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New York's Chrysler Building, which was completed just as the Great Depression struck. John Stillwell/PA Archive/Press Association Images

Mind now: China and India warned over skyscraper boom

Skyscrapers may herald financial crises, according to an ongoing study of the construction of tall buildings.

A SKYSCRAPER building boom in China and India may be a sign of an impending economic correction in two of Asia’s largest economies, according to a new report by Barclays Capital.

Barclays has mapped an “unhealthy correlation” between construction of the world’s tallest buildings and impending financial crises over the last 140 years.

Today, China is home to half of the world’s skyscrapers — defined as buildings over 240 metres tall — currently under construction.

India, which has just two skyscrapers, is seeing its first skyscraper building boom, with 14 under construction, including the world’s second-tallest tower, in the financial capital Mumbai.

“Building booms are a sign of excess credit,” Andrew Lawrence, director of property research at Barclays Capital in Hong Kong, said Wednesday.

Bubble barometer?

Historically, skyscraper construction has been characterised by bursts of sporadic, but intense activity that coincide with easy credit, rising land prices and excessive optimism, but often by the time skyscrapers are finished, the economy has slipped into recession, Lawrence said.

The Great Depression hit as the finishing touches were being put on three record-breaking buildings in New York: 40 Wall Street, the Chrysler Building and the Empire State Building, which were all completed between 1929 and 1931, Barclays noted in a 10 January report.

The economic and oil crises of the 1970s coincided with the completion of the twin towers at New York’s World Trade Center, in 1972 and 1973, and Chicago’s Sears Tower in 1974.

The Asian financial crisis hit as Kuala Lumpur’s Petronas Towers were finished in 1997.

Dubai’s $4.1 billion Burj Khalifa, completed in 2010, is now the world’s tallest building. As it was being built, Dubai nearly went bust 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 said.

However, signs of trouble are escalating in China and India.

Today, China gets the dubious distinction of being the world’s “biggest bubble builder,” as it erects ever more and ever higher towers, Barclays said. Home to 53 per cent of the 124 skyscrapers now under construction globally, China is primed to increase its stock of skyscrapers by 87 per cent.

About 80 per cent of new buildings are going up in tier two and three cities, away from developed coastal areas of the Pearl River Delta and Yangtze River Delta, which Barclays called “evidence of the expanding building bubble.”

Lawrence, who was lead author of the report, said China’s property market is already wobbling.

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

India, which has just two skyscrapers but is building 14 more, takes top honors for hubris: The second tallest building in the world, the Tower of India, is now under construction in Mumbai.

Non-performing loans in India — a substantial number of them to real estate ventures — grew by nearly a third in the first half of this fiscal year, more than triple the average annual growth rate since 2006, according to the Reserve Bank of India.

“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 said.

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16 Comments
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    Mute Robert McDonnell
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    Jan 11th 2012, 12:44 PM

    I knew it. We should never have built the spire.

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    Mute Tom Gallagher
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    Jan 11th 2012, 1:07 PM

    LoL

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    Mute Jody
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    Jan 11th 2012, 9:50 PM

    haha I love this comment :D

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    Mute Asha Kavanagh
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    Jan 11th 2012, 1:47 PM

    Its like countries having a willy measuring competition. Mines bigger than yours.

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    Mute Aydo
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    Jan 11th 2012, 6:02 PM

    Ye Dubai’s been rocking that hard. Looks like it’s working out well for them. Oh wait….

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    Mute Robert McDonnell
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    Jan 11th 2012, 12:49 PM

    I’d also like to point out that correlation does not suggest causation.

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    Mute Sean O'Keeffe
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    Jan 11th 2012, 1:25 PM

    The observation of the relationship between credit bubbles and building booms is fairly well understood in economics. These observations would also seem to support the business cycle theory put forward by supporters of the Austrian School of Economics.
    http://oneminute.rationalmind.net/business_cycles/

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    Mute Jay funk
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    Jan 11th 2012, 12:48 PM

    We should at least got one in our boom! Half finish Anglo headquarter really doesn’t cut it

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    Mute Ollie Pinion
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    Jan 11th 2012, 1:41 PM

    We had a plan for U2 tower though and a plan for the point village. were good at plans we are

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    Mute Sheila Murphy
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    Jan 11th 2012, 7:51 PM

    There’s the Elysian in Cork………………………… :-)

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    Mute Eoin Faz
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    Jan 11th 2012, 12:44 PM

    If you build it they will come

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    Mute Andrew Telford
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    Jan 11th 2012, 1:11 PM

    I’d like to point out that it’s statistically impossible to draw conclusions from such a small statistical sample… Three cities/regions, 8 skyscrapers does not mean a trend…

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    Mute Aydo
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    Jan 11th 2012, 3:28 PM

    Taller buildings generally mean a city has run out of space close to its core and upwards is the simplest solution.
    You can’t build horizontally when the land around you is occupied and not on sale so you go up.

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    Mute y t
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    Jan 11th 2012, 4:20 PM

    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):
    http://iiscn.wordpress.com/2011/05/15/densite-etages-lumiere/
    (especially second one section 2 and 3)

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    Mute Aydo
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    Jan 11th 2012, 6:00 PM

    In a perfect world everything would be perfect. Pity we don’t live in one.

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    Mute y t
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    Jan 11th 2012, 9:19 PM

    It’s not about perfect or not, it’s about skyscrapers being “sold” with a reason which is a lie, that is all.

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