Rising Skyscrapers Could Bring India Down - India Real Time - WSJ

The construction of skyscrapers is one indication of a financial bubble, and feverish building activity in India and China suggest a bursting may be on the horizon.

Pal Pillai/Bloomberg News

Pictured, the Imperial residential towers in Mumbai, July 21, 2010.

That’s the finding of a recent report by Barclays Capital.

For more than a decade, Barclays’ property analyst Andrew Lawrence has been contending that a spurt in the construction of skyscrapers and other tall buildings in a country signals “an impending financial crisis.”

Mr. Lawrence illustrates his thesis by connecting some of the world’s most famous skyscrapers to economic booms and busts.

He says the construction of New York’s Chrysler Building in 1930 and the Empire State Building in 1931, then the tallest buildings in the world, coincided with the Great Depression. In the seventies, the completion of New York’s famous One and Two World Trade Centers and the Sears Towers in Chicago heralded the global economic crises of 1974. In 1997, Kuala Lumpur’s Petronas Towers took over as the world’s tallest building, but that was followed by an economic collapse across Asia.

More recently, Dubai claimed the world’s tallest building title with the completion of the Burj Khalifa in 2010. Mr. Lawrence notes that this coincided with the most recent global economic crisis.

The construction of skyscrapers and other tall buildings starts at a time of great euphoria when there’s a lot of easy money available, but they typically “finish into a recession,” Mr. Lawrence said in an interview.

In his report, Mr. Lawrence states that no one is yet trying to overtake the Burj Khalifa, so we can breathe easy for now.

But signs of bubbles are appearing in two of Asia’s largest economies, he says.

Mr. Lawrence calls China “today’s biggest bubble builder” because it has 53% of all the world’s skyscrapers under construction. China now has 75 skyscrapers –or buildings which are at least 240 meters tall — and the average height of new skyscrapers is increasing, said the Barclays report. In addition, nearly half of the skyscrapers on the drawing boards are planned for China’s smaller cities.

Meanwhile, India has recently joined the skyscraper building-club.

“This is the first time since we’ve been doing the index that we’ve seen India pop up,” said Mr. Lawrence.

So far, India only has two of the world’s 276 skyscrapers. These are Imperial Tower 1 and 2, residential towers in south Mumbai, which rise to around 250 meters. But over the next five years, India intends to complete 14 new skyscrapers, in its largest skyscraper building boom.

“Worryingly as well, India is also constructing the second tallest building in the world, the Tower of India, which should complete by 2016,” says the Barclays report.

“It’s a warning flag for investors,” said Mr. Lawrence.