Lock, Stock & Barrel: The Saga of KL New Financial City

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This article first appeared in The New Straits Times on July 6, 2018.

IN recent weeks, much has been said about the Tun Razak Exchange (TRX). Much of the discussions is negative publicity in reaction to 1Malaysia Development Bhd (1MDB). The name evokes many reactions among Malaysians, sadly, mostly bad ones.

TRX was visualized as Kuala Lumpur’s new financial city. Sitting on 28.3ha of prime land, barely kilometers away from the Kuala Lumpur City Centre, the development came with many promises and the massive backing of the government at that time.

TRX was touted to become a leading center for international finance and business. The development would encompass Grade A office buildings, residential developments, hotels, and retail as well as leisure and cultural elements.

Without the burden associated with 1MDB, this would have been a brilliant idea and by the time it all gets completed, it will surely live up to its ambition. Unfortunately, it is associated with 1MDB and all the negative commutation that goes with it

Now that the blanket of secrecy has been lifted from the mantle of 1MDB, the truth is out there for everyone to see. Billions of ringgit are said to have been siphoned off TRX to pay for debts incurred by 1MDB. For a while, there was uncertainty of what would happen to this development, with the change of government. Would this project continue or would the prime minister and finance minister scrap it?

If they scrap it, what would happen to the organizations that have already committed to developments there? Worse still, these organizations may already have spent millions of ringgit, if not billions, into the developments. And what about the half-completed construction? Would that remain as a terrible eyesore for years to come, like a massive phallic symbol of the excesses of the previous government?

There had been many questions but very few answers then.

But when Finance Minister Lim Guan Eng recently announced that the government would continue with TRX, there was a huge sigh of relief in the entire property and business community. Lim said the government will pump in an additional RM2.8 billion into the project.

This is indeed good news for the property community. Left as it is, the TRX will amount to nothing more than an eyesore of giant proportions. Forget about compensation claims that the government would have to pay to those corporations that have already invested there! No way would any self-respecting corporation make such commitments without having iron-clad warranties and reciprocal commitments from the government. If the decision was to stop the project, massive compensation would have to be paid for these unfulfilled warranties.

And guess who would ultimately end up paying for this? Yes, you’re right. That would be you and me!

The decision to continue with the project, although we have to painfully pump in additional funds, is the right move to make. Many people in the industry are skeptical about the benefit of yet more office space in a market that is already crowded and in a clear overhang situation.

The argument that many developments in the TRX are being purposely built for a particular end-user is flawed. Some argue that as soon as a particular office tower is complete, it would almost immediately achieve 100 percent occupancy. Yes, you are right. But another building somewhere might immediately have a 100 percent vacancy rate because of this. Try telling the owner of that building about the great benefit of the TRX and how it does not contribute to the overhang.

We have no choice but to continue with TRX. “Genggam bara api, biar sampai jadi arang”, says an old Malay proverb. This describes the TRX situation perfectly.

But perhaps we should start becoming a bit smarter about upcoming projects. If indeed there is an overhang in the market, rein in our greed a little bit and slow down on new developments. Let the economy recover and allow the market to catch up. Once that happens, we can slowly start the wheel of new developments again. We don’t actually have to build everything at the same time.