Chapter 131: Scarcity Makes It Expensive
Lin Ruoyan continued, "According to Mr. Wang's plan, the new industrial city needs to have complete supporting facilities from the beginning. I agree with this. Building a higher-end hotel is just the beginning; we also need to attract people. Looking at the map, there's such a large area of land for the new city. It's impossible to just leave it all abandoned and wait for it to appreciate in value before building houses."
Teacher Jiang also explained that the higher-ups have agreed to build the hotel first, with commercial housing to follow. Mr. Wang invited everyone here to ensure the primary development is complete, municipal infrastructure is in place, and each plot of land is clearly planned for future sale, allowing for optimal value.
The idea was the same: buy land, wait for it to appreciate in value, and then sell it secondhand to profit from the difference. Lin Ruoyan's statement immediately became more sophisticated. These people took the land, engaged in so-called primary development, building bridges and roads, improving municipal connections, turning raw land into mature land, and then selling it to others for secondary development.
This concept is already common in more mature real estate markets. However, these people haven't been systematically exposed to the professional vocabulary. It wasn't until Lin Ruoyan mentioned it that they realized what they were doing was actually such a high-end business. If they did it well, they would gain both fame and fortune. They couldn't help but smile in approval.
"However, high-end hotels take a long time to build, and only after a period of operation can we see any profit. We still have to build residential buildings and sell them quickly to get the money back." Wang Min frowned. "The floor area ratio here is also 1.0 for residential buildings, and there are height restrictions. We can't build high-rises. If we build villas, we have to sell them alongside small high-rise buildings. Otherwise, if we don't meet the floor area ratio, we'll lose money."
After listening to everyone's opinions, Lin Ruoyan knew that the concept of villas in their minds was still the traditional large villas. Next, she wanted to tell them what product she was going to make.
The floor area ratio is the above-ground building area divided by the land area. The higher this number, the more housing can be built on the same plot of land, and the more saleable area. However, a higher floor area ratio means the likelihood of building a villa is lower. During the time of the book, what could be properly called a villa were large apartments with separate entrances and courtyards, one or two floors above ground, and a basement. The floor area ratio for such houses was around 0.6; any higher would result in a smaller courtyard.
Theoretically, a piece of land with a floor area ratio of 1.0 cannot be used to build a traditional single-family villa.
The overall planning here certainly won't allow so many high-rise buildings to be built far away from the county town, nor will it waste land to build a bunch of large villas, which are blocked in front and back. Developers can only focus on the floor area ratio of 1.0 and build some exquisite small houses, which will give the feeling of small towns and satellite cities in foreign countries.
Therefore, controlling the volume ratio and height restrictions are the right approach. Lin Ruoyan fully understands this, but multi-story, garden villas and apartment buildings can't fetch high prices. Building villas is the only way to attract urban residents in Beijing. While returns may be slower, the unit price can be higher, and the construction cost of selling unfinished buildings is also lower than that of multi-story or high-rise buildings. What developer wouldn't like the idea of building cheaply and selling at a high price?
However, the existing types of villas on the market cannot support a floor area ratio of 1.0.
Developers typically aim to raise the price and buy low, building taller residential buildings despite height restrictions and using the remaining land for villas. They maximize the proportion of villa floor space, building high-rise residential buildings in rows or two along the northernmost edge of the plot, leaving all the prime real estate for villas. However, these high-rise residential buildings are notoriously difficult to sell, and their commanding presence overshadows the villas, compromising their privacy.
In mixed-use communities like these, no matter how many walls are built to isolate them, they will still affect each other, and the villas won't be priced like traditional high-end villas. However, at least the floor area ratio is sufficient, and some high-priced products can be sold. In short, losing floor area ratio means losing sales area, which these people definitely can't accept.
Ling Laoliu had a more explosive temper. He could sense that Lin Ruoyan was talking behind her words, but he wasn't sure what she was up to, so he asked bluntly, "Boss Lin, are you planning to build a villa right next to the highway exit? It would be convenient for travel, but the floor area ratio isn't high enough. If you build a villa, you'll have to add some multi-story buildings to it, and multi-story buildings here won't sell for a good price."
Lin Ruoyan suddenly asked, "Do you know how much a large villa in Beijing and surrounding cities costs now? The large villa I bought in Jin City some time ago was only 700,000 or 800,000 yuan. Beijing is not a traditional villa area, and villas here are only around 3 million yuan."
Ling Laoliu was confused and said, "Of course. Without two or three million, it's not even called a villa in Beijing."
"Have you ever thought about how much that decent suburban villa you think it will sell for in two or three years?" Lin Ruoyan continued to ask.
"According to the market conditions of the past few years, will a suburban villa sell for five million in two or three years? And it's likely to fall even further. After all, there are only a few wealthy people. After buying a villa a few years ago, would they go further afield to buy one? Small, low-quality villas are neither affordable nor desirable. Ordinary people can't afford them, and the truly wealthy won't even look at them."
Wang Min's research on housing is not as good as that on hotels. He came from the era of welfare housing distribution and built some houses himself. The construction costs are there. He always feels that housing prices in Beijing are already very high. In two or three years, if there is no sudden change in raw material and land prices, the ups and downs of commercial housing prices will be in line with market laws.
"So, if, in the future, policies prohibit the construction of residential buildings with a floor area ratio below 1.0, and all residential land in Beijing must have a floor area ratio exceeding 1.0, encouraging the construction of more high-rise buildings to meet the rigid housing needs of the people, will villa prices rise as villas become increasingly scarce? Scarcity makes things valuable."
Old Jiang recalled some high-level meetings he had attended before his retirement. He knew there was a trend at the top to build more houses on the same amount of land, while gradually reducing the land used for large villas. Especially in large cities like Beijing, it was likely that villa land would be hard to find outside the Fifth Ring Road in the future.
Lin Ruoyan's assumption, combined with her close ties to relevant Beijing government departments, suggests that future policies in Beijing and across the country will likely follow this path. While a 1.0 plot ratio seems high now, it may become the lowest possible for residential properties in the future. Even building a 1.0 plot entirely into villas is difficult. Will truly large villas become increasingly rare in the future?
Lin Ruoyan said: "The income from land sales has brought a significant increase in local fiscal revenue. Capital has rushed in to speculate. The development of real estate can drive the upstream and downstream industrial chains and prosper the economy. This is the role of a pillar industry...Land prices will become more and more expensive and will never be as cheap as they are today.
My brother, who works in industry, said that changes in the international situation are also having a significant impact on domestic raw materials. For example, prices for raw materials like steel have been rising. Previously insignificant construction materials have seen their prices rise rapidly as domestic projects have grown. Supply is outstripping demand, driving prices ever higher.
So, when I heard you had such a low price per acre, I was definitely tempted. And the floor area ratio of 1.0 might be very low in the future, making it a suitable plot for villas.”
Old Liu asked curiously, "From what Mr. Lin said, he's planning to build a villa with a floor area ratio of 1.0?"
Ling Laoliu had built a house before, so he knew the typical floor area ratios for villas and houses. He shook his head and said, "Old Liu, even if we can build a villa with that floor area ratio, it's still far inferior to a proper large villa. Would a rich person be interested in it?"
Ling Laoliu seemed very concerned about whether the house could be sold at a higher price. Lin Ruoyan's product innovation was a type of courtyard villa seen in the real world, which achieved villa-like living quality with a 1.0 floor area ratio.
But first, she had to answer everyone present, to whom such a villa would be sold.
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