A study by investment bank, Barclays Capital, says that the construction of high rise buildings and skyscrapers are indicators of an imminent economic downfall.
The BarCap report provides a number of examples. These include the construction boom that led to the erection of the skyscrapers of the Chrysler and Empire State Building in New York which preceded the city’s 1929 stock market crash and the Great Depression. In addition, the building boom to erect taller and taller constructions in Dubai, such as the Burj Khalifa – the world’s tallest building - preceded the 2010 financial crisis. So, the report concludes that when there is a period in which countries strife to build the tallest construction, soon afterwards the country is hit by financial woes. The correlation between high rise construction and economic crash should heed as a warning to countries.
The BarCap warned that China, which is currently undergoing construction of half the world’s highest buildings, will soon be headed for an unhealthy economic situation. Similarly, in India, which has just built two skyscrapers, is also on Barclays’ radar, especially since 14 more high-rise buildings are planned. High buildings lead to bad karma, says Barclays Capital.
The report reveals that building booms are signs of excess credit resulting in bursts of sporadic but intense construction activity, rising land prices, and excessive optimism. However, the report says that by the time the buildings are finished, the economy of the country is already sliding into recession. And currently, China and India are showing signs of fulfilling the prophecy. The report labels China has potentially the world’s “biggest bubble builder” because it is the location of 53% of the 124 skyscrapers under construction globally.
The BarCap report says China is already “wobbling.” Evidence of this, the report says, is that the number of residential property sales has decreased by 40-50% in Beijing and Shanghai and developers have slashed prices by 5-20%.
India, soon to have the second tallest building in the world, the Tower of India in Mumbia, and 14 more skyscrapers on the way, already has non-performing loans which have grown by nearly 33% in the past six months.
The BarCap reports says that, if history repeats, the building boom in China and India is a reflection of a misallocation of capital which may result in an economic correction in the next five years.
People predicted the global economic crisis. A branch of economics founded by followers of Henry George (an American economist) has charted property collapses over the past 100 years and found that booms create the condition for a bust around every 18 years. Fred Harrison in The Chaos Makers (1997) wrote: “by 2007 Britain, and most of the other industrially advanced economies, will be in the throes of frenzied activity in the land market. Land prices will be near their 18-year peak on the verge of the collapse that will presage the global depression of 2010.”
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