Indonesia’s industrial property sector has been subject to challenges as industrial investors have hesitated and delayed their entry or expansion due to greater uncertainty in the local and global economic climate. Under the Indonesian government’s infrastructure drive (See Concrete Developments in Indonesia’s Infrastructure), industrial land and industrial estates have been given renewed attention and given the sector a boost. Supply and demand are equally rising as the Indonesian government offers more incentives to facilitate industrial property developers and companies operating factories and warehouses in Indonesia’s industrial zones.
Based on the Master Plan of the National Industrial Development, the Indonesian government has set a target to develop 36 new industrial estates with a total area of 50,000 hectares
Rising supply and demand
After recording stagnant growth over the last decade, Indonesia’s industrial property sector is recovering following the Indonesian government’s efforts to attract industrial investors under President Joko Widodo. Since his 2014 presidential campaign, the President has made it clear that the emphasis of his administration will be on enhancing Indonesia’s infrastructure and industrial development (See High Stakes for Indonesia's New Infrastructure Push), whereby the industrial property sector will play a significant role in clustering such developments.
Based on data from the Indonesian Ministry of Trade in 2013, Indonesia has 74 industrial estates with a total area of 30,000 hectares of which 55 of them are located in Java (22,795.90 hectares), 16 in Sumatra (4,493.45 hectares), 1 in Kalimantan (546 hectares), and 2 in Sulawesi (2,203 hectares).
West Java province has the largest number of industrial areas and accounts for nearly 74% of the country’s industrial property due to its proximity to the special capital region of Jakarta and Tanjung Priok port. More than 50% of the industrial contribution to the national economy comes from the province; illustrating its strategic importance yet also the imbalance that creates bottlenecks in Indonesia’s logistics sector.
Most of Indonesia’s industrial land areas or 94% are owned by the private sector. The Indonesian government, through state-owned enterprises, owns 6%. This is in stark contrast with other Asian countries. In Japan, for example, the government owns 85% of the total area of industrial land, Taiwan has 90%, Singapore 85%, Malaysia 78%, South Korea 70%, and Thailand has 53% under state ownership. Going forward, the Indonesian government will develop new industrial zones away from the Greater Jakarta area (Jakarta, Bogor, Tangerang and Bekasi) and West Java to try to ensure an even distribution of wealth and development across the country. Based on the Master Plan of the National Industrial Development 2015 — 2035, the Indonesian government has set a target to develop 36 new industrial estates with a total area of 50,000 hectares.
To date, the Indonesian Ministry of Industry has facilitated the development of 14 industrial land area projects outside of Java which have been made a national priority. Unfortunately, only three industrial estates in Morowali, Bitung and Sei Mangke have been developed so far. Other industrial land areas, particularly in Maluku and Papua, still face a number of obstacles ranging from land acquisition, lack of infrastructure and quality human resources, high logistics cost (See Indonesia’s Logistics Sector; Making Connections) to expensive gas prices (See Overview: Indonesia’s Downstream Oil and Gas Sector).
Furthermore, the decline in Indonesian state revenue which has led to budget and spending cuts, has made it difficult for the Indonesian government to develop the infrastructure needed to support new and existing industrial areas such as roads, airports, sea ports, railways, power plants and water supply that is estimated to reach 55.45 trillion IDR.
List of Priority Industrial Estate Development for 2015 — 2019
Given the slow progress in the development of some of the priority industrial areas, the Indonesian government is considering expanding the list by adding new industrial estates that have demonstrated rapid progress. Among these include Dumai (Riau), Tanjung Buton (Riau), Berau (East Kalimantan), Tanah Kuning (North Kalimantan), JIIPE (East Java), Kendal (Central Java) and Wilmar (Serang) industrial areas.
Besides the central government, Indonesian state-owned enterprises and the private sector have also invested heavily in the development of new industrial areas; both in and outside of Java in the past year. Some of these areas have received the KLIK (Direct Construction Investment Facility) incentive from the government. These include four areas in Central Java, namely the Kendal, Bukit Semarang, Tugu Wijaya Kusuma, and Candi industrial areas, one area in East Java namely Java Integrated Industrial and Port Estate in Gresik, one in Bantaeng, South Sulawesi, and three areas in Banten, namely Wilmar, ModernCikande, and Krakatau industrial estates with a total area of 10,941 hectares.
Moreover, a number of neighbouring countries are also interested in developing industrial zones in Indonesia through a G-to-G partnership. Singapore, for example, partnered with the government to develop ‘Park by the Bay’ industrial area in Kendal, Central Java. Meanwhile, Australia through the Australia Indonesia Business Council (AIBC) has signed a memorandum of understanding on investment partnership opportunities in industrial property development with Banten Global Development (BGD), a regional-owned enterprise under the authority of Banten Province.
Despite slowing demand in the Greater Jakarta area, the overall demand for industrial property in Indonesia in 2016 is rising. The Indonesian Industrial Estates Association (HKI) forecasts that only 250 hectares out of 800 hectares of matured land in Greater Jakarta area will be sold by the end of 2016. Rather, the demand for industrial property in Banten, Central Java, East Java, and outside Java is on the rise. Thus, there has been a shift of demand from the areas of Greater Jakarta and West Java to new industrial centres which offer cheaper land prices and lower labour costs (See Labour Pains in Indonesia).
Kawasan Industri Jababeka (KIJA), for example, recorded a revenue of 3.28 trillion IDR from 16 investors who purchased a total of 203,595 square metres of its land in the Kendal industrial area. A further example is Berkah Kawasan Manyar Sejahtera which has signed sales and purchase agreements worth 3.05 trillion IDR and 26.84 billion JP¥ for its land in JIIPE, Gresik.
