Articles Published in Akiya Lab | Roopt (Makigumi)
Makigumi, which operates Roopt, constantly researches case studies and other information related to the revitalization of vacant houses and publishes them as columns.
This first video in the series provides an overview of how old detached properties have been evaluated in the past and what perspectives are needed going forward.
Noi: Hello everyone, I'm Noi, assisting Gaiax and Makigumi's projects. In this video, we will be interviewing Mr. Ueda, the Representative Executive Officer and President of Gaiax, about the evaluation of old detached houses at the time of investment in modern times. Currently, vacant houses and old properties are not highly valued by financial institutions, but it is expected that the number of vacant houses and old properties will continue to increase in the future. What measures can be taken to ensure that such properties are also valued by financial institutions? This time, Mr. Ueda, the representative of Gaiax, who invests in properties that cannot be rebuilt, will discuss evaluation models based on current social conditions. Mr. Ueda, thank you for joining us.
Ueda: Thank you. Gaiax itself also engages in some real estate investment, and as Noi just mentioned, we invest in companies that invest in old properties, and I also personally look into various real estate investments. So, based on those experiences, I'd like to share my opinions as an investor, and I'd be delighted if financial institutions would consider these points.
Noi: So, let's start with the scope of this discussion.
Ueda: Basically, we won't be dealing with commercial buildings or anything like that. We're talking about properties that are generally around 20 to 30 million yen at most, and in some cases, even 'negative assets' – not in the sense of losing money, but rather properties where you might even have to pay 5 to 10 million yen to have them disposed of. Most of these properties are in the 5 to 10 million yen range, are old, detached, wooden structures, and tend to be in rural areas rather than central Tokyo. And one important point is that many of them are properties with unfavorable conditions, such as being unable to be rebuilt. I'd like to focus on such cases.
Noi: Regarding the outline of the ideal state, what are your thoughts on how we should approach this, Mr. Ueda? Please tell us next.
Ueda: I'd like to talk about this over several videos, but first, I want to give an overview. Until now, real estate has truly been viewed as real estate, and people would think, 'What's the value of this property?' or 'How much money can I lend based on this property's value?' However, Makigumi, Gaiax, and other companies that Gaiax invests in don't simply view real estate as real estate; they see it as a fundamental asset for running a business. Specifically, we operate share houses and vacation rentals.
When we evaluate real estate, how do we do it? We look at the basic value, which is somewhat similar to how it's been done before, but we also consider how much value it can generate if used for a business. We look at both and make a comprehensive evaluation. Specifically, we adopt the higher value.
When we look at the market price, if the market price is higher, there's no need for us to get involved, so that's not really the theme of today's discussion. However, when we look at it from a business perspective, if it's actually a treasure, then we adopt that value.
I'd like to briefly explain these two aspects: the everyday basic value and the business value judgment. The basic value is essentially the same as previous approaches, so there's not much to comment on. However, even with basic value, the existing way of thinking is a bit too lenient on rentals. To put it another way, it's too influenced by the idea of building new, or buying land to build new. We should consider that properties can be used for rent much more now. In other words, if renting is acceptable, there's no need for a new build; old properties are fine, and the buying and selling of old properties should be evaluated more highly, I believe.
In addition, while the evaluation of individual plots of land is important, for companies or individuals undertaking a business, it's not just about individual plots of land. The overall evaluation of the entire business is also a problem, as real estate is often evaluated solely based on its real estate value, which is problematic. Therefore, when viewed as a business, for example, if someone owns 10 properties and operates share houses or vacation rentals, or even just rentals, what does the overall balance sheet and profit and loss statement of that company look like? I believe we should consider this more deeply.
Noi: Thank you. To evaluate an old detached house, it's not enough to just look at the building itself. You also need to consider what kind of business is being conducted there, or what kind of business could be conducted there. As you mentioned earlier, who rents it can also change the flow of money, which creates a difficult problem. So, it's a very complex issue that cannot be simply categorized, as it requires evaluating various aspects such as the business, the local community, and who is operating it.
Ueda: First, I'd like to organize how properties have been evaluated in the world until now. Noi, how do you think about evaluating real estate, or more specifically, getting a loan for real estate, which is common? In your daily life, where have you encountered discussions about financial institutions lending or not lending money for housing or real estate, or about the amount of such loans? What kind of image do you have?
Noi: I had a little exposure to it when my parents built our family home and took out a loan. I remember that it was difficult to get a loan without a guarantee that it could be repaid, and also that they looked closely at how the property would be used and whether it met the conditions for building. That's the image I have.
Ueda: By the way, how old were you then, Noi?
Noi: When I was entering high school.
Ueda: How many people are in your family? Three? Four?
Noi: Three.
Ueda: Three people. That's a very common scene in society, a family of three taking out a housing loan, discussing how many years the repayment period should be, and wondering if the father's age alone would be enough to repay it.
Noi: That's right. My father, whether he's joking or serious, always tells me, 'It's a two-generation loan, so you have to earn money.'
Ueda: Right. I'm sure none of you find that strange; I think that's how society generally works. In reality, what do financial institutions believe in when they lend money?
Noi: Whether you can repay it is the most important thing, isn't it?
Ueda: That's right. Behind the question of whether you can repay it, and this varies case by case, is the premise of where your father works and whether he will continue to work there permanently. This is where it gets strange.
Indeed, in old Japan, such families were common, and loans were extended to them for long periods to build new homes. It's true that things are very different now, but could it be that financial institutions are still operating the same way? In fact, they often are.
In other words, they are not lending money based on the credibility of the land or building, but rather on the credibility of the working father. And the premise is that they won't move. Of course, they assume long-term use without moving, and of course, it's probably a new build, which is also related. The fact that it's a new build means that society, by building new, evaluates the land as land for building new.
When there's a 40-year-old building on a piece of land, how is it evaluated? They'll say, 'Is this for sale? Well, if you clear the land and build new, the building above has zero value. Yes, it's land. The value of this land is X.' Because there are too many cases of building new, they evaluate the land.
Next, regarding properties that cannot be rebuilt: there are lands where a building can be rebuilt, and lands where once a building is demolished, another cannot be built on that land. This is because lands not adjacent to roads, for example, would be problematic if a fire occurred. So, there's a policy that it's preferable to merge with land adjacent to a road and then rebuild. Lands not very close to roads can become properties that cannot be rebuilt.
How were they evaluated until now? Everyone was in a new-build culture, so they didn't evaluate the existing buildings.
So, there was a model of Japanese people like this, and a loan scheme based on that premise. One more thing I want to say is that they weren't lending based on the land or building, but on the person, so if the person couldn't repay, that person had to repay.
In America, it's common for loans to be tied to the property as collateral when buying it, rather than to the borrower. For example, if Noi buys land for 20 million yen. She goes to a financial institution. They say, 'Well, it's currently trading at 20 million, but real estate land prices fluctuate, and we banks can't take on that risk, so we'll lend you 15 million. Please use this building as collateral for the 15 million loan.' Noi puts in 5 million, and with the 15 million borrowed, she buys it for 20 million.
For example, after 5 years, if she has repaid 2-3 million, and the remaining debt is, say, 12 million if she repaid 3 million, if she sells the building for more than 12 million, she repays 12 million. But even if she sells it for less than 12 million, Noi is not responsible.
In America, even if someone works for a top-tier company, the loan isn't tied to them. So, even if they say, 'I work for a top-tier company,' the response might be, 'No, it's wrong to buy such a worthless piece of land for 20 million.' They might lend money, but only 5 million because it's a worthless piece of land.
In the case of America, the amount that can be borrowed is determined by the condition of the land or building. Therefore, financial institutions desperately evaluate the land and building. How much would it actually sell for if resold? Naturally, it's more efficient overall to pass on usable buildings to the next generation rather than demolishing usable houses and building new ones repeatedly.
Noi: Thank you. Based on what you've said about the past, what are the current social conditions for creating future models?
Ueda: Right. This is so obvious that I almost don't need to say it, but lifestyles have clearly changed, haven't they? I'll explain this in more detail later, but one thing is that lifestyles have changed. And population demographics have also changed quite a bit, that's one point.
Secondly, and this is also quite important, work styles like workation and remote work have become widespread. This means that the concept of where you work being where you live is becoming more open.
Thirdly, the sharing economy has become widespread in society. Let's share various things. And with what we've shared, we can do various things, right? Specifically, vacation rentals and share houses. Services that combine these, such as ADDress and many others, are examples of the sharing economy becoming widespread.
The fourth change, above all else, is technology. In the construction industry, for example, things that used to last only 20 years can now last 50 or 100 years. And various technologies, such as those related to finance, are advancing, which is changing the world.
These changes, of course, mean that the lending style tailored to the Japanese lifestyle created 50 years ago has changed in various ways over these 50 years, as I just mentioned. This is the current social situation.
Ueda: Here, I'd like to talk about one more thing based on that. There are two issues: financial institutions not recognizing value and therefore not lending money with collateral, and properties not having value when actually sold. What is the relationship between these two? It's quite complex. Many people think that financial institutions don't set collateral because there's no value, but in fact, the opposite is often true: financial institutions don't recognize collateral value and don't lend money, which leads to low market prices.
For example, a piece of land owned by Noi, according to past societal thinking, was only worth 1 million yen. However, considering the current social context, it actually has a value of 10 million yen. Let's say I go to buy that land. I say, 'Noi, please sell me that land.' Noi says, 'Okay.' Then I say, 'Well, I'll consult with a financial institution, and after looking at my available funds and the amount I can borrow, I'll make you an offer.' When I take it to the financial institution, they might say, 'Oh, that land? We can only lend 1 million yen for it when you buy it.' Or, they might say, 'Oh, that land? Considering current times, it's worth about 10 million yen, isn't it? We can lend you as much as you need. We can lend up to 10 million yen.' In that case, the amount I offer Noi will change, won't it?
Even though it should be evaluated higher, I don't have a lot of cash on hand, so I say, 'It's still tough,' and that's the reality of buying. This is also true for renovations. There are many cases where an old building could be made more usable with renovation, but if you go to a bank and say, 'I want to renovate a 1 million yen property, please lend me money, I'll put the property up as collateral,' they won't deal with you.
The fact that there are so many vacant houses in the world right now that are in an intractable state is because they haven't been evaluated. It's understandable that they can't be evaluated even with new lifestyles. It's intractable, so it can't be evaluated, and that's just how it is. But I think it's a huge waste that they're not being evaluated when they could be, considering current lifestyles.
The background to this is, as I mentioned earlier, the lending of money based on a person's attributes, which is fundamentally related. The fact that property evaluations and loans not tied to individuals (non-recourse loans) are not being used, and that used properties are not being moved or refreshed, are all interconnected problems, I believe.
Finally, I want to tell everyone that there's a perception in society that building new properties, taking out 30-year loans, and lending at low interest rates to high-attribute individuals working for top-tier companies is somehow the 'clean' side of the real estate industry. On the other hand, real estate investors who buy low and sell high, or buy low and renovate to make properties usable, or who present various schemes to financial institutions that are reluctant to deal with such properties, and then pull money from financial institutions using various schemes to leverage and earn profits, are seen as being in a 'not-so-clean' area. I want to say that this is absolutely not true.
To use another analogy, I think many people feel the same way about the car industry. Buying a new car feels like a 'clean' industry. The used car industry, on the other hand, seems to have a somewhat complicated aura, people might say. But if everyone were to scrap their used cars and buy new ones, would that be good for society? Not at all, right? It's definitely better to keep using used cars as much as possible.
The point is, there are problems everywhere. It's crucial how we make things cleaner, more transparent, and utilize them as effectively as possible. In fact, how to develop the used goods industry is more important for society than new construction. I want everyone to feel that point for future social impact.
Noi: Mr. Ueda, thank you for your talk. This time, we discussed the evaluation of old detached houses at the time of investment in modern times, based on past evaluation models and current social conditions. Next time, we plan to upload videos that delve deeper into the topics Mr. Ueda mentioned earlier, such as lifestyles, demographics, workation, remote work, and the sharing economy. Please watch the next video as well. Thank you very much.
Ueda: Thank you.
First published: Akiya Lab (2024 - now integrated into this site)
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