KUALA LUMPUR (BLOOMBERG) - Malaysia's newest financial district is taking shape and drawing investment after spending years mired in controversy for its links to an embattled state investment fund.
The Tun Razak Exchange has reached critical mass for its initial phase after HSBC Holdings this month said it will invest US$250 million (S$346 million) to build its local headquarters in the development, according to TRX City chief executive officer Azmar Talib.
The 70-acre site in downtown Kuala Lumpur has at times been the focus of domestic furor surrounding 1Malaysia Development Bhd (1MDB), a government fund which has spurred criminal and regulatory investigations around the world.
Named after Prime Minister Najib Razak's father and the country's second premier, the development has a projected sales value of 40 billion ringgit (S$13 billion)."It did have an impact in the past," Mr Azmar said in an interview at the project's gallery near the construction site, referring to the unwelcome spotlight as 1MDB made global headlines for possible money laundering and embezzlement. "We are, however, now in a better position."
Construction at the Tun Razak Exchange is proceeding 22 hours a day and the first office building in the development is set to open by the end of 2018. A new mass rail transit may soon stop within the development at a station that will eventually house the only interchange for two train lines in the city centre.
The project which started around 2013 will be completed over the next 15 to 20 years, the company said.
The outlook is improving for Mr Azmar who has had arguably one of the toughest jobs in property development in Malaysia. Formerly the property arm of 1MDB, his team had to battle negative perceptions of the development as investors became increasingly wary of any project linked to the fund.
The purchase of a plot of land in the district by Lembaga Tabung Haji, the national Hajj pilgrims fund, sparked protests and a public outcry on social media in 2015, prompting Datuk Seri Najib to order the trust to sell it just days after the acquisition was disclosed. Second Finance Minister Johari Abdul Ghani said in May 2016 that troubles surrounding 1MDB had deterred banks from extending financing to Tun Razak Exchange's project partners.
TRX City is now under the finance ministry after an ownership transfer this year. About 70 per cent of available land in the project has been commercialised and there is no hurry to sell the remaining four plots in the current phase, Mr Azmar said."The transfer has provided us more stability and has boosted confidence in the development," Mr Azmar said. "TRX is a national project and we are glad that we can now deliver the project unencumbered by unrelated matters."
Troubles still swirl around 1MDB with the US Justice Department saying this month it is seeking to recover another US$540 million in assets it alleges were purchased with money misappropriated from the fund. The US investigation is part of a worldwide effort to track how much of the US$6 billion that 1MDB raised for development projects was used to pay for luxury real estate, art, lavish parties and more. The fund has consistently denied any misconduct.
There remains interest in the property project despite the taint of 1MDB. The HSBC investment is a "very significant milestone" for TRX after four years of courtship, Mr Azmar said. Another international financial institution has signed a long-term lease for an office block, he said, without giving details.
Indonesia's Mulia Group is developing a 106-story Signature Tower, which will be taller than the nearby Petronas Twin Towers when ready by mid-2019. A retail mall with a rooftop park the size of up to seven soccer fields is planned within the lifestyle quarter that TRX is developing with Australia's Lendlease Group, Mr Azmar said.
While Tun Razak Exchange will enhance the Kuala Lumpur skyline, it may also exacerbate a supply glut that has garnered the attention of policy makers. Lenders should be concerned with the sizable surplus in commercial property such as office and retail space, central bank Governor Muhammad Ibrahim said in May. The vacancy rate for prime office space around Kuala Lumpur was higher than the regional average last year, and monthly rentals are also the lowest among regional cities, according to the central bank.
It is "astonishing" that the prime retail space per capita in Malaysian cities including Kuala Lumpur is higher than in megacities such as Shanghai and Beijing, and higher-income ones such as Singapore and Hong Kong, the governor said.
TRX is filling a market gap for built-to-specification office space catering to the financial industry and will complement the role of the Petronas Twin Towers, which is targeted as an oil and gas hub, Mr Azmar said.
"Unlike some of the big cities in the world, they have got quite a dedicated financial hub, in KL there's no specific place where we can see it is a banking area," Mr Azmar said. "We want to put KL on the radar of the international guys."