Malaysia to build Asia’s Canary Wharf

October 29, 2013 Leave a comment

October 28, 2013 7:30 am

Malaysia to build Asia’s Canary Wharf

By Jeremy Grant in Singapore

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.The project, known as the Tun Razak Exchange (TRX) –named after the prime minister’s father – comes as Malaysia grapples with its worst fiscal deficit in decades.

Last week Najib Razak, prime minister, 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 country’s public debts to contingent liabilities of government-linked entities, including 1MDB, the government fund backing the new hub.

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 the UK-based CBRE, on Monday 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, as many as five residential buildings and a shopping mall.

Asia’s newest financial centre has been “extensively benchmarked” against Canary Wharf, the UK financial centre to the east of the City of London and IFC in Hong Kong, according to the project’s backers.

Haji Azmar Talib, chief executive of 1MDB’s property unit, said that after a groundbreaking for TRX last year, the project was making progress towards being a new 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, are worried that 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 acknowledged that while office space in Kuala Lumpur was “plentiful”, the city lacked sufficient “international-class, grade-A office facilities”, which was holding back Malaysia’s effort to attract top world businesses.

“This new district is not just about real estate. It is about creating an ecosystem for an international financial business hub,” he said.

Filed under Macro Trends

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