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Speculators Are Already Rushing to Buy Land Around Indonesia's New Capital

Tassia Sipahutar and Fathiya Dahrul

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Indonesia’s plan to build a $33 billion new capital from scratch on the island of Borneo has sent real-estate developers scrambling for land in the vicinity of the proposed city. And the industry’s representative body says that’s already pushing up prices.

The Association of Indonesian Real Estate Companies, which has more than 5,000 member companies, wants President Joko Widodo to take steps to rein in those seeking to profiteer from the soaring demand in East Kalimantan. Chairman Soelaeman Soemawinata said the government should secure land and sell it to private builders for a reasonable price.

The government controls about 180,000 hectares of land in the area around the new yet-to-be-named capital -- about triple the size of Jakarta. Jokowi, as Widodo is known, is counting on private and state-owned entities to bear about 80% of the cost of building the capital.

“I’ve heard that land prices are rising already,” Soemawinata said. “We must set developers and speculators apart. Speculators don’t develop anything as they just wait until land prices increase, and then sell. Developers expect the government to secure the land, which can be developed by them.”

Forest Land

The site of the capital, an area somewhere between North Penajam Paser and Kutai Kartanegara in East Kalimantan, mostly consists of protected and commercial forestry under government control, limiting the ability of private investors to snare plots. But that hasn’t stopped builders and construction companies from making plans.

PT Agung Podomoro Land, a developer of luxury condos in Jakarta, advertised its residential and commercial project in Balikpapan this week as a 20-minute drive to the new capital city, saying foreigners were eligible to buy.

PT PP Properti said it was looking to develop about 500 hectares in East Kalimantan, while PT Wijaya Karya Persero, a state-owned builder, said it was ready to take the lead in constructing everything from roads to power, gas and water networks.

The relocation of the capital, some 2,000 kilometers away from Jakarta, is meant to ease pressure on the congested and sinking city, and spread economic activity outside the nation’s most-populous island of Java. The cost of moving is estimated at 466 trillion rupiah ($33 billion) if it involves the development of around 40,000 hectares of land for an estimated 1.5 million residents, according to Planning Ministry estimates.

Offices, Clubhouse

The government plans to begin construction of the new city by the end of 2020 and relocate the capital in phases from 2024, Planning Minister Bambang Brodjonegoro said. The project will be financed by the government as well as through private-public partnerships.

PT Bank Mandiri, Indonesia’s second-largest lender by assets, said it expects higher loan demand from property and infrastructure developers, according to Director Panji Irawan. The bank plans to build a representative office and clubhouse for executives in the new city, he said.

Soemawinata also said the real estate association wants Jokowi to provide a legal basis for the participation of private developers considering the new capital’s construction may span several regimes.

To contact the reporters on this story: Tassia Sipahutar in Jakarta at ssipahutar@bloomberg.net;Fathiya Dahrul in Jakarta at fdahrul@bloomberg.net

To contact the editors responsible for this story: Thomas Kutty Abraham at tabraham4@bloomberg.net, Katrina Nicholas

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