At the edge of Boao Canal Village, a villa resort compound on the east coast of Hainan province, a small lane runs abruptly into a fence.

Beyond the barrier lies an empty, overgrown plot of land originally reserved for a second-phase expansion project.

But Soho China, the village’s Beijing-based developer, abandoned those plans after disappointing sales for the original lot of 115 villas, which are today managed by the Kempinski luxury hotel chain.

It was not to be the last dead end that Soho would run into.

According to the company’s executives, more recent attempts by the Chinese government to rein in runaway property development are creating a host of unintended problems for local and foreign-invested property companies.

The difficulties are such that Soho, which is privately held, has taken a strategic decision to shun the residential sector entirely.

Foreign investors may well be tempted to do the same.

“Residential [property] has become very political,” Zhang Xin, Soho’s chief executive, said at last month’s Boao Forum for Asia, a Chinese government-backed forum that convenes each spring in Hainan.

In March the stubborn owner of a Chongqing “nail house” – so nicknamed because it was the sole surviving structure in an area razed for redevelopment – became a cause célèbre and also the symbol of a popular backlash against the excesses of China’s property boom.

In addition to being priced out of the market, the country’s urban poor and working class are usually the first to be displaced by large development projects in which dilapidated buildings are torn down for flashy new tower blocks.

“The price of residential property has become one of the most emotional issues for ordinary Chinese,” says Pan Shiyi, Soho chairman, Ms Zhang’s husband and author of a popular celebrity blog.

“Each time I write about property on my blog I am either praised or cursed. For the foreseeable future, we will try not to get involved in residential property development.”

Coupled with a desire to temper the country’s overheated economy, which grew more than 11 per cent in the first quarter, government fears of popular unrest have inspired a series of national and local measures to control the market.

These have included higher transaction taxes, more stringent limits on mortgage lending, mandatory land auctions and restrictions on the construction of luxury flats and villas.

Purchases by overseas buyers, who are easy scapegoats for clampdowns on speculative buying, have also been restricted – a development for which, according to Ren Zhiqiang, president of Beijing Hua Yuan Group, “there is no basis in law”.

“New restrictions on foreigners buying properties in China is not right,” says Mr Pan, whose company used to book 10 per cent of its sales from overseas buyers.

“Foreigners are not really in direct competition with Chinese consumers.

“Their income levels and spending power are much higher, and they look for different types of properties and locations.”

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