As China and India continues their economic expansion at breakneck speed, there are concerns surrounding the long-term stability of this new, Asiatic global powerhouse.
Making matters worse, a skyscraper construction boom across many Indian and Chinese cities is ringing alarm bells for some analysts, who have found a historical correlation between construction of the world’s tallest buildings and a looming financial crisis.
An article on news.com.au reports that the Hong Kong arm of Barclays Capital has uncovered a worrying pattern over the last 140 years.
“Building booms are a sign of excess credit,” Andrew Lawrence, director of property research at Barclays Capital recently said.
“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 research firm says that evidence for this “unhealthy correlation” from around the world includes;
- The Great Depression of the late 1920’s and early 1930’s. This came off the back of three record-breaking, landmark buildings going up in New York including 40 Wall Street, the Empire State Building and the Chrysler Building – all completed between 1929 and 1931.
- The 1970’s economic and oil crises. This coincided with the ill-fated, New York Trade Centre’s monolithic twin towers in 1972 and ’73 along with the Chicago Sear’s Tower completed in 1974.
- The Asian financial crisis late last century. This hit just as Kuala Lumpar’s Petronas Towers were completed in 1997.
- And finally, what some have come to refer to as the world’s Great Recession that many developed countries are still struggling to overcome. According to Barclay’s the tower responsible for this latest financial crisis was built in Dubai at a cost of $US4.1 billion. Burj Khalifa, completed in 2010, is now the world’s tallest building and during its construction Dubai’s economy came close to going under.
Should we be worried?
So should China, and indeed the rest of the world, be worried about the fact that the Asian super power is currently in the grips of an unprecedented skyscraper-building boom?
In fact 53 per cent of the 124 buildings currently going up across the globe that will stand over 240 metres tall (the standard classification for a ‘skyscraper’), are being constructed in China.
And in India, which until recently only had two skyscrapers, is now boasting its first ever big building boom with 14 skyscrapers going up, including what will eventually be the world’s second tallest tower in the financial capital of Mumbai.
“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 Barclay report said.
But that’s not to say that the economic status quo of India and China is completely trouble free right now, with Barclay’s referring to China, where skyscraper stock is about to increase by a mammoth 87 per cent, as the world’s “biggest bubble builder”.
Whether or not such building booms are the direct cause of some of the world’s worst financial crises throughout the last two centuries is of course debatable. But perhaps it might be a symptom of other ills that we should be aware of.
The simple fact for China and India is that they are rapidly growing economies and like it or not, have to address the equally rapid increase in the number of cashed up citizens who now expect more from their property markets.
And with congestion in the major cities across both countries already at breaking point, when it comes to new developments, the only way for China and India is up.
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