"Financial Real Estate, a new paradigm for asset allocation

Financial real estate is a form of asset allocation, whereby a certain financial product is allocated to preserve and increase its value and generate stable cash flow income. This type of asset allocation is similar to traditional investment properties, but is more flexible and convenient.

In the past two years, we often see the term "financial real estate". What does it really mean? What is its value? Can it be considered as an asset allocation?

1, what is "financial real estate"?

Simply put, it's a way of allocating some kind of financial product to preserve its value, increase its value, and continue to generate stable cash flow income. This is just like the past, many people are keen to invest in real estate, steadily waiting for the appreciation of value, rental, monthly rentals can also be on time to generate cash flow income. Because of the financial nature of the same way, therefore, we can achieve this asset allocation tool called "financial real estate".

2, who is suitable for "financial real estate"?

So what types of people are suitable for financial real estate? These include but are not limited to:

People who own multiple properties in non-core areas of first-tier cities.

People who own multiple properties in second and third tier cities and below.

People who own one property in first-tier cities and invest in one or more properties in second-, third- and following-tier cities.

People who own a home and intend to leave a property for their children or intend to invest in real estate for their retirement.

In the face of "financial real estate", the holder can let it play the following roles:

Sell the house when the price is right to cash, get back the principal and income, and make other plans.

Lack of money, you can sell a room to realize part of the cash, and then "big room into a small room" to continue to appreciate, rent.

Temporary turnover, can be mortgaged, the end of the loan to continue to appreciate; has been held, after the death of the "financial property" to become a regular, targeted, fixed amount of inheritance of assets, continue to the second generation, the third generation to use; for business owners, but also effective isolation of the company's debt, the risk of joint and several liabilities.

3, entity real estate is not fragrant?

Entity real estate is still fragrant, depending on whether the house is still a "high-quality safe assets".

Yes, of course, to buy.

No, you need to be careful.

The criteria for a "high quality safe asset" should meet at least two conditions:

One is "high quality", stable value, and can outperform most asset classes.

The second is "safe", not too volatile, appreciation can generate stable cash flow.

Space is limited, so I'll make this short and sweet. The development of property prices in Chinese cities, as measured by new home prices, has been roughly divided into three phases:

Phase one, 2000-2012, saw China's real estate as a high-quality, safe asset.

The second stage, 2013-2021, saw a divergence, with houses in some cities being quality safe assets.

The third phase, after 2022, continues to see sharp divergence, but properties in a few regions are still high quality and safe assets.

And this wave of the real estate industry's big dividend period bred a large number of property boomers, all from the past 40 years of China's rapid economic growth, China's high-speed urbanization, the real estate industry's high-speed growth, etc., we have been accustomed to the inertia of the thinking that real estate investment is a rigid inflation-resistant payment products.

But with the recent years, since December 2016, the central economic work conference for the first time mentioned "to adhere to the house is used to live, not used to speculate", "housing is not speculation" this reference has been seven years. Including the recent state began to fully implement the unified registration of real estate, all are showing that the real estate must increase the rigidity of the belief has been broken.

The central economic work conference in December 2016 for the first time mentioned housing without speculation.

2019 is the worst year of the past 10 years, but the best year of the next 10 years. This is a phrase that has been said all over the Internet in 19 years, and at that time, people who did not understand the economic situation thought it was particularly pretentious - it has been good for 40 years, shouldn't it be good all the time? And immediately after, in the global economic downturn, China's industrial transformation, trade friction between China and the United States, etc., factors, in addition to the emergence of the new crown epidemic as a variable.

Now, looking back at the past three years, feeling the moment, and then savoring that end of 2019, is it not divinely accurate? What about further down the road? Will the myth of the real estate market remain the same? Can imaginations based on past experience still be relied upon?

Looking back five years, China's economic growth is highly dependent on policy, and assuming macro policy is "sound and active," we can expect GDP growth of around 4-4.5%. In addition, China is currently facing several realities:

With an urbanization rate of nearly 70%, the range of large-scale population inflows into cities is no longer large.

Compared with 10 years ago, the proportion of China's main childbearing population aged 25-39 has declined by more than 20 percent, and rising education and income levels are also affecting young people's willingness to have children.

In 2020, China's urban homeownership rate is 73 percent, which is overall higher than the 60 percent level in developed countries, but the rate of homeownership in the north, Shanghai, Guangzhou and Shenzhen is still below 60 percent.

Given the future growth rate of China's economy and the current state of society, it can probably be expected that annualized returns on Chinese property are likely to hover around 2%, but there is still a high probability that property returns in first-tier cities will remain at 5% (note that this is for new homes).

So when you ask whether a house should still be bought, ask yourself if you can live with a product that offers an average annualized return of around 2% or 5%. Or ask yourself if you have the vision and luck to make individual choices that exceed that kind of return?

4, "financial real estate" vs entity real estate how to choose

Before saying how to choose, first inventory, common investable financial categories, nothing more than the following kinds:

One is the entity real estate, standing in the present to see the future, not necessarily Quality, but the market dramatically differentiated a situation, not a blanket denial of its value, but also does not have the year of economic development at the beginning of the market, but also the market can rise.

The second is stocks, funds, futures, gold and a variety of financial derivatives, many people have operated, the cycle, up and down, the impact of variables such as the timing of the realization of the short-term will move your emotions, long-term value is not sure value-added attributes, not to say much here.

Third, antiques, jewelry, paintings. These kinds of things, good. But there are limitations, the biggest limitation is the narrow audience, the price is not determined standard.

The fourth is the "financial real estate" mentioned at the beginning of this article.

From the two criteria of high-quality and safe assets to consider, can be singled out for comparison of the same dimensions of the product, there are only "financial real estate" and real estate. How to choose the criteria, we can talk about the following aspects:

1, the ability to realize.

2, the ability to return.

3, investment threshold.

4, other added value.

Let's take a look at a set of "financial real estate" performance, assuming that a 100 square meters of the house, the total price of 1 million, in the name of the child to buy, in five installments, each installment of 200,000, the pressure is relatively more than the entity real estate, the down payment can easily be millions of dollars, hundreds of thousands of people to come to the ease of it.

Paid monthly rent of 2500 yuan, each year is 30,000, you do not need to take care of, do not worry about rent breaks, more do not have to pay property taxes, save effort, steady rent for 70 years, the total rent 70 * 30,000 = 2.1 million, and at this time the "house price" by putting 1 million into 2.86 million, at this time you can have 2! At this point, you can have 2 choices, one is to sell to get back 2.86 million, the second is to continue to collect rent, continue to increase value.

And now, if you want to buy a set of physical property, according to the logic of the previous analysis, first of all, you should choose a high-quality and safe assets, that at least must be a first-tier city's core location assets, you can rest assured that the long-term holding, because do not worry about the risk of decline, but also fear of that 1-3 points of property tax, as long as the value-added space is still there, the value of the real estate here is the residential, the long-term earnings steadily is a 2% or 5% or so average annualized return. or 5% or so of the average annualized yield product.

First of all, than the ability to gain:

Financial real estate is a product infinitely close to 3.5% compound interest, holding time long enough, and even more than 3.5, equivalent to more than 10 more than the annualized; and entity real estate, the premise of the selection of high-quality real estate that can preserve the value of value appreciation in the long run, in order to keep the less than 5% annualized.

Look again, what about realizing?

If the family is in urgent need of money to sell the suite, you are in a hurry to cash, if stacked with the current market conditions are bad, the buyer does not make sense not to cut the price, but also to take into account the location and the future of the housing aging problem, a number of years later, the suite is worth how much there is a great uncertainty.

And financial properties, after three years of closure. This "financial real estate" almost every year the yield is 3.5%. At the same time, the cash value of this "financial property" is contractually agreed. If you want to "sell" the property, you can settle for that year's cash value without any discount. If you only want to use a small portion of the money, sell one "room" and the rest will continue to appreciate at 3.5% compounded interest.

Next, look at the investment threshold: first-tier cities of high-quality real estate, the investment threshold, even if you buy a one-bedroom 40 square meters of small households, but also need to be more than 4 million, assuming that you have a house note, the down payment of 30% will have to be 1.2 million; and the threshold of the financial real estate, it is more flexible, the abundance of money, from the results of the point of view, how much to invest in the hands of the hand depending on how little net worth you are holding at the moment.

Finally, financial real estate has, entity real estate is not, it can isolate the risk of debt, directional inheritance, for business owners, it greatly reduces the debt and property disputes, save a lot of trouble.

The "financial real estate" mentioned above is actually a typical life insurance product that increases the amount of life insurance. In insurance products, in addition to protection, there are also savings products that can bring value-added or cash flow, such as annuities and incremental whole life insurance. According to the contract, these products have an agreed survival benefit and afterlife benefit to the customer and the beneficiary.

In the face of an economic environment that is no longer smooth sailing and future demographic changes, optimizing family assets and increasing security light assets is one of the options to give yourself a stable and continuous pool of funds and cash flow.