Hainan, China’s only large tropical island, lies in splendid isolation 20 miles or so off the mainland’s southern coast. Every winter, its top resort city, Sanya, throngs with tens of thousands of retired holidaymakers looking to escape the subzero temperatures of the northeast. For the island as a whole, more than 5 million holidaymakers visited during the Chinese New Year holiday in February, nearly 12 percent more than last year.

Tourists come to Hainan province for the year-round warm weather and clean air, and generally don’t give a hoot that the beaches are overcrowded or the food overpriced. Surrounded on all sides by the South China Sea, Hainan has always sought to be the country’s answer to Bali or Hawaii. Aside from its abundant sandy beaches, it also boasts a brand-new space center, plays host to the annual Boao Forum for Asia talks, and houses a Chinese naval fleet — all of which ensure a steady flow of visitors.

Despite sluggishness since 2010 brought on by excess inventory, the local property sector has been back in a bull run since last year. Now, an influx of tourists-cum-homebuyers has driven a new wave of arrivals — property investors seeking refuge from the clouds of smog choking their northern hometowns as a result of industrial pollution and coal-fired central heating.

Many investors have been burned time and again by Hainanese property over the past few decades. Most recently, in 2010, a local housing bubble burst spectacularly, leaving property speculators out of pocket. Yet by then, the vicissitudes of the housing market were already well-known to locals. A major bubble had developed soon after the island, then under the jurisdiction of Guangdong province, was named a special economic zone in 1988. Over 100,000 people converged on Hainan from across the country, sparking a gold rush that flooded the island with property development almost overnight. By the time Hainan was made a separate province in 1992, this island of 6 million people had become a hotbed of competition among 20,000 realtors and developers.

In the three years after 1991, Hainan’s real estate prices quadrupled. At their highest point in 1993, housing prices averaged 7,510 yuan per square meter at a time when annual disposable income for urban Chinese nationwide was only 214 yuan per month. This effectively meant that the average city-dweller had to save for nearly three years in order to afford a single square meter of living space in Hainan — as long as they forewent food and drink.

But within two years, the market had crashed, prices had nosedived to around 1,000 yuan per square meter, development projects stood derelict all over the island, banks closed down, and countless people were left penniless. What followed was a dark age between 1995 and 1998 marked by nonperforming loans, bank runs, and disillusioned investors.

The provincial government in Hainan got back on its feet in 1999 but took another seven years to reclaim nearly 24,000 hectares of land from deserted development projects. They also disposed of 4.45 million square meters of housing space lying idle. By 2006, growth was back, but just barely.

Another bubble started to inflate in January 2010, after a blueprint was released designating Hainan a future international tourism island, bestowing upon it a host of policy perks including the right to permit tourists to shop duty-free in certain stores on departure. The news brought hordes of investors quick to speculate on a property boom. Looking to inject new life into the ailing island economy, the local government gave developers the green light without properly vetting them. To Hainan officials, it was more important to bring a quick inflow of capital.

Within five days of going public with the policy, Hainan sold an astonishing 17.1 billion yuan ($2.5 billion) in property, equivalent to its annual total in 2008. By the end of the year, the province had sold 74.7 billion yuan in real estate, more than double the proceeds from the year before. Both Haikou and Sanya saw a nearly 50-percent increase in their property prices in 2010.

Amid the rising hype over Hainan’s newfound status as an international tourism island, there was speculation that the central government was considering the legalization of casinos in Hainan and had plans to build a bridge over the strait to connect the island with neighboring Guangdong province. The fever soon abated, however, as the blind speculation came to nothing.

Traditionally, people from outside the province have accounted for more than 80 percent of home purchases in Hainan. This statistic reveals three deeper characteristics about the island’s property market: It is over-reliant on external speculators, hosts large numbers of nonresident buyers, and features a severe oversupply of housing.

Between 1992 and 2015, when China’s last census was taken, Hainan’s resident population grew by 50 percent to about 9 million. Annual per-capita disposable income also grew rapidly, to more than 14,000 yuan in cities and 6,700 yuan in rural areas during the first half of last year. But it’s not enough: At the same time, the average price for new homes sold across the island as a whole exceeded 15,000 yuan per square meter toward the end of last year.

To say that Hainan’s property market is getting a shot in the arm from smog refugees is to misconstrue the issue. The local economy has always been supported by homebuyers, and officials have thus opened up the island to external investors at a time when most cities in China are making efforts to curb property sales. The country’s top leaders said it loud and clear at the central economic work conference in December, when they announced their intention to drive speculators out of the housing market. Punitive measures may soon be on the cards to check the flow of money into urban housing, while a capital gains tax on property investment has also been mooted. Should these policies be rolled out in Hainan, the island will have to confront its unhealthy relationship with its own housing market.

Hainan should go back to the basics. It must sell itself on natural beauty, improve its tertiary industry and local infrastructure, and stay at the forefront of Chinese domestic tourism. The bitter lesson learned from the collapse of past property bubbles should be a cautionary tale for officials eagerly eying the bulging wallets of pollution-fleeing realtors. Smog is seasonal, and winter’s tide of northern visitors will eventually subside. Once they are gone, the island will have to stand on its own two feet to get through the long, balmy summer.

Editors: Lu Hongyong and Matthew Walsh.

(Header image: Two tourists stand on a bund as a hotel is seen in the background, Sanya, Hainan province, Dec. 10, 2015. Zhang Mao/VCG)