Published April 2012
As new research suggests that there is an unhealthy correlation between construction of the world’s tallest buildings and impending financial crises, investors have been warned to steer clear of China and India.
According to the Barclays Capital Skyscraper Index, the construction of the world’s tallest buildings is “simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and an impending economic correction”.
Examples of this phenomenon, says the report, include:
- The Great Depression, marking the end of the extended post-World War I boom, was matched by three record breaking New York skyscrapers: 40 Wall Street in 1929, The Chrysler Building in 1930 and the Empire State Building in 1931.
- The completion of One World Trade Centre, New York in 1972, Two World Trade Centre, New York in 1973 and The Sears Tower, Chicago in 1974 marked a period of US currency speculation, the collapse of the Bretton Woods system and the OPEC price rises which caused an economic crisis across the world.
- The completion of Petronas Towers, Kuala Lumpur in 1997 was followed by a region-wide economic crisis and the collapse of Asian currencies.
- In technology-centric Taiwan, Taipei 101, although completed in 2004, start of construction in 1999 was well timed to coincide with the early 2000s recession and the end of the technology bubble.
- The 2010 completion of the current tallest building in the world, the Burj Khalifa (previously called the Burj Dubai), has coincided with the current global financial crisis.
The Barclays Capital team notes that, thankfully, no skyscrapers under construction are expected to outgrow the Burj Khalifa. However, in terms of the sheer number of skyscrapers being built, there is a worrying trend to keep an eye on in China.
According to the report, of the 124 skyscrapers under construction over the next six years (defined as a building more than 240m in height), 53% are in China. This will expand the number of skyscrapers in Chinese cities by 87%, claims the report.
India, too, is singled out for a potential building bubble, as it intends to build 14 new skyscrapers over the next five years – including what it planned to be the world’s second tallest building.
“The writing, so to speak, would seem to be already on the glass curtain walling. For 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,” says the report.
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