Rather than symbolize economic growth, the rise of skyscrapers often portend bad times ahead, says one property analyst. If this correlation is accurate, China and India beware.

 

A report written by Andrew Lawrence, director of property research at Barclays Capital in Hong Kong, warns that the building boom underway in Chinese and Indian cities could represent a misallocation of capital and a resulting economic “correction” (read: recession).

 

According to Lawrence, the construction of the world’s tallest buildings at different times has often occurred just before a nation’s economy collapses. Although Lawrence first presented his “Skyscraper Index” as a joke in 1999, it has gained a certain amount of legitimacy. For instance, the Chrysler Building (1930) and the Empire State Building (1931), then the tallest buildings in the world, went up not long before the Great Depression hit the U.S.

 

In the 1970s, the World Trade Center in New York City and the Sears Towers in Chicago appeared before the global economic crises of 1974.

 

Kuala Lumpur’s Petronas Towers became the world’s tallest building in 1997, giving Malaysia a bird’s-eye view of the economic collapse that struck nations across Asia.

 

The point of the theory is not that skyscrapers cause economic downturns, but that in boom times the super-wealthy lose perspective and waste their money on ego-building projects instead of on practical investments. Rather than being a symbol of success, skyscrapers tend to represent a “misallocation of capital.”

 

Currently, China has plans to build 124 skyscrapers. In India, 14 such buildings are under construction in a country that has had only two until now.

-Noel Brinkerhoff, David Wallechinsky

 

High Realty: Investors Beware of China and India (Moneylife, Personal Finance Magazine)

Rising Skyscrapers Could Bring India Down (by Shefali Anand, Wall Street Journal)

Skyscraper Index: Bubble Building (Barclays Capital)

Symbol of Folly, World’s Tallest Building to Open in Dubai (by Noel Brinkerhoff, AllGov)

Welfare for the Rich: Taxpayers Help Goldman Sachs Build New Headquarters (by Noel Brinkerhoff, AllGov)