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Thursday, January 12, 2012

Skyscrapers = Economic Recession?

ART HISTORY/POLITICS - According to a report by Barclays Capital they've found a correlation between skyscraper construction and recessions.

Barclays looked at the last 140 years of recessions and noticed an “unhealthy correlation” between skyscraper construction and financial turmoil.

When the Great Depression hit the finishing touches were being put on three of the tallest buildings in New York: 40 Wall Street, the Chrysler Building and the Empire State Building, which were all completed between 1929 and 1931.

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

The Asian financial crisis hit when 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. However as it was being built, Dubai nearly went bankrupt and the world slid into the Great Recession.

Right now China is building 66 new skyscrapers (buildings over 240 metres tall). The sheer number currently under construction makes China home to 53% of the 124 skyscrapers now under construction globally, China will increase its stock of skyscrapers by 87% by the time they're completed.

India is not far behind. India currently has 2 skyscrapers completed, but have another 14 under construction, including building the world’s second-tallest tower, in the financial capital Mumbai.

But why is building skyscrapers a sign of trouble ahead?

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

Historically, skyscraper construction has coincided with easy credit, rising land prices and excessive optimism, but by the time the skyscrapers are finished the economy has slipped into recession.

Combine that with China's already huge real estate bubble and the economic prediction for China and India is dire.

About 80% of new buildings going up are in tier two and three cities, which Barclays called “evidence of the expanding building bubble.”

China's residential property sales are down 50% in Beijing and Shanghai and developers have slashed prices 5 to 20%.

The problem is that in both countries a substantial number of real estate loans aren't being collected. People in China and India are already defaulting on those loans, while simultaneously more skyscrapers are being proposed. In India non performing loans went up 33% in the first half of this fiscal year, according to the Reserve Bank of India.

Its unknown exactly how many people are defaulting on their loans in China, but its believed the number will be huge. China doesn't do anything small.

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