Indonesia dangles lucrative Jakarta leases to entice investment in new capital Nusantara

Nusantara is set to replace sinking and polluted Jakarta as Indonesia's political centre by late 2024. PHOTO: AFP

JAKARTA - Indonesia is dangling long-term lease concessions in the prime central district in Jakarta – where ministries and government agencies are located – to private investors as a sweetener if they participate in developing Nusantara city, the future administrative capital of Indonesia.

A recent Jakarta governor regulation has revoked a 2014 law banning the private sector from using government buildings and land in such lucrative zones, according to two people who know of the plan to issue the concessions.

President Joko Widodo has been struggling to court the private sector, including foreign investors, to participate in the 466 trillion rupiah (S$40 billion) administrative capital project, of which only 20 per cent will be funded by the government. The capital will be located in East Kalimantan’s Penajam Paser Utara, about 2,000km from Jakarta.

The lease concession has been hailed by Indonesian property developers.

Mr Paulus Totok Lusida, Real Estate Indonesia chairman, said the concession offer will attract investors as the central district areas are very strategic, adjacent to the presidential palace, with nice views and greenery.

“Jakarta will remain crowded and good for business. Everywhere else when a country moved its administrative capital, the original capital city got even more crowded because it became a purely trade and metropolitan city. Look at Kuala Lumpur, which today has more crowds and jams,” Mr Totok told The Straits Times. 

But he noted that there has been an oversupply of Jakarta’s office space for several years, and the coronavirus pandemic – which saw many employees working from home – has further dented demand. He forecast the oversupply will last for at least two years.

Mr Totok said the concession offered will be on a build-operate-transfer (BOT) arrangement, where investors may develop or renovate existing buildings and operate them for 20 to 30 years before returning them back to the government if no extension is requested.

Foreign investors are allowed to engage in the BOT agreement as long as they have a locally incorporated company, he added.

When contacted by ST, Ms Merry Morfosa, head of the Jakarta administration department in charge of spatial planning, declined to give details on possible concession terms, saying that they were for the national government to decide.

But she stressed: “There is no regulation now that would block transferring of state land for private use.”

In early 2022, the government said that the United Arab Emirates and Saudi Arabia were interested in investing in Nusantara, although no contract was signed.

Also, Tokyo-based SoftBank had pledged interest but later backed out. The government said it could not meet the bank’s terms.

On Monday, Malaysian Prime Minister Anwar Ibrahim said his government will take a positive approach and seek ways so that the development in Nusantara would also benefit his country, especially Sabah and Sarawak which are nearer to the proposed Indonesian capital.

Eleven letters of interest by Malaysian companies operating in sectors that include electronics, health, sewage treatment, construction and property have been signed.

Mr Widodo, who has 1½ years left to his second term as president, announced the plan to build a new administrative capital in the middle of a vast Kalimantan rainforest following the 2019 presidential polls, after his then rival Prabowo Subianto unilaterally claimed victory.

Observers noted that announcing a long-term plan like building a new capital was an elegant way for an incumbent president to assert victory as it conveyed a message that he would still be around to carry out such a long-term plan.

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