I think a couple months ago I shared in my Facebook an article prepared by Barclay's analyst about skyscraper index. And few days ago I was reading about Malaysia government about their mega project Menara Warisan Merdeka Tower which is estimated to finish by 2018. Let's just be very clear that I would steer this entry away from political. There will be no government bashing, but writing based on my observations what are the possible consequences it may bring to our economy.
This index was initially introduced by a property analyst name Andrew Lawrence. Basically what this index says is that, around the completion time (+/- 1year) of a skyscraper, or a mega building project, there will be an economy downturn. the logic is actually very simple, and quite acceptable to a simple minded me at least. I'm sure that even if you guys don't know jack about economy, you still would know that economy have its cycle right? There will be good time, and bad time. Basically, what happens in the skyscraper index is that, the commencement or the decision to start building a mega building project is when the economy is at its peak.
It makes sense. When the economy is at peak, that would be the time people start thinking, "Hey, let's start spending all the money we don't have and on top of that we borrow all the money the banks don't have. Anyway the lending rate is almost 0% annum right?????". The other would reply, "Hell yeah let's do that. Show our neighbours our small dick syndrome by building a massive building that looks like a penis" That's how easy a decision to build a mega multi-billion dollar building is. As mentioned above that economy usually is a cyclical thing, by the time the building finished, it would be just the sweet spot time for the economy to make a crash landing.
That is just the nature of market. When the market is bullish*, everyone is in this euphoric state like they in some mythical drugs. If someone came to them and tried to sell a slummy apartment somewhere not so close to Kuala Lumpur city with developer notoriously known for being terrible at property maintenance for RM500,000.00, they would still say, "Man, the price is quite expensive, but who cares right???? in 1 month it is going to like RM2million. Haha stupid other people who told me not to buy". But when the economy is bearish*, someone could tried to sell you a nice bungalow at RM10,000.00 and you'd still "Hmmmmmm quite a cheap price, but I don't think I am gonna buy this when by next week the value is just gonna be half of this. furthermore I now cannot make bank loan anymore because they are charging at 20% annum now".
(Bullish and Bearish is the words financialists use to describe uptrend and downtrend. Bullish is for uptrend and Bearish is for downtrend. No idea why bull and bear but some suggest it is due to the way they charge. A bull will charge with its head going upward whereas bear will charge down and tear you apart.)
Anyway, Malaysia had quite a good economy in recent years. I would not say a good economy with strong foundation but still, the citizens have been spending a lot of money they don't have, supporting the nation's economy leveraging their own household debt amount. So in 2010, the decision to build this mega project was announced and estimated to consume RM5Bn. Like I explained, the bullish market made it so easy to justify this RM5Bn investment. I am not saying it will not be a good investment at all, but it probably has to survive on a rough bearish economy period, which is tough and the outcome really depend on how resilient Malaysians and their government.
The skyscraper index report by Barclay gave multiple examples with most of the buildings being in the US because we know that generally if the US themselves is in recession, the whole will get it or at least feels a piece of it. They were few building names that I could remember, Empire state building, World Trade Center tower, Chrysler Building, Dubai's Burj Khalifa, Taipei 101, and one that hit home, Our nation pride The Petronas Twin Towers. The completion of the Twin Towers was the signal for Asian Economy Crisis 1998. Malaysia and most Asian countries were saved and skipped the 2008 crisis for reasons I am not writing in this entry. And then comes this new project by Malaysia, the Warisan Merdeka Tower, estimated to be finished by 2018. Ever heard of the 10 years cycle for economy? 1998, 2008, 2018? Personally I am not really a fan of that 10year cycle theory. I believe that the period may vary, and don't have to be 10 years. But seems to be going that way.
And when that happens again, will Our leader be coming up with some weird conspiracy theory about how Jews and their underground groups were the one responsible killing our economy again? I hope when that time comes, we would have a ballsy leader that will accept what he had done wrong. lol yeah I am being a bit dreamy.
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