Malaysia is building an enormous business district in the capital city of Kuala Lumpur, but its shaky finances raise doubts on whether the Southeast Asian nation is capable of such an ambitious undertaking just now.
The project, named the Tun Razak Exchange (TRX) after the country's second prime minister (and current Prime Minister Najib Razak’s father), is part of Malaysia’ plan to develop Kuala Lumpur into an international financial center, the Financial Times reported Monday.
But Malaysia may need to check its ambition because its finances are not in the best shape at the moment. Earlier in the year, Fitch downgraded its sovereign credit-rating outlook to negative, citing a growing debt pile and large fiscal deficit.
Najib, who also serves as finance minister, is well aware of the fiscal challenges his administration is facing, and last week promised to begin tackling the government debt problem by introducing a new consumption tax and trim subsidies. Even so, the problem will take time to address, and analysts are concerned that the government is overextending itself with the project, which is now inviting bids from developers and investors.
Phase one of the TRX will comprise of up to four office towers, a luxury hotel, a shopping mall and as many as five residential buildings, and real estate agents began soliciting bids of interest from investors and developers on Monday. The project is modeling itself after Canary Wharf, the financial center in London, and IFC, Hong Kong’s financial center.
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Aside from being taxing on the nation’s already weak finances, the project could also worsen the oversupply of office space in Kuala Lumpur in the medium term, analysts from CIMB, a major Malaysian bank, told the Financial Times. Occupancy of office space in the Klang Valley, which includes central Kuala Lumpur, fell for the fifth straight year in 2012.
Haji Azmar Talib, chief executive of the Malaysian government-linked firm IMDB’s property unit, said the TRX will be completed in demand-driven phrases, while acknowledging that office space is plentiful in the capital. What Kuala Lumpur lacks are “international-class, grade-A office facilities,” Talib added, which has held Malaysia back in its bid to attract international businesses.
“This new district is not just about real estate,” Talib said, according to the Financial Times. “It is about creating an ecosystem for an international financial business hub.”