(Bloomberg) -- Lengthy residency requirements to purchase homes. Bans on flipping property. Down payments of as high as 70 percent.

In the tropical Chinese province of Hainan, authorities are going to unprecedented lengths to combat real estate speculators. The campaign, aimed at scuttling one of the nation’s biggest housing booms, may provide a new model for taming buying frenzies that almost always follow in the wake of China’s economic stimulus plans.

Introduced in two rounds straddling President Xi Jinping’s announcement of new measures to boost Hainan’s economy in April, the restrictions are unusual in China not only for their severity but for how quickly they were implemented to avert a bubble. While the curbs have shown early signs of working, some buyers are still exploiting loopholes and others are moving to hot markets elsewhere -- underscoring the challenges for China’s leaders as they try to break a nationwide addiction to property speculation.

“It’s like water that’s spilled over,” said Yang Kewei, Shanghai-based research director at property data and consulting firm China Real Estate Information Corp. “You block it here, it flows there.”

Four property brokers, including Cushman & Wakefield Inc., said Hainan’s restrictions are starting to derail sales as non-local buyers are staying away.

But some buyers are finding ways to get around the restrictions. One way is a delayed contract, in which buyers sign for homes that will legally be transferred to them after the two-year waiting period to become a Hainan resident, according to brokers familiar with the practice.

Zhuang Yan, a 37-year-old accountant from northern China, is scouting for suitable property projects outside the three most-popular cities and is willing to give the delayed contract a try. She believes prices are set to surge and said she doesn’t want to “risk” missing the property boom.

Some buyers are replacing traditional sale agreements with long-term rental contracts, getting the right to use the property. At Laiying Peninsula, a hotel project converted into residential use in eastern Hainan’s Wanning city, buyers can sign two separate 20-year rental contracts instead of buying the property outright, said an agent who would only give his last name Yao, to avoid scrutiny speaking about a sensitive topic.

While the crackdown in Hainan follows a now-familiar pattern that has played out in several Chinese cities, officials went further than most to head off a frenzy. Leaders in Hebei province were caught off guard by news last year that China would create an economic zone, sparking an investor craze. The government temporarily froze all property sales within 24 hours of that announcement, but not before buyers clogged highways and camped overnight outside property agent offices to buy homes.

Read more: China Plan to Create New Shenzhen Spurs Speculative Rampage (1)

Leaders in Hainan, where the property market has gone through two boom-and-bust cycles since 1990, have reason to be vigilant: Home prices in the provincial capital Haikou have surged 80 percent since the beginning of 2017, the second-biggest jump among all Chinese cities where such data is available.

Property speculation in Hainan is a prime example of what ails the broader Chinese economy, said Andy Xie, an independent analyst and a former chief Asia economist at Morgan Stanley. Abundant liquidity and growing wealth in China periodically unleash trading frenzies as money rolls through assets such as stocks and real estate. In the property market, tighter rules to cool a bubble in one location often inflate another.

“The problem is by nature hard to be resolved by local buying curbs alone,” Xie said. It’s an issue that “needs to be dissolved by monetary tightening.”

The first hard numbers showing the impact of the Hainan restrictions will come in mid-June, when China releases monthly home price data. In the meantime, some realtors are already targeting other promising destinations.

An agent who would only disclose his last name, Zhao, said he and other colleagues are planning to relocate from Hainan to areas including the port city of Beihai in the southern Guangxi province and the far-flung mountainous province of Yunnan.

“It’s not easy to make a living here anymore, ” Zhao said.

--With assistance from Miao Han and Qian Wan (Economist).

To contact Bloomberg News staff for this story: Emma Dong in Shanghai at edong10@bloomberg.net

To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Michael Patterson

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