Investor Issues
High realty: Investors beware of China and India

A Barclays Capital report sees the skyscraper frenzy as an indicator of impending doom that reflects a widespread misallocation of capital and an impending economic correction

It is a popular belief that when buildings get taller, it foreshadows an economic collapse. Now, a Barclays Capital report reinforces this hypothesis and goes on to warn investors about China, which is witnessing a ‘skyscraper boom’ and India, which has some 14 skyscrapers under construction.

The Barclays report ‘Skyscraper Index—Bubble Building’ says, “Our Skyscraper Index continues to show an unhealthy correlation between construction of the next world’s tallest building and an impending financial crisis. Investors should therefore pay particular attention to China—today’s biggest bubble builder with 53% of all the world’s skyscrapers under construction—and India,  which with just two completed skyscrapers, now has 14 skyscrapers under construction.”

Skyscrapers have largely been testimony to troubling times that follow soon: The Chrysler and Empire State Building in New York in 1930; the Sears Tower in Chicago in 1974; the Petronas Towers of Kuala Lumpur 1997 and the latest wonder—the Burj Khalifa of Dubai in 2010. Dubai, which had gone on a landscaping and architecture frenzy that culminated in the Burj Khalifa—saw a downturn soon after.

Even buildings constructed for companies are not exempt from these rules: Nasdaq’s MarketSite Tower appeared in Times Square in 1999, just three months prior to a 70% crash in Nasdaq Composite Index. Enron’s grand building, complete with its eight-storey high trading floor was  sold off at one-third of its $300 million cost to pay off part of the $50 billion debt the company owed.

According to the Barclays Capital report, China will complete 53% of the 124 skyscrapers under construction over the next six years, expanding the number of skyscrapers in Chinese cities by a staggering 87%. China’s skyscrapers are not only increasing in number—it now has 75 completed skyscrapers above 240 metres in height—but the average height of the skyscrapers that it is building is also increasing as past liquidity fuels the construction boom.

The report says, “Over 70% of China’s skyscrapers are clustered in the more economically advanced coastal areas of the Pearl River Delta and the Yangtze River Delta. Over 50% of China’s skyscrapers are today in Tier 1 cities, and based upon current completion plans, about 80% of China’s new skyscrapers will be built in Tier 2 and Tier 3 cities over the next six years—an evidence of the expanding building bubble.”

The report says that the growth of Asian (excluding Japan) construction in the 1990s is consistent with the region’s completion of the world’s tallest buildings and the onset of the Asian financial crisis. More recently, it has been the Middle East, which now has the world’s tallest building—the Burj Khalifa where the recent concentration of skyscraper building has emerged.

India is not behind her illustrious neighbour and rival. Today India has only two of the world’s 276 skyscrapers over 240m in height, yet over the next five years it intends to complete 14 new skyscrapers, in what will prove to be its largest skyscraper building boom.

India is also constructing the 103-storey Tower of India in Mumbai, scheduled to be completed by 2016. It will then become the tallest building in the world, second only to Burj Khalifa in Dubai. In 2011, the construction was stalled.

“If history proves to be right, this building boom in China and India could simply be a reflection of a misallocation of capital, which may result in an economic correction for two of Asia’s largest economies in the next five years,” concludes the report.

It is widely believed that when people run out of ideas and become too arrogant, they join the skyscraper race to outdo their rivals—a very expensive show of one-upmanship. Such projects are rarely viable—the Burj Khalifa has many empty floors.

India has already seen the massively wasteful Antilia, residence of Mukesh Ambani and reportedly the most expensive private residence in the world. The grotesque structure was completed in 2010, which was soon followed by a downturn next year. Around the same time, property prices escalated in Mumbai and Delhi— India’s realty hotspots. A slew of tall buildings surfaced in these cities, which are presently regarded as extremely inefficient markets in the country.

William J Mitchell, wrote in his essay, ‘Do We Still Need Skyscrapers?’ in Scientific American: “In the 21st century, as in the time of Cheops, there will undoubtedly be taller and taller buildings, built at great effort and often without real economic justification, because the rich and powerful will still sometimes find satisfaction in traditional ways of demonstrating that they’re on top of the heap.” May India cease from demonstrating exactly that.




5 years ago

Skyscrapers are eyesores. Without adequate infrastructure like ample availability of good drinking water, effective drainage systems, reliable electricity and good transportation systems, they add to the woes of human society.


5 years ago

One shouldn't forget a very important thing : The fact that skyscrapers are "good generic shapes" to increase density at the scale of a city is simply a false myth, that is a lie (and especially true for housing, less for offices).
This was "formalized"(even if in a too simplified way at the time, basic results still stand) in the sixities by Leslie Martin and Lionel March in Cambridge, that is if you compare generic urbanism made of towers, slabs or courtyard buildings, using the same natural light constraints and with varying number of floors, it is false that the tower shape provides the best results, and all this is asymptotic anyway.

Or in other words, skyscrapers only "make sense" as a singularity, and the "increasing density mantra, the higher the better" is simply a "false moral excuse" in order to build them.

So wouldn't be surprised at all of this synchronicity between building some and financial crisis.

for details check two articles linked below(in english as pdf):

Deepak vyas

5 years ago

In the Article the writer is only Talking about skyscrapers.The Report only talk about the History.
But I feel there are Short Comings in the report.
1. It doesnt take into account the Population Growth of China & India. It doesnt state how much is the demand & Supply.
2. Doesnt Consider the Age Group of Population entering the Income earning group Annually.
Though it would have been better for the Publisher/Moneylife to question barclays about the potential demand/Supply annualy for next ten years. Then find out whether there is going to be a big Crash in Prices. If There is crash, then for how long market will go down.
Further Pricing falling/ Crashing is good News for Common Indian. Further when Prices of Common Commodities rise every Media/ Newspaper lot of Noise. But when Prices of Realty rises . All Media/ News Papers are happy????.

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