A Strange Property Market, and the Hainan Real Estate Agencies That Collapsed Overnight

Created by policy, and destroyed by policy.

Along less than a kilometer of Jinjiling Street and Jiefang Road in Sanya, seven real estate agencies have chains looped through their glass doors. All shut.

On Sanya Bay Road, more than a dozen agency offices were quickly converted after April 22 into one supermarket, two restaurants and a fruit shop.

In early June, when a taxi driver in downtown Sanya was asked where the agencies were thickest, he drove by reflex to Sanya Bay Road — but on that street of nearly 800 meters, only two were left. Even a driver who picks up fares downtown every day hadn't noticed how fast this place had turned over.

Everyone had a feeling something might change. Most still believed that a Hainan with a free trade port would bring endless opportunity.

From April 8 to April 11 this year, while Hainan hosted the Boao Forum for Asia, rumors about a free trade port kept circulating.

On April 13, at the conference marking 30 years since Hainan became a province and a special economic zone, Xi Jinping announced that the entire island would be built into a pilot free trade zone. The rumors were confirmed. People rejoiced.

Then, on April 22, came the bad news.

The General Offices of the Hainan Provincial Party Committee and the Hainan Provincial People's Government announced that, on top of the purchase restrictions already in force, every city and county in the province would impose restrictions province-wide.

According to the Hainan Provincial Department of Housing and Urban-Rural Development, the province's 13 cities and counties held 1,949 registered real estate agencies. Counting the unregistered ones, the estimate was more than 6,000.

After the new rules took effect on April 22, hundreds of agencies fell apart. Employees who stayed in Hainan had their pay cut, one after another.

Across Haikou, dozens of agencies watched their average monthly transactions drop into the single digits — some closed only two or three deals. Unable to cover payroll and store rents, many were forced to shut. Tens of thousands of employees quit or were reassigned to places like Yunnan and Guangxi, while the agencies that stayed in Hainan shifted to the rental market.

Hainan's previous property boom came in 2010, when the province announced it would build an international tourism island; prices rose fast and cooled fast. For the agencies, that time was only a question of waiting for the market to recover. This time, after the high the free trade port brought, their customers were cut off at the root. In a place where buyers from outside the province accounted for more than 80% of sales, the agencies lost their main source of business.

This was the worst stretch for Hainan's real estate agencies in nearly a decade.

A Property Market Like a Dream

The dream began at the end of 2016.

As first-tier cities across the country rolled out purchase restrictions in quick succession, Hainan became a haven. What had started as a market dominated by buyers from the Northeast gradually pulled in people from other provinces too — buyers with money who wanted a sea-view home and a comfortable climate.

In February 2016, Hainan stopped approving new commercial housing construction, and sales volume rose quickly. At the same time the provincial government "guided the development of high-end property," and prices rose with it.

For Hainan's agencies, the pie kept getting bigger — and a slice of it looked easy to take.

Lisa's home is in Chengdu, and she traveled to Sanya every year; this place by the sea always carried a certain idealized glow for her. After graduating in 2012, she took her first job at the sales office of Half Mountain Half Island, in one of Sanya's earliest enclaves of the rich, on the Luhuitou Peninsula by Xiaodonghai.

She had everything the job called for: the classic oval face, a small, fine nose and eyes, a sweet smile, a gift for talk. The work required no fixed hours and paid well, and it quickly settled her mind to stay in Hainan.

Less than two years in, Lisa hit the peak of her career.

She calls the stretch from late 2016 to April 2017 the "crazy time." A client would walk into the sales office and "before I could even react, they'd already put down a deposit." What Lisa sold were not small units, either — all of them sea-view mansions over 200 square meters, priced between 14 million and 20 million yuan. Homes like these, normally harder to move, made no difference during the crazy time. "Ordinary home or luxury home, it sold fast."

Clients accepted far more than she expected. When the project first launched, Lisa was told to "test the water" at 75,000 yuan per square meter. To her surprise, "I gave clients this price, and it turned out most of them could take it," Lisa said. "At 75,000 there was no shortage of buyers anyway."

"Actually, whatever price you sell at, there's a group of clients who'll accept that price, so the price was fine."

This high-end development, 210 sea-view villas, launched in February 2017 and sold out in six months. Total sales topped 20 billion yuan, the highest of any property project in Sanya or on Hainan Island.

The gold rush spread to the areas around Sanya.

Zhang Ming used to work at an auto repair shop in Wanning, Hainan, crouching in the sun every day until his undershirt was soaked through, drawing a thin monthly wage with nothing left over.

Zhang Ming wanted to go make something of himself in a big city. He caught a good moment.

He joined a Sanya agency in 2015, and in his first month commissions from rental deals alone gave him a taste of the good life. "In 2014 and 2015, fixing cars made me 300 yuan of profit a month. I come here and they give me 5,000 — how could that not fire you up? How could you not go all in?"

The job set him apart from his old coworkers at the repair shop almost immediately. In that inflated mood, Zhang Ming chose the pay structure with no base salary and a higher commission rate. When the market exploded at the end of 2016, the thrill of that choice peaked.

Every morning at 8 he drove clients out to view properties, several projects a day, criss-crossing Sanya itself as well as Wanning 125 kilometers away, Lingshui 80 kilometers away, even Wenchang 240 kilometers away. Showing clients around, he could go a whole day without eating. The company's four days off a month meant nothing to him — he would work one or two months straight and never tire of it. "If you've got things to do, can you take a day off? If you have to show a client a property, can you take a day off?"

Since Spring Festival this year he had sold a house every month. "It's not that I'm especially lucky — anyone could sell. An idiot could sell."

Even the least likely methods worked.

Wen Jie never finished his associate degree. Before coming to Hainan he was a security guard in Baoding, Hebei, earning 2,500 yuan a month. He could think of no better way to change his fate than selling property, so he sent his résumé to a Sanya agency through 58.com and was hired on the spot after a phone interview.

He started last November, and the frenzy struck him as barely real. "Every day this street was packed with clients, body against body. Down by the sea you couldn't even walk — people pressed against people, shoulder against shoulder," Wen Jie said.

The hotels along Yalong Bay, Haitang Bay and Sanya Bay were where he stationed himself, because that was where Sanya's rich gathered. He would park near a hotel, stand at the nearest corner handing out flyers, and if anyone showed interest, drive them off to see a property at once.

This method, long obsolete in other cities, sold him three homes in three months. He had been on the job less than half a year.

Facing the lure of heavy commissions, these prospectors ran themselves flat out.

The developer Lisa worked for offered a bonus: if a client paid the deposit (usually 500,000 yuan) on a first visit, or on a morning visit, Lisa got 10,000 yuan. If both — first visit and morning — she got 20,000.

That was nothing next to her sales commissions. In under six months she sold more than ten villas at Half Mountain Half Island, worth over 100 million yuan in all. The company sometimes paid out two or three months of income at once; one month last year more than 200,000 yuan landed in Lisa's account, and her personal income tax rate was 45%.

At Spring Festival last year Zhang Ming made 30,000 yuan; this year was his best of the past three, close to 50,000. Wen Jie mostly sold secondhand homes in downtown Sanya, and three of those deals came to nearly 60,000 yuan in commission — though the money still hadn't arrived.

The market's dream peaked around the Boao Forum.

"There was a project that launched a few days ago — more than 200 units, snapped up in a bit over ten minutes," Chen Xiaoyuan, marketing vice president at a local Hainan developer, told QDaily in early June.

Every afternoon Chen Xiaoyuan received the day's sales report as soon as it came out, with the sales figures and the number of showings for every project in the group.

Around the Boao Forum, the numbers looked like a system failure — every figure more than ten times the norm. "Basically it was normal for a project to sell a hundred, two hundred units in a day, all grabbed at once," Chen said. "Normally selling eight or ten a day was already good for us. So more than ten times the volume — basically every project was in that state."

He said prices rose about 30% during the forum, with downtown Haikou reaching 20,000 to 30,000 yuan per square meter. "Basically if there was a home, it sold — anyone who qualified grabbed one." By his estimate, every home in Hainan with a pre-sale permit had already sold out.

According to the National Bureau of Statistics, Hainan's commercial housing sales reached 149.02 billion yuan in 2016, up 51.6% year over year; from January to October 2017 they reached 220.447 billion yuan, up 92.9%.

Hainan's growth far outran China's first-tier cities. In the same ten months of 2017, commercial housing sales in Guangdong grew 12% year over year, while Beijing and Shanghai fell 42.9% and 40.9%.

Against those saturated markets Hainan looked like unbroken ground, drawing professional managers who had been grinding away in first-tier cities to come and make a name.

Li Cheng was one of them. He runs an agency in Haikou with more than 700 employees, and Hainan gave him a chance to remake himself. "In Shanghai I could push as hard as I liked and still have no voice in the industry. Hainan is different — as long as you focus, everyone will know you... You find a sense of presence."

That thriving mood climbed right up to the close of the Boao Forum.

The Money Dries Up

In the week after the forum ended, agents began picking up traces of what was coming.

Zhang Ming could no longer take clients to view properties — developers refused to sell. At a moment when they could have asked any price they liked, developers plainly resented that their registered filing prices sat far below the market.

The government let something slip, too.

Within days of the forum's close, Wang Pin, who worked at Lianjia's Yalong Bay office, was told he could no longer solicit clients on the street, and flyers were strictly banned. Exaggerated claims were forbidden above all — lines like "Hainan home prices will go up tomorrow" — even though at the time that may not have been an exaggeration.

On April 18, the Sanya Housing and Urban-Rural Development Bureau punished 15 agencies suspected of "illegal sales and false advertising," "suspending their online contract-signing eligibility, placing them on the corporate blacklist, and banning them from operating a real estate agency business in this city."

On the 11th day after the forum ended — April 22 — Hainan imposed purchase restrictions across the whole island. Buyers without a Hainan hukou who wanted to buy in the newly restricted areas had to show at least 24 months of cumulative personal income tax or social insurance payments in the province; in the seven areas already restricted, among them Sanya, Haikou, Qionghai and Wuzhishan, the requirement was 60 months.

It was the 14th purchase-restriction policy Hainan had been through in a year, and it was called "the strictest in history." For the province's agencies it was close to fatal.

Hainan, mainland China's only island, its climate like summer all year, had long drawn people from the cold north, above all the Northeast, to vacation and settle. In recent years, as smog thickened on the mainland and housing prices climbed, people from crowded places like Chongqing and Guiyang and high-income places like Beijing and Shanghai poured in too. Trading a run-down apartment in the center of a first-tier city for a roomy sea-view home that might still appreciate looked like a deal that could not lose money.

Lianjia data for the first half of 2017 showed buyers from outside Hainan Island accounted for 88% of purchases, with the Beijing-Tianjin-Hebei region and the three northeastern provinces the largest group, at 50%.

The April 22 policy shut the door on them. Overnight, the potential client base of Hainan's agencies shrank from China's 1.3 billion people to Hainan's 9 million residents.

But most locals own land and would rather build their own houses; even if they wanted to buy, they could not afford the prices. "Locals can't buy either — locals don't have the money," Zhang Ming said.

According to figures the Hainan Provincial People's Government released in May this year, the average annual wage in 2017 for employees of urban non-private units in Hainan was 67,727 yuan. At Sanya's average market price of 35,000 yuan per square meter, buying a 70-square-meter apartment would take more than 36 years — never mind the sea-view apartments that routinely cost 10 million yuan or more. Lisa recalled that the buyers of the villas she sold, starting at 14 million yuan, were almost all from outside the province.

On its face, the "April 22 policy" left the door open a crack: pay two to five years of social insurance or personal income tax and you could still buy in Hainan. In practice the cost was so high that almost no one took the route.

Take Sanya. After April 22, an outsider who wanted to buy there had to pay five years of social insurance or income tax. The social insurance system is linked nationwide, and in any given stretch of employment only one company can pay a person's contributions — so paying in Hainan means giving up the coverage you already have somewhere else. That route was all but negligible, because, according to agents, most people buying in Hainan were civil servants, staff at public institutions, or owners of private businesses, and the odds of any of them surrendering their local social insurance were very low.

A person can pay income tax in two places at once, but then the two incomes are combined for tax purposes and the rate goes up.

For now, Hainan's agencies offer an arrangement in which buyers take delivery and move in first and handle the title deed later.

And even an outsider willing to clear every obstacle and pay five years of social insurance or income tax before taking title still faces the risk that prices rise or crash within those five years, or that the policy is scrapped altogether. That uncertainty put people off.

Registering a hukou was the shortcut for outsiders who wanted to buy.

Three weeks after the island-wide restrictions were announced on April 22, Hainan, like other cities this year, loosened its rules for attracting talent, issuing the "Action Plan to Bring a Million Talents to Hainan (2018-2025)." Anyone with a full-time associate degree or above, a mid-level or higher professional title, or a technician-level or higher vocational qualification could register a hukou in Hainan. The goal was 200,000 people of various kinds of talent by 2020, and a million by 2025.

On the night of May 16, when Tianjin released its "Haihe Talent Plan," 300,000 people downloaded the Tianjin police app to apply for a hukou. Hainan, by contrast, was strangely quiet. "As far as I know, only a little over a thousand people registered in Hainan in the first week," Li Shijie, deputy dean of the School of Economics and Management at Hainan University, told the media. "In the month since the Action Plan came out, the people registering in Hainan have still mostly been people already working in Hainan who hadn't registered yet. Relatively few have come from other cities to do it."

Even for Li Cheng, who bought a home in Hainan and has worked there four years, a Hainan hukou held nothing like the appeal of his Shenzhen one. "What does it give me? Unless it's an income tax break, I don't see anything practical in it."

This One's Zero Too

At 4 p.m. on June 6, through the glass door of Lianjia's Yalong Bay sales office, all you could see were two empty benches. Behind a white partition, four salespeople in uniform sat on a sofa playing with their phones.

Twenty minutes later a customer came in — the same awkward scene as four clerks swarming one shopper in a dead department store. The conversation opened with "Do you know Hainan Island has purchase restrictions now?" and ended two minutes later.

Then back to the four salespeople and their original state.

At 5:30 p.m. on June 4, Chen Xiaoyuan checked the updated daily sales report on his phone, as usual. "Zero, zero, this one's zero too. Not one unit sold on June 4. One on June 5 — that's all we can do now... zero, zero units, this one's zero too...." Every half-second or so, Chen read out another zero. "It's already painful. Basically nothing has sold for three weeks straight."

Before April 22, Deyou Real Estate could do more than 3 billion yuan of sales a month in peak season, and at least 1 billion in the off season. Now a month doesn't reach 100 million. "We work with dozens of projects across greater Sanya — China Railway, Vanke, they're all on there... And the daily showings, look: zero, zero, zero, zero, zero.... We don't even have clients coming to look," Huang Chao said.

Looking back, Chen Xiaoyuan compared the surge during the Boao Forum to the old line, whom God would destroy, he first makes mad. "After madness like that, you need a very long time to repair the mistakes you made — or else you pay the price for the madness."

He wished it could go back. "It's like, before you were selling 100, 200 a day, and now you've sold nothing for three straight weeks. I'd still rather have it the way it was."

Is That It?

The company lost some staff. As part of Deyou Real Estate's senior management, Huang Chao said: "The adjustment has been sad... but with the industry shifting like this, everyone has to face it."

Huang Chao's own days have not been easy. "The April 22 policy hit me hard, definitely hard. The company has to make money before I can make money — if the company doesn't make money, how do I? That's why there's an army of tens of thousands of agents moving to Xishuangbanna. I wasn't one of them, and now I am," he said, pausing. "Who could have called it?"

At least he had a fallback.

Before meeting us, Huang Chao had been discussing opportunities in Yunnan with an executive from Country Garden. Deyou had already opened a Yunnan branch and was planning to steer clients with budgets under 2 million yuan from Hainan to Yunnan. Last year it opened a branch in Guangdong.

Chen Xiaoyuan had arranged his exit earlier. In 2015 his company made a chance research trip to Cambodia, where Chen said he "saw the Hainan of a dozen years ago." He wanted to repeat Hainan's success there.

That used to be one potential opportunity among others. After April 22 it became a way out. The company already held several plots in Cambodia, with construction under way on only a few. After April 22 they pushed harder on one plot of more than 1,000 mu and filed construction applications for several other projects, ready to break ground.

Chen Xiaoyuan has nothing to worry about. On his way from salesman to vice president of sales, he had already bought himself several homes in Hainan.

Li Cheng was the most optimistic of them. He called the mass retreat of other agencies a "herd effect." By his estimate, more than 50% of Hainan's 6,000-plus agencies are "mom-and-pop shops." This round of restrictions clears out the bottom of the chain first, and those little shops will vanish fastest — which is exactly the chance for a mid-size or large agency like his to profit from the wreckage.

After the restrictions, Li Cheng sent his employees to Japan in three groups, more than 70 people in all. Once they were back, he planned to lead them into a big push.

When the good times end, the fates of the poor and the rich part ways completely.

Zhang Ming's commissions from this year's Spring Festival came to 50,000 yuan. In a normal year that money would already be in his pocket, but because of the April 22 policy developers suspended sales and the cash flow broke. "Now the wait isn't just longer. It's who knows when."

Because he chose no base salary at the start, Zhang Ming has gone two straight months with no income at all. Last year, when the family was building a house back home, Liu Dexiao sent back 25,000 yuan and still had a little put aside. Now he is broke, and last year's savings were thin to begin with. Zhang Ming has been badly on edge. "The way things were at the start of the year was exhausting, but I'd still take it. Fine if clients don't buy — at least I have something to do, and maybe a deal comes through. That beats sitting here waiting to die, doesn't it?" He paused. "You feel wronged, because you sold the house and you can't get the money, and on top of that the pressure is too much, you have no money to spend, and you still have to live...."

After April 22, Zhang Ming's office held three people and six computers with black screens. He had no other choice. "If I don't keep at it, how do I get my money? I can only stay here, right?" Some of the coworkers who quit are now delivering food or driving motorcycle taxis in downtown Sanya.

Wen Jie became one of five people left in an office that once held 20.

Days before the restrictions landed, he had sold a home on which the deposit was paid; once full payment came through he would collect more than 10,000 yuan in commission. "My mood right then dropped from the sky to the ground and smashed to pieces."

The commission on the deal he closed at Spring Festival is just as far out of reach. For the past two months Wen Jie's only income has been his 3,000-yuan monthly base salary; the 20,000 yuan he carried with him when he left Baoding last November is nearly gone.

He isn't sure he can hold out to the end of the year, but he is still willing to daydream. "If I pull this off, sell something a bit more expensive, one deal could be a few hundred thousand in commission," he said. "We've got ones worth 100 million here."

Wen Jie and Zhang Ming chose to stay in Hainan, going through the motions one day at a time. As Huang Chao said, more of their former coworkers — "the army of tens of thousands of agents" — have already left for Yunnan.

That may turn out to be another Hainan.

Note: At the interviewees' request, Lisa, Zhang Ming, Huang Chao, Chen Xiaoyuan and Li Cheng are pseudonyms.

Cover image and in-text images: Wen Xinyu, forte, Jon Flobrant on Unsplash