Pride cometh before the fall: Skyscraper boom may herald economic doom

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Photo - Mark Ralston/AFP/Getty Images

“The bigger they’re, the harder they fall” is the kind of tenet that emerges from skyscrapers and the 140-year-old history behind them. Some people argue that numbers don’t lie while others insist bizarre coincidences cannot be taken as facts.

A Barclays Capital report suggests that recent skyscraper boom in China and India is heading towards an impending economic doom because of the ?unhealthy correlation? between economy and skyscrapers.

China currently has half of the world’s skyscrapers – higher than 240 metres minimum height for skyscrapers – that are currently under construction. India is also rushing to join the boom with its Tower of India, constructed in Mumbai and soon going to become world?s second tallest tower. Fourteen others are also under construction which would be completed in the next five years.

Andrew Lawrence is a property research director at Barclays Capital in Hong Kong and the brain behind the Skyscraper Index. He said: “Skyscraper construction is characterised by bursts of intense activity with easy-to-get credit, rising land prices and excessive optimism. But by the time those skyscrapers are finished, the economy has slipped into recession.?

History shows us that depression hit the US economy as finishing touches were put on The Empire State Building, Chrysler Building and the 40 Wall Street -?three record breaking buildings of New York city. The competition of Twin Towers in 1972 and 1973 in New York and also the Willis Tower in 1974 collided with the Middle East oil crisis that had a severe impact on the US economy.

The construction of Petronas Towers in Kuala Lumpur, Malaysia was finished in 1997 just at the time when financial crisis hit Asia.

Dubai?s Burj Khalifa – the world’s tallest building – was opened in 2009 when the emirate went broke after its mega construction projects on which billions of dollars were spent and the world slid into the ‘Great Recession’.

“Thankfully for the world economy, there is not currently a skyscraper under construction that is planned to overtake the height of the Burj Khalifa,” the report added.

BEWARE CHINA

The report declared China as the world’s ?biggest bubble builder? that is booming with high-rise buildings. Recent estimates suggest that 124 skyscrapers are under construction around the planet with 53% of them being constructed in China. The Communist State’s skyscraper share is set to increase by 87% when the estates on the coastal areas of the Pearl River Delta and Yangtze River Delta are also completed, which the Barclays Capital report called “evidence of the expanding building bubble?.

?China?s property market is already wobbling,” Lawrence said.

?The number of residential property sales has decreased 40 to 50% in Beijing and Shanghai and developers have slashed prices 5 to 20%?, he added.

“If history proves to be right, this building boom in India and China 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,” Barclays report concluded.

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