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.
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