Real estate market

[robinh]

It seems it grows unrealistically fast. The AI player invests $1bn in land and appartments and as soons as the buildings are laid down the company's value is about $2-3bn, because land value increases tremendously instantly as the buildings are laid down. That's not how it works.

I think the land value should only increase in time and only after the building are fully occupied and there is more demand for living there than "supply". Actually, in real life, once there are more empty apartments available, the residents have more to choose from and their cost decreases dramatically.

Another example: I want to build an industry park of factories and RD centers. It's better to buy all the land first and then start laying down the buildings. Otherwise as soon as you build one factory the surrounding land increases in price. It should do so perhaps after some years if the land becomes more attractive but it doesn't make any sense to increase instantly.

[David]

Good to see more discussions on the real estate aspect of the game.

Here are my own point of views:

"Land value shouldn't increase instantly on neighbouring tiles."
"Placing an apartment building alone shouldn't increase land value until it is occupied. (Empty buildings don't increase land value)"

My point of view to above: Companies invest on future prospect and the market charges a price also based on future prospect. So when a company has built an apartment on a location, the current land owners of neighboring area will be reluctant to sell the land without a serious rise on the price.

"Land value should be more dependant on the economy cycle."
Currently it is dependent on the economic cycle already. Personally, I think the economic effect on real estate market is fine. But more specific feedback is always welcome.

"Land value under apartment buildings should fall considerably if there is more supply of housing than demand. (Same for commercial buildings)"
From the economic point of view, this will only be true if the owners of the apartment/commercial buildings find it necessary to sell the land at a low price. But if they are getting decent rental incomes, why would they have to do it?

[Naselus]

I think the main problem with real estate atm is that land values are primitive. They bounce up and up, and are overly dependent on the economic state.

There should be more factors operating on land prices. We should have 'undesirable' buildings as well as desirable ones, like prisons, powerplants etc, which hurt land prices near them. Some would be run by the state; others might be handy for businesses (big factories, powerplants).

Add to that more options with the existing community buildings - adjustable donations, for example, and just allowing us to donate to pre-existing, government-owned ones - and have 'quality' ratings for them. A well-funded high school should be seen as getting better grades, and so should push up land prices more than a poorly-funded inner city slum school with no income. Crime ratings should have their own map mode, and low-crime areas should have better prices than high-crime ones (based mostly on population density and police presence, but also effected by unemployment rates).

In all, real estate has been hugely improved from Cap 2, but seems mostly a bit pointless; there's no great challenge to it, since you just buy an area, build 3-4 community buildings and 3-4 sports improvements in the middle of it, then surround it with apartments and then surround those with retailers. That guarantees the land price quintupling, a steady income from a dozen or so full apartment blocks, and a steady return from the retail stores. There's no downside. Then you just sell off 'dead' tiles (the 1x strips between buildings) and recoup more or less your whole investment from the massively inflated price of the land.

[David]

Real estate is a new feature, so we are particularly glad see continued discussion on it.

I think the main problem with real estate atm is that land values are primitive. They bounce up and up

You may try playing the game with inflation disabled or use the Inversed Inflation option.

Inflation is one of the main drivers for real estate price hikes.

and are overly dependent on the economic state.

Another user actually commented that it is not enough dependent on the economic cycle.

There should be more factors operating on land prices. We should have 'undesirable' buildings as well as desirable ones, like prisons, powerplants etc, which hurt land prices near them. Some would be run by the state; others might be handy for businesses (big factories, powerplants).

There is already a Green rating, which decreases when factories and mines ("undesirable" buildings) are next to apartments.

Add to that more options with the existing community buildings - adjustable donations, for example, and just allowing us to donate to pre-existing, government-owned ones - and have 'quality' ratings for them. A well-funded high school should be seen as getting better grades, and so should push up land prices more than a poorly-funded inner city slum school with no income. Crime ratings should have their own map mode, and low-crime areas should have better prices than high-crime ones (based mostly on population density and police presence, but also effected by unemployment rates).

Interesting ideas. I would suggest that you post them on the City Simulation Enhancement forum: http://www.capitalismlab.com/forum/viewforum.php?f=16

In all, real estate has been hugely improved from Cap 2, but seems mostly a bit pointless; there's no great challenge to it, since you just buy an area, build 3-4 community buildings and 3-4 sports improvements in the middle of it, then surround it with apartments and then surround those with retailers. That guarantees the land price quintupling, a steady income from a dozen or so full apartment blocks, and a steady return from the retail stores. There's no downside. Then you just sell off 'dead' tiles (the 1x strips between buildings) and recoup more or less your whole investment from the massively inflated price of the land.

Interesting, what you mentioned above are actually the intended game design outcomes -- the player has to make the decisions whether to put their money investing into riskier businesses like running a high-tech product company with great growth possibilities 2) or to invest into the real estate sector with slower growth but also less risky. We thought that this is an important concept in real world business and having it simulated in the game provides the player more paths to take.

In fact, one of the main goals of the game's design is to let players learn the subtleties of running businesses in the real world via playing the simulation. A lot of the successful businessmen made their fortunes in more subtle ways than most people thought.

It would be good to have somebody starting a topic about this on CapLab Wikia (http://capitalismlab.wikia.com/), after more discussions on this forum and we come to some solid points.

Personally I really enjoy discussions of comparisons of real world business realities to CapLab's simulation.

[robinh]

Alright, I'll try my next game with the inversed inflation and see what it does.

And yes, I find the real estate market follows the economy cycle pretty well. During a recession I borrowed about $1bn from a bank and bought shares in a real estate company. When the economy started expanding again the stock was about 250% up I can imagine exploiting this when you have enough cash. Better than actually taking over the company is buying like 95% in a recession and selling during the booming times for ENORMOUS profits.

[nadimi]

I think the main problem with real estate atm is that land values are primitive.

I completely agree with you.

____________________
croatia real estate prices

[anjali]

i did play a lot with real estate only and inverse inflation. in order to get good income it gonna take many years of borrowing over the top and hope there wont be any crisis as it will crash the value of your properties, making it impossible to lend any more money as you gonna be several hundred million above your credit line. if it happens in your growing phase you gonna go bankrupt.

sure the property does gain heavily on value but thats only good for boworring and those borrowed money has some interest to pay. good if the inflation is high and interest rate low, deadly if inflation goes negativ and interest rate hikes to 10% or even higher. in the end i find the current real estate system quite good as honetly the profit you gonna make isnt that high compared to production and now with the better acting A.I.'s and the gamefixes (V3.1.2) A.I.'s are considerably harder to deal with especially if they build a huge city with 50+ apartments. over 30 companies pulling an anual net profit of $200m - $1bn several of them have build up whole towns. finally some A.I. companies you cant just buy and destroy.

it is actually very much real live alike as you can just change irl a residential house into a commercial one and add 50% or more on top of the value for this change. we had commercials going for €26 million in the citycenter in 2007 ... few month later worth €13 million loan on this building €13million and the reduced rental income in the crisis didnt pay the bank installments as 100% loans cant be served its impossible.

you could do the same in real life what you can do in cap lab IF you would have banks on your side supporting you. but thats what you dont have therefore you cant do it. back when i was living in germany some of our customers bought every year 1 or 2 apartment blocks for cheap money, max loaned them and renewed the apartment, and loan was tailored in a way that there was sufficient cash left to buy the next apartment block. not a single penny personal money used to build an real estate empire. those customers started out with 1 rotted apartment that was free of loans and in need of restauration.

[WilliamMGary]

i did play a lot with real estate only and inverse inflation. in order to get good income it gonna take many years of borrowing over the top and hope there wont be any crisis as it will crash the value of your properties, making it impossible to lend any more money as you gonna be several hundred million above your credit line. if it happens in your growing phase you gonna go bankrupt.

sure the property does gain heavily on value but thats only good for boworring and those borrowed money has some interest to pay. good if the inflation is high and interest rate low, deadly if inflation goes negativ and interest rate hikes to 10% or even higher. in the end i find the current real estate system quite good as honetly the profit you gonna make isnt that high compared to production and now with the better acting A.I.'s and the gamefixes (V3.1.2) A.I.'s are considerably harder to deal with especially if they build a huge city with 50+ apartments. over 30 companies pulling an anual net profit of $200m - $1bn several of them have build up whole towns. finally some A.I. companies you cant just buy and destroy.

it is actually very much real live alike as you can just change irl a residential house into a commercial one and add 50% or more on top of the value for this change. we had commercials going for €26 million in the citycenter in 2007 ... few month later worth €13 million loan on this building €13million and the reduced rental income in the crisis didnt pay the bank installments as 100% loans cant be served its impossible.

you could do the same in real life what you can do in cap lab IF you would have banks on your side supporting you. but thats what you dont have therefore you cant do it. back when i was living in germany some of our customers bought every year 1 or 2 apartment blocks for cheap money, max loaned them and renewed the apartment, and loan was tailored in a way that there was sufficient cash left to buy the next apartment block. not a single penny personal money used to build an real estate empire. those customers started out with 1 rotted apartment that was free of loans and in need of restauration.

So just play with inverse inflation turned on for the most realistic real estate market?

[anjali]

inverse inflation does apply the inflation to the cash/loans and therefore doesnt hile retail prices, land and rent prices.
if you got negative inflation the loan will increase at the end of the month,so will your wallet cash. it can be deadly if you have a negative inflation of (3%), interest rate of 11% and 5 billion loans, your loans will increase every month by 15 million and you get the 550 million interest on top. so playing real estate on this kinda settings can make you go bust in an event like this.

on the other hand if inflation is 11% and interest rate 6% you actually pay for the loan 25 million per month interest but the inflation cuts the loan by more then 50 million every month so the loan gonna get paid back automaticly. now with the better acting A.I.'s its ok to play inverse inflation games, before the A.I.'s were always loosing more money on inflation then they made profit as they were always sitting on cash

but the land value (given you got good economic boom seasons) is going up by only 5% a year more or less but in crisis can easily drop 20-50% so if you startet with a land value of 700k .. in 15 years still gonna be around 800k have even seen times when 2 crisis periods hit in short waves the landvalue was lower then at start of the game. its more realistic and makes it impossible to have eggs sold for $100 a dozen. of course you wont end up with 100 billion in the wallet soon as this could cost you 10 billion in inflation taken out of your wallet anually. its imperative to invest in order to prevent inflation to kill your profit.

[WilliamMGary]

inverse inflation does apply the inflation to the cash/loans and therefore doesnt hile retail prices, land and rent prices.
if you got negative inflation the loan will increase at the end of the month,so will your wallet cash. it can be deadly if you have a negative inflation of (3%), interest rate of 11% and 5 billion loans, your loans will increase every month by 15 million and you get the 550 million interest on top. so playing real estate on this kinda settings can make you go bust in an event like this.

on the other hand if inflation is 11% and interest rate 6% you actually pay for the loan 25 million per month interest but the inflation cuts the loan by more then 50 million every month so the loan gonna get paid back automaticly. now with the better acting A.I.'s its ok to play inverse inflation games, before the A.I.'s were always loosing more money on inflation then they made profit as they were always sitting on cash

but the land value (given you got good economic boom seasons) is going up by only 5% a year more or less but in crisis can easily drop 20-50% so if you startet with a land value of 700k .. in 15 years still gonna be around 800k have even seen times when 2 crisis periods hit in short waves the landvalue was lower then at start of the game. its more realistic and makes it impossible to have eggs sold for $100 a dozen. of course you wont end up with 100 billion in the wallet soon as this could cost you 10 billion in inflation taken out of your wallet anually. its imperative to invest in order to prevent inflation to kill your profit.

Sorta confused but I think you're saying playing with inverse inflation is ideal for a realistic real estate market to operate in.