Real estate was a big economical force in China, especially when there were not a lot of other investment options available. However, Li Yun found it to be boring and enlisted Rouxi to assist him with the real estate market.
“The real estate market is a bit tricky,” Rouxi explained. “As the land and resources belong to the government, the idea of ownership is just having land use rights for 40-70 years with the opportunity to renew.”
For the land that was not renewed, it defaulted back to the government, which they could develop themselves or sell at an auction. There were no centralized methods, and it was up to the local municipalities to determine the best usage.
“The bidding methods aren't consistent or heavily regulated,” Rouxi explained. “But most government offices use public bid methods to sell different plots of land as it seems fairer.”
They watched as more and more people entered the site. The trend to buy and sell had been happening for a while. It wasn’t just big corporations interested in buying real estate, there were regular people coming in to bid on real estate.
“There is usually a lot of rural lands available,” said Rouxi. “The government usually tries to promote agricultural development, but as more people prefer living in the city, we often see a lot of vacant farmland in these types of auctions.”
Li Yun was planning to buy four farmland scattered around the area. They were located in areas near a source of water, at a good elevation, scenic, and breezy. He was basing his purchase on what he had learned, but he wasn’t sure if he was going to develop it further. He also needed to get two commercial buildings, one in Yide and one in Qinbei.
“You will likely have a lot of competitors for those two sites,” Rouxi knew that Li Yun wanted a building in Yide for the Shennong's IT and App Development team, but she wasn’t sure why he wanted a building in Qinbei other than to invest. “Both are in average condition and with a full 50-year land use.”
Rouxi passed to Li Yun six envelopes with most of the paperwork already filled out. The only thing blank was the cost of the bid. Out of all the bidding formats Rouxi had seen, she liked the ones offered by the Provincial Development Office (PDO) the most. Some government offices wanted a sealed bid by a certain date and open them publicly at a different date. Although it seemed like it would be difficult for corruption, Rouxi didn’t trust the officials. The likelihood they would look inside the bids and collude with others was higher than most people think. At the PDO auction, sealed public bids were submitted after the host reviewed the property and answered any questions the bidders may have. Once everything was cleared, the bids were immediately opened on the spot.
Li Yun watched the first couple of bids carefully to get a general idea of how everything worked. Rouxi participated in the bidding process for three properties.
“How many current tenants are in the building?” Rouxi raised her hand and asked the host during the questions and answers portion (Q&A.) “Did the previous owner test the site for hazardous materials?”
There were many questions Rouxi asked the host, but she was paying more attention to the bidders. It was important to see if their interest deterred after certain questions and whether they would rise or lower their bids after the host answered.
To Rouxi, the best bids weren’t the highest possible bid, but just slightly higher than the next highest bidder. Anyone could win an auction by overspending, but being able to accurately gauge what other competitors would bid required a lot of knowledge and experience. If Rouxi could get a property bid as low as possible, it was considered a win. No use in winning a property that couldn’t generate profit.
Rouxi wrote in the bids as she watched the other bidders scribble in a number on their bid documents. She wrote down her number and submitted a bid for a luxury high-rise near downtown. Once the time was up, the host revealed the bids from six different companies interested in the property. However, a company outbid Rouxi by a wide margin.
“Their bid is too high, and it will take them longer to generate profit,” although she didn’t win the bid, she wasn’t unhappy.
Stolen from its rightful author, this tale is not meant to be on Amazon; report any sightings.
“Ms. Song, I didn’t think you were the serious type,” Li Yun mused. He had never seen her actively working before.
“Mr. Li, I think your site is next,” Rouxi was just practicing. There were people in her company better suited for estimating than her.
The next bid item was an empty rural village. When Li Yun visited the site with Rouxi, there were ten villagers left in the area, but the chief villager had decided to retire and return the land back to the government for a decent sum of money. A couple of bidders asked the basics, like the acreage size, type of crop that was grown, and how much was produced every year.
“Are mining rights included?” Li Yun asked.
“Mining rights must be negotiated afterward,” the host responded into his microphone.
“How difficult will it be to remove the remaining villagers and turn it into a resort?”
“Um… Not quite sure, you would need to have a separate agreement with them,” the host responded, dealing with existing tenants that didn’t want to move out was the bane of all developers. “Since the land will be converted to commercial land use, if you want to turn it into a resort, it is up to you.”
“I see, but why haven’t they moved out? I heard the government compensation was quite high, but the three refused to move out.”
“I’m not too privy to the exact information.”
Everyone in the room thought Li Yun was an amateur. It was obvious that he wanted to bid on the property by driving down the price, expecting that everyone else would lower their bid. The reduced bid price would offset the amount the bidders would spend to evict the remaining villagers.
In order to calculate the bid price, many people used the market value, development cost, and fees to see how much profit they could generate. In the grand scheme of development, the land cost wasn't much, but if it was beyond the expected amount a company was willing to pay, it meant reduced profit.
A vacant property was not likely to increase in value. Most developers would choose to build. If a company builds a 1500 sq. meter resort for 15 million yuan, they could sell it for at least twice as much, potentially generating 10 million yuan profit. However, there were many risks involved. Designing and managing construction were not for the weak of heart. It was one of the most stressful jobs in the industry and many things could go wrong. 15 million yuan was the budget, but most construction projects go over budget. If a developer didn’t plan properly, they might not recuperate their investments. It was not a joke to say that almost every major developer had been bankrupted at least once.
In the room, there were at least five people interested in bidding for the rural property. As a good size property with scenic views, many wanted to convert the land into a resort. Although they didn’t think the remaining villagers would be a problem. Spending more money to buy them out wasn't simple. Some chose to reduce their bids to accommodate the villagers, while some ignored it and kept their original bids.
People inside the room whispered as they discussed logistics with their accountants and business partners. Some were alone and only jotted down their number. Li Yun wasn’t able to discern much information from the whispering. There were too many unknown voices mixed together.
“Should I save up for the water element next?” He thought. If he maxed it out, he might be able to differentiate the whispering.
After what happened in the woods, he thought having better hearing was valuable.
Wu Xing Status:
Fire (Taste): 76
Water (Hearing): 77
Earth (Touch): 76
Metal (Smell): 76
Wood (Sight): 100
AP: 12
Five minutes before the deadline, everyone submitted the bid and the host opened the five envelopes.
“5.56 million yuan from Wing Capital is still the highest bid,” said the host after opening four envelopes. He then moved on to the last envelope, “5.6 million yuan from the WuXing Capital.”
WuXing Capital was a branch Li Yun opened specifically for buying properties.
“Last bid, 5.75 from Zell Group. Plot 6983 is sold to the WuXing Capital,” the host announced.
“Who’s WuXing Capital?” Some of the spectators asked. "How can they win the bid when they have a lower bid than Zell Group?"
”I don’t know…” Many people were also confused.
People forget that the Provincial office could also award the site to bidders based on the best development plan, but it was rare. However, if a bidder wanted to use the land for agricultural purposes, there were more chances for the bidder to win as opposed to someone who wanted to redevelop the site. The government was growing concerned about food sources and spent a lot of resources to promote agriculture.
The bids were too close, so Zell Group regretted not adding a couple more thousand yuan. If their bid were a bit higher, the host and the committee would have chosen the highest bid.
“You’re pretty good at this,” Rouxi praised.
“This one is luck, and you have collected most of the data anyway. You said that no one would buy it for 6 million.”
“I did, but why lower it to 5.6?”
“Because I’m probably the only one not converting it into a luxury resort,” Li Yun responded, it was a simple answer.
Out of the four rural plots Li Yun wanted to bid on, he only got one. As for the commercial buildings in Qinbei and Yide, he bid on all of them, hoping to win at least one. He managed to win a six-story low-rise office building with existing tenants in Qinbei, and a four-story apartment in Yide. It was a decent apartment, but the building needed a lot of work.