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"A lot of the extra liquidity is being sopped up directly into real estate" It doesn't really work that way. People who buy lose liquidity but people who sell

"A lot of the extra liquidity is being sopped up directly into real estate" It doesn't really work that way. People who buy lose liquidity but people who sell gain liquidity. Cash just changes hands. The question is what are the side effects of these transactions. In this case lots of apartments get built. Many of them empty. You may not regard that as the real economy. But is digging up gold to put in a vault or mining bitcoin any more real?

seanmcdirmid 9y ago
No, they aren't. It isn't doing anything useful, just acting as a speculative asset. It isn't developing the economy so that production is increased later on. Gold and bitcoin mining similar don't create value either (for gold's usage as a speculative asset).
- fspeech 9y ago
  With their real estate boom people will eventually live in larger and more modern housing units. The process to get there may be more wasteful than necessary but it can be eventually productive even from a very utilitarian perspective. During the dotcom boom much more fiber capacity than needed were built but they were eventually absorbed. It was a misallocation of capital at the time and companies went bankrupt for that. But it was eventually not all waste.
  - Macuyiko 9y ago
    Except that here it's kind of frightening to see the quality standards that are being followed (or rather: not followed) when putting up all of this housing, especially in non tier one areas. Housing gets build. Stays empty. After a few years look likes it's ready to be bulldozed and reconstructed from scratch again. In most cases, this is indeed exactly what happens, but it's hard to see any long term benefit from this sort of approach once the economy slows down.
    - fspeech 9y ago
      If one sees a shanty town in the developing world one may wonder who would want to live there. What one does not see is what the conditions were before people moved into the shanty town. China actually completed rural electrification (and road coverage, cellular coverage etc) but still just having running water and indoor plumbing is a positive change for many.
  - seanmcdirmid 9y ago
    Ha! The last time I looked at apartments in Beijing (late 2015) was depressing. Rents for 10k RMB/month, sells for $1 million USD, has one bathroom with a crappy wet floor shower (rental, the for sale places were completely unrenovated of course). Those buildings are also not meant to last more than 20 years without extensive maintenance (Chinese overbuild on concrete to take adavantsge of unskilled migrant labor, this leads to serious maintenance problems, but the CCP sees it as a feature rather than a problem), they start looking depilated after 5. My wife owns a villa in a tier 88. It is a nice place, but the standards are so different, the lack of indoor heating makes me wonder how it could ever be livable. Also, China lacks a property tax, so housing is seen as a speculative asset. It is really just like gold or bitcoin. Lots of house aren't even lived in (e.g. See ghost cities that have completely sold out but no one wants to actually live there).
    - fspeech 9y ago
      Right. And keep in mind that Chinese GDP per capita is about one fifth of the U.S. If everything in China were up to US standards Chinese GDP would be 3 times that of US.
      - seanmcdirmid 9y ago
        Wait, we are talking about a $1 million apartment here, even in SF that would get you something ok, but in Beijing, you would hardly get anything at all, it is just insane. China already has developed world real estate prices even in tier 3s, while the quality is still developing world. it is definitely in a huge bubble that will pop eventually.
        fspeech 9y ago
        How much of the $1 million apartment is the price of the land? How much of the land price can be accounted for by things like very large investments in infrastructure such as the subways and preferred access to top universities that are still relatively low cost? Anyway yes if they overbuild then one day they will have to build less. Remember the labor supply that are willing to do construction jobs will also be decreasing rather quickly. Right now they still have a generation of construction workers who are relatively skilled and who are still cheap to hire. Overbuilding now is not super stupid considering the demographics.

seanmcdirmid 9y ago

No, they aren't. It isn't doing anything useful, just acting as a speculative asset. It isn't developing the economy so that production is increased later on. Gold and bitcoin mining similar don't create value either (for gold's usage as a speculative asset).

fspeech 9y ago
With their real estate boom people will eventually live in larger and more modern housing units. The process to get there may be more wasteful than necessary but it can be eventually productive even from a very utilitarian perspective. During the dotcom boom much more fiber capacity than needed were built but they were eventually absorbed. It was a misallocation of capital at the time and companies went bankrupt for that. But it was eventually not all waste.
- Macuyiko 9y ago
  Except that here it's kind of frightening to see the quality standards that are being followed (or rather: not followed) when putting up all of this housing, especially in non tier one areas. Housing gets build. Stays empty. After a few years look likes it's ready to be bulldozed and reconstructed from scratch again. In most cases, this is indeed exactly what happens, but it's hard to see any long term benefit from this sort of approach once the economy slows down.
  - fspeech 9y ago
    If one sees a shanty town in the developing world one may wonder who would want to live there. What one does not see is what the conditions were before people moved into the shanty town. China actually completed rural electrification (and road coverage, cellular coverage etc) but still just having running water and indoor plumbing is a positive change for many.
- seanmcdirmid 9y ago
  Ha! The last time I looked at apartments in Beijing (late 2015) was depressing. Rents for 10k RMB/month, sells for $1 million USD, has one bathroom with a crappy wet floor shower (rental, the for sale places were completely unrenovated of course). Those buildings are also not meant to last more than 20 years without extensive maintenance (Chinese overbuild on concrete to take adavantsge of unskilled migrant labor, this leads to serious maintenance problems, but the CCP sees it as a feature rather than a problem), they start looking depilated after 5. My wife owns a villa in a tier 88. It is a nice place, but the standards are so different, the lack of indoor heating makes me wonder how it could ever be livable. Also, China lacks a property tax, so housing is seen as a speculative asset. It is really just like gold or bitcoin. Lots of house aren't even lived in (e.g. See ghost cities that have completely sold out but no one wants to actually live there).
  - fspeech 9y ago
    Right. And keep in mind that Chinese GDP per capita is about one fifth of the U.S. If everything in China were up to US standards Chinese GDP would be 3 times that of US.
    - seanmcdirmid 9y ago
      Wait, we are talking about a $1 million apartment here, even in SF that would get you something ok, but in Beijing, you would hardly get anything at all, it is just insane. China already has developed world real estate prices even in tier 3s, while the quality is still developing world. it is definitely in a huge bubble that will pop eventually.
      - fspeech 9y ago
        How much of the $1 million apartment is the price of the land? How much of the land price can be accounted for by things like very large investments in infrastructure such as the subways and preferred access to top universities that are still relatively low cost? Anyway yes if they overbuild then one day they will have to build less. Remember the labor supply that are willing to do construction jobs will also be decreasing rather quickly. Right now they still have a generation of construction workers who are relatively skilled and who are still cheap to hire. Overbuilding now is not super stupid considering the demographics.