Restrictions brought in to cool the housing market may be loosened in Haikou, the capital city of China’s tropical island province Hainan.

The restrictions that were implemented on February 28 have negatively impacted Hainan’s development, especially in the tourism sector, says Feng Ke, Director of the Real Estate Finance Research centre at Peking University.

In 2010 the real estate industry contributed to almost 25% of the city’s total revenue, and nearly 60% of Haikou homebuyers were not Haikou locals, according to Economic Observer News, but many potential homebuyers began scrapping their plans to buy because of the restrictions.

The restrictions stipulated that residents with permanent residence permits, known as ‘hukou’, were not allowed to buy more than two homes. Potential buyers outside the city who did not hold the Haikou hukou have been prohibited to enter the local property market.

A nosedive in tax revenue from residential property sales by almost 70 per cent in the first quarter of 2011 meant that only 302 commercial houses were sold during the month of March, representing a decrease of 90 per cent, according to the China Index Academy. 

To encourage holidaymakers to continue purchasing homes on the island, the property market geared toward the tourism sector, including high-end commercial residences, will be available for all potential homebuyers irrespective of their hukou.

Restrictions will still apply to the rest of the residential housing market, which will be limited to local homebuyers holding the Haikou hukou, and will still apply in downtown Haikou, according to Dai Kaiquan, Director of Market Administration at Haikou’s Housing and Urban-Rural Development Bureau.