturers once snapped up the luxury apartments, but with profits falling as a result of the global downturn many owners need to off-load properties urgently and raise cash to repay business loans.

Apartments on Phoenix Island that reached the dizzying heights of 150,000 yuan ($22,000) per square meter in 2010 are now on offer for just 70,000 yuan, said local real estate agent Sun Zhe.

“I just got a call from a businessman desperate to sell,” Sun said. “Whether it’s toys or clothes, the export market is bad. . . . Property owners need capital quickly, and want to sell their apartments right away.”

For years, Chinese business owners have used property as a store of value, pushing prices up in the good times but creating the risk of a crash in the bad.

“China had a lending boom . . . and so if people are using property as a place to stash their cash, they had more cash to stash,” said Patrick Chanovec at Beijing’s Tsinghua University. “At some point they want to get their money out, then you find out if there are really people who are willing to pay those high prices.”

Phoenix Island is part of Hainan, a Belgium-sized province on the South China Sea that saw the biggest property price increases in China after a 2008 government stimulus flooded the economy with credit.

Eager buyers camped out in tents on city streets as prices shot up by more than 50 percent in one year. But tightened policies on access to credit and multiple house purchases have since driven down values in favored second home locations.

Real estate is a pillar of the Chinese economy, accounting for almost 14 percent of gross domestic product last year and supporting the massive construction sector, making policymakers anxious to avoid a major collapse of the property bubble.

At the same time, ordinary Chinese who cannot afford to buy a home have been frustrated by high housing costs for years. .

Hainan’s tropical shores are said to be a hot spot for purchases by well-connected bureaucrats, but real estate agents denied they were rushing to sell off apartments for fear of a crackdown.

Officials only account for around 20 percent of owners, they said — while doubting any new regulations would be properly enforced. “There are always different rules for people with connections,” said one agent.

On the other side of Hainan, the Seaview Auspicious Gardens boasts beachside villas accessed by artificial rivers but prices have fallen by a third from the highs seen last year, and a third of the apartments remain unsold.

Yang Qiong has a thankless task as one of its saleswomen. “Before the government restrictions we would sell out a development like this in just five months,” she lamented.