Hainan Property Guide 27 May 2013

Transcription

1 Hainan Property Guide 27 May 213 Sources: Hainan provincial government website Platinum Broking IMPORTANT DISCLOSURES ARE PROVIDED ON THE LAST PAGE OF THIS REPORT

2 Table of Contents PART A CITY PROFILE... 3 PART B MARKET SEGMENTS... 7 PART C DEVELOPERS IN HAINAN Appendix 1 RECENT POLICIES Appendix 2 MAP OF FUNCTION GROUPS Appendix 3 TRANSPORTATION OVERVIEW Appendix 4 OTHER ECONOMIC AND SOCIAL ISSUES Platinum Broking 2

3 PART A 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 33,9 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 211, Hainan s population was about 9.1 million, accounting for.7% of national total population of 1.4 billion. Haikou, the capital city of Hainan, has a population of 2. 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 2,.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 21) and Dongfang saw their populations grow at an annual rate of 1.1% and 1.3% respectively from 2 to 21. Exhibit 1: Hainan s population distribution and population density (21) Administration Districts Population (unit ') Land area (sq km) Population Density (person/sq km) Total 8,672 34, Haikou 2,46 2, Sanya 685 1, Lingao 428 1, Wanning 546 1, Danzhou 932 3, Qionghai 483 1, Lingshui 32 1, Ding'an 285 1, Chengmai 467 2, Wenchang 537 2, Tunchang 257 1, Dongfang 48 2, Ledong 459 2, Changjiang 224 1, Baoting 147 1, Wuzhishan 14 1, Baisha 168 2, Qiongzhong 174 2,76 64 Sansha Islands Source: 21 Census Platinum Broking 3

4 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 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,m in altitude. The island has five national nature reserve areas and over 2 provincial reserve areas. Exhibit 2: Geographical location of Hainan Source: Google Maps 2. Economic overview GDP. As of 212, 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 212. In 211, the detailed 12th Five-Year Plan for Hainan stated average annual GDP growth from 211 to 215 to be around 13%, with local fical revenue growing over 2% each year, fixed asset investment ( FAI ) growing at 23% while consumer prices remained stable. In 211 and 212, 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,.7 ppts and.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 12 types of fruits, over 4, tropical plant species, over 2,5 different herbs and over 8 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 (212) City Pop GDP GDP per capita Primary Industry Secondary Industry Tertiary Industry (m) (RMBb) (RMB) (RMBb) (% of GDP) (RMBb) (% of GDP) (RMBb) (% of GDP) Hainan , % % % Shenzhen , , % % % Shanghai ,1.1 84, % % 1, % National 1, , ,354. 5, % 23, % 23, % Source: National Bureau of Statistics Platinum Broking 4

5 Exhibit 4: Hainan and national GDP growth RMB b 3 45% 25 4% 35% 2 3% 25% 15 2% 1 15% 1% 5 5% % Hainan GDP (LHS) Hainan GDP growth (RHS) National GDP growth (RHS) Exhibit 5: Hainan and national CPI 3% 25% 2% 15% 1% 5% % % Hainan Inflation Rate 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 21. 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 RMB YoY Growth RMB YoY Growth RMB YoY Growth Hainan 12, % 15, % 18, % Shenzhen 29, % 32, % 36, % Shanghai 28, % 31, % 36, % National 17, % 19, % 21, % 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 213, China recorded quarterly GDP growth of 7.7%,.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 21 ( The Plan ), the Island of Hainan is being positioned to become an international tourism hotspot by 22, 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 22, 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. Platinum Broking 5

6 International shopping hub. In March 211, 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, 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 ' people 3,5 5% 3, 4% 3% 2,5 2% 2, 1% % 1,5-1% 1, -2% -3% 5-4% -5% Hainan Total Tourists (LHS) Total Tourists Grwoth (RHS) Foreign Tourists Grwoth (RHS) Source: Bureau of Statistics in Hainan 3.2 Harbour Centre Exhibit 8: Hainan retail spending RMB b Total Retail Amount (LHS) Retail Amount YoY Growth (RHS) 3% 25% 2% 15% 1% 5% % -5% -1% 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 1-year CAGR of 18.6% from 2 to 211, up 1ppts from the previous decade (CAGR of 8.7% from 199-2) and waterway passenger traffic grew at 1-year CAGR of 1.6% from 2 to 211 (CAGR 1.9% from ) 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. Platinum Broking 6

7 PART B HAINAN PROPERTY MARKET SEGMENTS Hainan society and economy in Hainan, previously a part of Guangdong Province, became a separate province in 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 5% 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 3ppts to account for more than 5% of total population in 212. 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 FAI climbed back to RMB3.7 billion in 23, almost ten years after the burst. According to the provincial government, by October 26, 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 23. Starting from 27, Hainan s residential FAI has accounted for more than 1% of the provincial GDP and increased rapidly to the current level of over 3%, 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.6% while the region s residential FAI as a percentage of national FAI shows huge volatility, surging from below.2% in 1999 to above 1.2% in 211 (see Exhibit 1). 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 35.% 3.% 25.% 2.% 15.% 1.% Exhibit 1: Real estate FAI and population of Hainan vs. national 1.4% 1.2% 1.%.8%.6%.4% 5.%.% Hainan Residential FAI as % of GDP National Residential FAI as % of GDP.2%.% Hainan Residential FAI vs. National Hainan Portion of National Pop Source: National Bureau of Statistics Platinum Broking 7

8 Current economy and market different from that of 199s. 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 212, 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 199s, 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.% from 27 to 211 (+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 1 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 212. 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 1, RMB 25, Exhibit 12: Price of 1 sq m home to annual income 6. 9, 8, 2, 5. 7, 6, 15, 5, 4, 1, 3, 2, 5, 1, Hainan Disposable Income/Person (RHS) National Disposable Income/Person (RHS) Hainan ASP (LHS) National ASP (LHS) Hainan Shanghai 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 26 and 28, and government is planning in 21 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 16, 35% 35% RMBt 7 14, 3% 3% 6 12, 1, 8, 6, 4, 25% 2% 15% 1% 25% 2% 15% 1% , 5% 5% Hainan ASP (LHS) Shanghai ASP (LHS) Quarterly M2 YoY growth (RHS) Source: PBOC, National Bureau of Statistics % % Outstanding Loan (RHS) Required reserve ratio (LHS) Loan growth rate YoY (LHS) Platinum Broking 8

9 Exhibit 15: ASP and GFA under construction growth in Hainan Exhibit 16: GFA sold and ASP in Hainan 5% 12% (' sqm) 12 4% 1% 1 3% 8% 8 2% 6% 6 1% 4% 4 % 2-1% % -2% % -3% Construction area growth Source: Bureau of Statistics in Hainan 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 212 (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 21, we believe average selling price is likely to show a rebound in 213, having decreased 18% in 212. Sales amount growth -2% GFA sold (LHS) ASP (RHS) RMB/sqm 2, 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 211, 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 18% 16% 14% 12% 1% 8% 15, 1, 5, 6% 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-211 (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. Platinum Broking 9

10 Exhibit 18: Haikou cement price and national steel bar price RMB/ton 6, 5, 4, 3, 2, 1, RMB/ton National steel bar price Haikou cement price Source: Wind Datafeed (' sqm) Residential proerties. The provincial data (Exhibit 19) shows that the newly started GFA for residential properties picked up in 211 after 2-years of consecutive decrease. However, GFA completed and GFA sold softened in 211, 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 2), residential property transaction volume has been bottoming out since 212. ASP in Sanya stood at around RMB25, /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 2: Residential GFA sold and ASP in Haikou and Sanya RMB/sqm 1, 9, 8, 7, 6, 5, 4, 3, 2, 1, Newly start GFA Completed GFA GFA sold ASP Source: CREIS (' sqm) Source: CREIS Haikou Residential GFA sold Haikou Residential ASP Sany a Residential GFA sold Sany a Residential ASP Commercial properties. Since the Island of Hainan has a tourism dominated economy, hotels comprise a large share of commercial properties in Hainan. Since 24, 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 2 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 21, 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 RMB/sqm 3, 25, 2, 15, 1, 5, Platinum Broking 1

11 property is increasing rapidly. As GFA sold is lower than GFA completed since 28, we expect an upward trend for the inventory levels in 213 and beyond, while ASPs remain stable due to the increasing demand. Exhibit 21: Hainan hotel revenue and occupancy rate RMB b Hainan Hotel Revenue Hainan Hotel Occupancy Rate Source: Bureau of Statistics in Hainan 64% 62% 6% 58% 56% 54% 52% 5% 48% 46% Exhibit 22: Hainan commercial property GFA sold and ASP (' sqm) Commercial GFA sold (LHS) Source: Wind Datafeed Note: 213 data only consist of January data Commercial ASP (RHS) RMB/sqm Exhibit 23: Commercial property GFA (' sqm) Source: CREIS RMB/sqm Newly start GFA Completed GFA GFA sold ASP 8, 7, 6, 5, 4, 3, 2, 1, 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 4% of its landbank in the Pearl River Delta region, of which 11% is in Hainan as at end-212. 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 26, 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 12, sq m of residential property in the second half of 213 and we believe R&F will maintain its good sales performance in Hainan amid the stable market outlook.. Platinum Broking 11

12 R&F is also experienced in property investment. It plans to launch a five-star hotel operated by Hilton with 3 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 212) Listed Developers Ticker Hainan landbank (' sq m) Total PRC landbank (' sq m) % of total PRC landbank 1 Citic Pacific 267. HK , % 2 R&F 2777.HK ,42 11.% 3 CR Land 119.HK ,36 3.3% 4 Agile 338.HK ,92 1.3% 5 Shimao 813.HK ,22.9% 6 Yuexiu 123.HK ,4.7% Sources: Company Data Platinum Broking 12

13 Appendix 1 RECENT POLICIES Exhibit 25: Recent policies on Hainan property market Date Authorities Measures May 21 Hainan Land Use Bureau Landowners in Hainan will be fined 2% of the total price of any land that has not been used for more than one year. The government will confiscate land that has lain idle for more than two years September 21 Hainan Provincial Government 1. No less than 7% of residential land should be used for government subsidised housing and small to medium residential housing. 2. The sales price land auction/tender cannot be lower than 7% of the benchmark price, and the winner cannot make a deposit of less than 2% 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 1 days and pay 5% of the sales price within one month as the first installment. 5. With effect from 1 April 21, 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 February 211 March 21 July 211 May 211 September 211 December 211 February 212 April 212 May 212 July 212 Ministry of Housing and Urban-Rural Development in Hainan Hainan Municipal Government People s Bank of China Ministry of Land and Resources Ministry of Finance Ministry of Housing and Urban-Rural Development in Hainan Ministry of Housing and Urban-Rural Development in Hainan China Banking Regulatory Commission Provisions regarding boosting number of company headquarters in Haikou Hainan Province Highway Development Plan premium will be flagged as a reference for future land tenders 1. Prohibit property sales to local households who current hold two or more properties. 2. Non-local residents can purchase only one property. Percentage increase in average property price per sq m should not exceed increase in average city resident disposable income for the year. Increase benchmark interest rate for both deposit and loan by.25 ppt. All deposit and loan interest rate should adjust accordingly. National Land Utilization Plan 211 listed target for 1 million units of public subsidized housing and increase land supply for public housing and small-to-medium sized properties. Student housing and cafeteria under colleges and universities are exempt from stamp duties and property taxes. Official extended the policy that limits number of property purchases indefinitely. 1. Ownership-style hotel can be built on land for commercial, residential and financial. Planning, designing, construction and internal decoration should follow standards not lower than three-star hotels. Matching service facilities should account more than 16% of total planned GFA. 2. Corporations or individuals who purchase ownership-style hotel units are the lawful owners of the 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. Down payments for second home buyers are to be raised to 6%, while those for first time buyers of homes larger than 9 sq m will rise to at least 3%, up from 2%. Mortgage rates for second home buyers will be increased to 1.1x of the current benchmark 6.55% (7.21%) Provisions designed to attract more companies to set headquarters at Haikou with incentives on office building, tax breaks and personal income tax cut on corporate executives. The document introduced plans to build 1,12 km of highway to connect major scenic attractions, resorts and enhance region s tourism. Platinum Broking 13

14 for Tourism August Ministry of 212 Housing and Urban-Rural Development in Hainan June Sanya property 212 information system delayed April Ministry of 213 Housing and Urban-Rural Development in Hainan Sources: Various local and central government websites The office announced to build 1 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. Exhibit 26: Hainan international tourism island development planning outline 1 By 215, deregulation of tourism management, marketing, service and development, introduce market-driven practices and increase level of internationalisation. By 22, 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 215, the target is for tourism and service industry to account for more than 8% and 47% of provincial GDP respectively. The target figures for 22 are 12% and 6%. 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 Platinum Broking 14

15 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. Platinum Broking 15

16 Appendix 3 TRANSPORTATION OVERVIEW Highway. Total mileage for highways in the Island of Hainan is over 17, 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 12 th Five-Year plan introduced construction of a 4-km highway costing RMB6 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 211. The journey from Haikou to Sanya is 38km 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 9 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 215 and completed by 22.Once finished it will cut the crossing time down to 2 minutes and 1 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 2 million passengers to 5 million annually. Both airports are operating at over 1% designed capacity. Haikou and Sanya are expected to complete airport expansion projects by the end of 217 and 213, respectively. Boao International Airport is expected to begin operation by the end of 215 with passenger throughput at.5 million annually and cargo throughput around 1,4MT. Danzhou Airport, located at western part of the island is now in early investigation stage. Exhibit 28: Hainan transportation system Source: Hainan Tourism Board Platinum Broking 16

17 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 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 211, 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 16, cubic metres. A berth that can accommodate 8, 267, cubic metre LNG tankers will be built inside the terminal harbor. The first phase is expected to be completed in the early of 214. The designed capacity for Phase II is 3 mtpa and expected to be completed between 217 and 22. 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. Platinum Broking 17

18 - This page is left blank intentionally - Platinum Broking 18

19 - This page is left blank intentionally - Platinum Broking 19

20 IMPORTANT HONG KONG REGULATORY DISCLOSURES ON HONG KONG LISTED COMPANIES OF WHICH WE HAVE COMMENTED ON. Research Certification. No part of the compensation of the analyst(s) who are primarily responsible for producing this report was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the analyst(s) in this research. Market Making. This firm does not make a market in securities of the companies covered in this report. Conflicts of Interest. This firm does not own 1% or more of the common class of securities of the companies covered in this report. The analysts involved in the preparation of this report do not have financial interests in the common class of securities of the companies covered in this report. Investment Banking. Within the past 12 months this firm has not provided investment banking services to and received compensation from the companies covered in this report. Relevant relationships. This firm and individuals employed by or associated with the firm are not officers of the companies covered in this report. GENERAL DISCLOSURES. This report is for distribution only under such circumstances and in such jurisdictions as may be permitted by applicable law. This report is not intended to offer or solicit purchase or sale of any financial instrument in any jurisdiction where such an offer or solicitation would be illegal, including but not limited to the United States of America and the United Kingdom and the rest of Europe. It does not take into account the specific investment objectives, financial situation or needs of any specific recipient. While reasonable effort has been made to ensure the information contained herein is not untrue or misleading at the time of publication, its correctness and completeness are not guaranteed, and they are subject to change without notice. Neither Platinum Broking Company Limited, nor any of its holding or affiliated companies, nor any of its or their directors or employees, represent or warrant the accuracy or completeness of the information contained herein or as to the existence of other facts which may be significant, and will not accept any responsibility or liability whatsoever for any use of or reliance upon this publication or any of the contents thereof. Use of any information herein shall be at the sole discretion and risk of the user. Investors are expected to make their own investment decisions without relying on this publication. This report is produced by Platinum Broking Company Limited Hong Kong Office: 21/F LHT Tower, 31 Queen s Road Central, Hong Kong Telephone: Fax: Shanghai Office: Platinum Holdings Company Ltd (Shanghai Representative Office), 11B Jin Ming Building, Block 2, 8 South Zun Yi Road, Shanghai 2336 Tel: Fax: Singapore Office: Platinum Securities Company Ltd, 1 Scotts Road, #23-6 Shaw Centre, Singapore Tel: Fax: Platinum Broking Company Limited. All rights reserved. This publication may not be reproduced, distributed or published by any person for any purpose without the prior express consent of Platinum Broking Company Limited. Platinum Broking 2