By Jeremy Grant
Malaysia is pushing ahead with a bid to join the ranks of the world’s financial centres, inviting bids from developers and investors to build a vast business district in the capital that it hopes will become Asia’s version of Canary Wharf in London.
But even as Kuala Lumpur – Asia’s largest centre for Islamic finance, but with a stock market that is far smaller than its tiny neighbour Singapore – moves closer to making its ambitions reality, analysts are warning that the project risks becoming a burden on the government’s fragile finances.
Last week, Mr Razak pledged in a budget to introduce a consumption tax and trim subsidies to rein in government debt, which is among the highest in Asia as a percentage of domestic output.
Analysts attribute much of the debt to contingent liabilities of government-linked entities, including 1MDB, the government fund backing the new scheme.
Ong Kian Ming, a political analyst and an opposition member of parliament, estimates the projected deficit for 30 of such entities, including 1MDB, at RM93bn ($29bn), or 9.4 per cent of gross domestic product – a sixfold increase since last year.
Estate agents, including UK-based CBRE, yesterday began soliciting expressions of interest from investors and developers for stage one of TRX, which will comprise up to four office towers, a luxury hotel, five residential buildings and a shopping centres.
The project has been “extensively benchmarked” against Canary Wharf, the UK financial centre east of London, and IFC in Hong Kong, according to its backers. Haji Azmar Talib, chief executive of 1MDB’s property unit, said the project was making progress towards being a financial district “to complement Asia’s established finance centres in Hong Kong and Singapore”.
Finances apart, there are also concerns that TRX will exacerbate a glut in office space in Kuala Lumpur.
Analysts at CIMB, one of Malaysia’s two largest banks, fear a “flurry of mega commercial projects” – of which TRX is but one – will add to oversupply in the medium-term. Occupancy of office space in the Klang Valley, which includes central Kuala Lumpur, fell for the fifth straight year in 2012.
But Mr Talib said TRX would be completed in demand-driven phases. He said that while office space in Kuala Lumpur was “plentiful”, the city lacked “international-class, grade-A office facilities”, which was holding back Malaysia’s effort to attract top world businesses.
Copyright The Financial Times Limited 2013
(c) 2013 The Financial Times Limited