Chapter 211 Where Does Profit Come From?
Mr. Liu had his own plans, and he looked at Lin Ruoyan with increasingly kind eyes, naturally very concerned about Lin Ruoyan's project. In his conversation, he tactfully expressed his expectations for the future and was very willing to cooperate on the current project in Bolivia. To show his sincerity, his quotation was much lower than that of the other two construction companies.
Lin Ruoyan was obedient and naturally guessed that General Manager Liu was planning to pave a way out. Although she already had a big shot like Lao Jiao, her projects would also be spread across many places in the country in the future. It would definitely be a good thing to have a master like General Manager Liu join her.
Then let’s cooperate on this project to test the strength and sincerity of both parties.
The construction team had initially decided to hire Nanwai Construction. As for the design company, Lin Ruoyan still needed to go back and talk to the major design institutes in Beijing.
The domestic real estate market is booming now, and most designers don't want to go abroad to work on projects. Many overseas projects of state-owned enterprises are to aid underdeveloped areas, such as some poor places in Africa and Central Asia. Even if the subsidies are high, the climate is harsh, there are life-threatening situations such as war, and those who respond will only do it as a task in order to get promoted, even if they lose money but gain publicity.
Lin Ruoyan wasn't taking on a construction project, but rather a component of a highly commercialized turnkey project. The design fees were much higher than for the construction project, and the working conditions in South America were better than in Africa. She wanted to select experts from state-owned design institutes with experience in overseas projects.
Employees at large state-owned enterprises are more conscious and technically capable than those at private companies. Expanding overseas operations aligns with national strategy, and planning ahead might be effective. If one company doesn't agree, try looking for a few; there's always someone willing to try something new overseas.
Coming from the real world, Lin Ruoyan knew the domestic real estate market wouldn't remain hot forever. While residential design fees had remained stagnant for decades, the demands of real estate clients were steadily increasing. If she continued to focus on the domestic market, her returns would decline, and internal competition would intensify. Design fees for large courtyards were 30 yuan per square meter, while private companies would take them for 8 yuan. Unable to compete on low prices, they had to find other ways to expand their market.
She believed that the leaders of large design institutes should understand these principles.
Lin Ruoyan must ask the design institute instead of her own design department to work on overseas projects, just to save manpower as much as possible.
According to the plot of the original book, the golden period of development of Bolivia is about ten years when the current president is alive. She will try to complete her housing construction project within two to three years and recoup her investment. She does not seek huge profits, but a few billion in profits and losses can also prolong her life.
Moreover, according to her research, there's real money to be made in housing construction. Local resources like oil are cheap, and mortgages are secured against future resource yields. China lends them money, and they use the borrowed money to purchase our services, ultimately repaying them with their own resources.
This means that Bolivia doesn't need much foreign exchange, and even if it borrows, it's just a bank account transfer, making it unnoticeable. From design to construction, our projects are cheaper than those in Europe and America, and they're also fast enough to produce a new city in just two to three years. We're not called "infrastructure madmen" for nothing, so naturally, locals are willing to pay a high price.
What's the most expensive thing in the world, besides talent, is time. Trading their oil, which is cheaper than mineral water, for money, and trading money for time, is definitely a good deal. If we were to wait for the European and American speeds of six months to complete a design and five or six years to build a building, the election would have long been over.
As for the profit of building construction, once the local government provides the land, the turnkey project of building a new city on flat land is provided by the general contractor. The quote per square meter is of course several thousand yuan, but the actual cost can be controlled within 2,000 yuan. The difference in price is the profit of the real estate company.
Furthermore, the typical down payment for local contracts is 30%. Put bluntly, if a quote for a one-million-square-meter building is 8,000 yuan, the actual cost can be significantly reduced to just over 2,000 yuan by using domestic workers and building materials. Once the contract is signed and the first payment arrives, the project costs are fully covered.
All subsequent payments were profit, 5,000 yuan per square meter of built area. These were highly standardized, standard residences, and by leveraging exchange rate fluctuations, they were making the equivalent of 8,000 yuan in domestic sales for commercial housing. At the time of the book, ordinary housing of this quality in first-tier cities would only cost 3,000 to 4,000 yuan per square meter, and they still had to find ways to sell it themselves. Bolivian companies were the sole contractors, with the local government footing the bill. Once the construction passed inspection, they could collect the final payment and walk away, saving time and effort.
Why did Lin Ruoyan use one million building area to measure this project right from the start? In fact, the local government did not give her a clear land size and building scale. She took the set of things from the xx new city in Hebei Province to make it easier to fool people.
A high-rise residential building with a construction area of one million square meters, a large new city towering into the sky, a modern model for the inland province, and the solution to the social housing demand of 10,000 units. Such a large-scale project is worthy of the president's hometown.
The one million yuan is the current capacity that construction companies can mobilize. Any larger scale would limit the supply of raw materials upstream and downstream, extending the construction cycle and reducing profits. Mr. Liu, the general manager of Nanwai Construction, also wants to complete all the buildings within two years and take all the profits. The scale can only be this large; it can't be expanded any further.
Next time she comes, Lin Ruoyan will come with beautiful drawings and try to trick people with a new town housing construction project of one million square meters.
One million square meters is a massive project for a domestic design institute, worthy of its design expertise. Design fees for a typical high-rise residential building like this in China top out at 30 yuan per square meter, and the client can even delay payment for three to five years. Lin Ruoyan's plan to triple that, offering a mere 100 yuan per square meter for a similar-looking high-rise building, not to mention the supposed reduction in design fees associated with residential reuse, is a lucrative opportunity.
I asked you to design a million-yuan, generic, high-rise affordable housing complex for a design fee of 100 million yuan. Would you do it? The compound's leaders were immediately thrilled. The key point was that this project offered absolutely no technical difficulty. At most, they would incur some translation costs. They could just draw the blueprints, translate them into the local language, and get the locals to sign their seals. They could be the general design contractor.
Lin Ruoyan had participated in overseas projects in the real world, and it took her more than a year to understand the ins and outs of it. Now that she can operate such projects from a higher source level, she naturally has to design the interest relationships in advance to maximize the returns on her investment and ensure that all parties involved make a profit, which is a win-win for everyone.
Taking the social housing with a construction area of one million as an example, she will invest more than 2 billion yuan in the next two years and finally get back more than 4 billion yuan, which will make her very satisfied.
We cannot expect every project to be like domestic luxury homes, with an investment of tens of billions and a net profit of two to three billion. In the future, the cost of acquiring land will become higher and higher, and the gap between housing prices and land prices will become smaller and smaller.
Based on the above analysis, the best strategy is to return to China and stock up on some cheap land.
Furthermore, she doesn't necessarily have to spend all her own money on this overseas project. If she's solely focused on achieving success overseas and building connections with higher-level circles, she could also consider a loan from a state-owned bank. While this wouldn't yield such high profits, a 20-30 percent profit would still be a good amount, and the company's overall monthly budget of 100 million yuan wouldn't be significantly impacted.
Lin Ruoyan sorted out her thoughts and left it to the professionals in the domestic cost department to perform the detailed calculations. If the desired effect couldn't be achieved, she would rather not do it. If it could be achieved, she could take out the required loan amount in advance, eliminating the need to worry about major spending channels for the next two years.
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