Sky high risks in Malaysia
The proposed 100-storey tower, to be built by state-managed Permodalan Nasional Berhad (PNB) – the country’s biggest fund manager – next to the Merdeka (Independence) Stadium and the Indoor National Stadium, will easily surpass in height the city’s 88-storey Petronas Towers (at 451.9 meters, including spires) and is scheduled to become the second tallest in the world.
By Anil Netto, Asia Times
Malaysian Prime Minister Najib Razak’s recent announcement that a 100-storey tower will be built in the capital by a government investment fund comes as global liquidity is flooding the region and raises concerns the project could represent the front end of a coming new crisis.
Najib unveiled the plans for the tower, to be known as the Warisan Merdeka, or Independence Heritage, on October 15. Two weeks later, Asian Development Bank chief Huruhiko Kuroda warned of two risks facing developing Asian economies like Malaysia: that the recovery in developed economies could be elusive and speculative capital inflows into developing economies could prove volatile.
The United States Federal Reserve is expected to announce a second round of quantitative easing this week, which could prompt the flow of even more speculative capital in search of higher yields into Asia’s developing economies.
Last month, the Federation of Malaysian Manufacturers, in a joint statement with its Thai counterpart, expressed concern that “unbridled speculation and inflows of hot money that impact on financial markets will work its way through the real economy to adversely affect output, trade and jobs”.
Share prices on the local bourse have rallied to near-record levels. The benchmark FTSE Bursa Malaysia Composite Index, which closed at 1,505.66 last week, is expected to test soon its historic high of 1,524.69. Prices of commodities, including some of Malaysia’s top exports, have also surged, driven by cheap speculative money.
Property prices have rocketed this year in urban centers like Kuala Lumpur and Penang, prompting the central bank, Bank Negara, to state that it would clamp down on any speculation that could lead to a property bubble.
The proposed 100-storey tower, to be built by state-managed Permodalan Nasional Berhad (PNB) – the country’s biggest fund manager – next to the Merdeka (Independence) Stadium and the Indoor National Stadium, will easily surpass in height the city’s 88-storey Petronas Towers (at 451.9 meters, including spires) and is scheduled to become the second tallest in the world.
Flash back two decades, Malaysia had only just emerged from a recession in the mid-1980s when the government of prime minister Mahathir Mohamad proposed the Petronas Twin Towers. Work began in the early 1990s at a time when the country was enjoying an economic boom, driven by hot money pouring into the region. On their completion in 1998 they were the world’s tallest buildings.
Even during the 1990s boom years, there were concerns about who would occupy all the office space created by the Petronas Towers. At that time, office occupancy rates in Kuala Lumpur were well above 90%, the average annual gross domestic product (GDP) growth was over 7%, and the country was regarded as something of a regional economic powerhouse.
Just as the Petronas Towers were completed, the 1997-98 Asian financial crisis struck. With additional space from the towers and other skyscrapers coming online, Kuala Lumpur’s office occupancy rate slumped to just over 80% and dropped even further into the 70% range in subsequent years. In the event, state-owned oil and gas giant Petronas moved its offices into one of the twin towers, while the other tower was gradually occupied by Petronas subsidiaries and other firms involved in the oil and gas sector.
The Petronas Towers’ experience was echoed earlier this year with the opening of the world’s tallest skyscraper, the Burj Khalifa, in the middle of a financial meltdown in the United Arab Emirates. A couple of years ago, when the Burj was being constructed in the midst of a property boom there, the business press in Malaysia had hailed UAE as a model for Malaysia to emulate.
No longer. Today, Malaysia bears some similarities with the 1990s when the Petronas Towers were mooted. Once again, Malaysia is emerging from a recession. Hot money is flowing back into the region with economic stagnation and more quantitative easing in store for capital-rich developed nations.
But there are major differences as well. This time Malaysia’s economic growth has slowed to just over 5% in recent years. Unlike the confident boom years of the 1990s, Idris Jala, a cabinet minister tasked with outlining economic policy reforms, has warned that the country risks a Greece-style economic crisis by 2019 if it doesn’t take immediate steps to restructure the economy.
And instead of hordes of foreign investors beating down the door to establish factories and offices, they are generally headed elsewhere in the region where labor costs are lower, such as China and Vietnam. Unlike the pre-1998 near full occupancy of Kuala Lumpur’s office space, the occupancy rate now has only just topped 80% – and this before the mega-tower is built.
