Not Thinking Ahead in Hainan

Hainan cracks down on idle land parcels
Construction across Hainan has sped up as a government campaign forces property firms to either develop or lose the land parcels they have been hoarding.

The island urgently needs the investment as its economic growth has slowed sharply to 8 per cent in the first half of this year from 9.9 per cent.

Among all provinces, Hainan relies the most on real estate investment, which accounted for 36.3 per cent of its gross domestic product in the first half. The other pillar for the provincial economy is tourism.
Developers aren't building due to market conditions. Force them to build and the economy will pick up today, but there will be even more inventory next year.

There's more to it than the economy though. The limits of central planning have been reached.
However, the Hainan campaign concluded that 74 per cent of construction delays could be blamed on local governments as they failed to build the basic infrastructure, sufficiently compensate original dwellers or update their development plans.

If the government does not convert land use of a specific plot from arable to construction, developers were likely to violate the law, Lin said. However, they are usually compensated for land that is taken back by the government.
Developers will see their money returned, but it could take time now that land sales are weak. I doubt land will be taken back because it will destroy cash flow until the real estate market rebounds. The developers can call Hainan's bluff. Also, since many local governments rely on land sales to finance construction, buying back land is the worst possible outcome for the infrastructure investment driven model. Finally, the local governments are still moving too slowly or not being transparent about final land use.

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