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Tall buildings lead to market falls? - Views on News from Equitymaster
 
 
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  • Sep 14, 2010

    Tall buildings lead to market falls?

    "The bigger the better" is inbuilt in human psychology. This phrase holds maximum truth in real estate. Developers and industrialists are perpetually trying to outdo each other by building the "tallest buildings". This is not a recent trend. It has been around since 1916, when the Woolworth Building was completed in New York.

    But the spooky fact is that when a highly publicized 'tall' building space gets launched, it is usually in the middle of a stock market crash. Don't believe us? Let's see some examples of this.

    Period: 1930s

    'Tall' Buildings: Sears Towers in Chicago, Empire State Building in New York

    Source: Yahoo Finance

    The Sears Tower as well as the Empire State Building were launched in 1930 and 1931 respectively. It was right when the Great Depression was setting in. From the peak in 1930, the Dow Jones Index crashed by nearly 86%.

    Period: 1989

    'Tall' Building: Canary Wharf Tower in UK

    Source: Yahoo Finance

    The Canary Wharf Tower was launched in UK in the beginning of 1990. Just in time for the 1990s recession in which the FTSE 100 fell by nearly 19%.

    Period: 1997

    'Tall' Buildings: International Finance Centre (IFC) in HK and Petronas Towers in Malaysia

    Source: Yahoo Finance

    The IFC was launched in Hong Kong in the middle of 1997. Just in the middle of the Asian Financial Crisis in which the Hang Seng Index (HSI) fell by 60%.

    Source: Yahoo Finance

    The Petronas Towers were launched in Malaysia in the middle of 1997. Just in the middle of the Asian Financial Crisis in which the Kuala Lumpur Composite Index (KLCI) fell by 77%.

    Period: 2010

    'Tall' Building: Burj Khalifa in Dubai


    Source: Khaleeja Times

    The world's tallest building Burj Khalifa was launched on 5th January, 2010. Dubai financial markets were already reeling with the headwinds surrounding its property developers. The Dubai financial markets (DFM) declined by 34%.

    Spooky isnt it?

    So why does it happen?
    Interestingly, it is the increased liquidity in the system that fuels such fantasies, which industrialists seek to convert to realities. The economy is going great guns. Investors are in a euphoric mood. Money is easily available through loans and private equity funds. All this euphoria clouds the thinking of the developers, who then start aiming for the heights.

    But, as these fantasy projects start taking shape, the economic mood is generally turning towards the worse. By the time these projects are completed, the economy starts slipping into recession and these monuments start serving as a gloomy reminder through their empty floor spaces and vacant expressions.

    History has proved this fact time and time again. But interestingly, history is always ignored as developers get back into these fantasy moods claiming "this time it's different".

    Recently an Indian developer, Lodha Builders, has decided to build the world's tallest residential building. We are sort of hoping that the jinx breaks in India and history does not repeat itself. Hopefully, 'this time it is different'.

     

     

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    5 Responses to "Tall buildings lead to market falls?"

    vasant

    Sep 14, 2010

    You can also add Burj tower and Dubai economic collapse!

    Like 

    Mandar Apte

    Sep 14, 2010

    Burj Khalifa of Dubai can also be added to the list as latest example.

    Like 

    Jagan

    Sep 14, 2010

    We all do well to remember this famous quote: "The best lession from history is that we never learn from history..believing that "this time its different".

    Like 

    Franklin Antony

    Sep 14, 2010

    What about Burj Kalifa(Dubai)? It sure was publicized in the midst of a correction. Even confirming the reasoning!!!

    Like 

    sowri rajan

    Sep 14, 2010

    I think the writer has missed out 'Burj Dubai' (later named Burj Khalifa), when the real estate fell and Dubai had to backtrack all construction activities. It has also led to financial collapse.

    Like 
      
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