The Indonesian government is planning to relocate the capital city from Jakarta to East Kalimantan. How will this affect property prices in Jakarta?

According to Indonesia’s Planning Minister Bambang Brodjonegoro, the construction of the new capital city would commence in the year 2021, with the budget allocation reaching a whopping  466 trillion Rupiah (or around S$45.2 billion).

In 2024, an estimated 180,000 civil servants, along with thousands of military and police personnel, are expected to relocate to the new capital. 

 

Why are they moving?

Jakarta is currently the largest city in Southeast Asia and is also one of the most populous urban agglomerations in the world, with an estimated population of over 10 million people in 2016. 

It is also one of the most congested and on top of that, the city is sinking. It is these reasons that prompted the government to move the capital city away from Jakarta, said President Joko “Jokowi” Widodo.

According to Jokowi, Jakarta and Java could no longer bear their burdens, which would only become more cumbersome over time. Jakarta is sinking faster than many other metropolises, and is prone to earthquakes and flooding. Congestion at the mega-city is also estimated to cost the Indonesian economy $4.6 billion (S$6.28 billion) a year, according to a Bloomberg report. 

In contrast, East Kalimantan is mineral-rich and is home to only about 3.5 million people. Once almost completely covered by rainforests, the province is surrounded by Kutai National Park, known for orangutans and other primates.

Beyond ensuring sustainability, relocation plans are also targeted at reducing inequality across the country and improving growth within the Kalimantan province. 

 

The scramble for a stake of the new capital 

Already, the relocation plan has led to increased property prices in the East Kalimantan area, prompting some concerns that prices could soar out of control. 

The surge is driven by the frenzied buying amongst real estate developers who have been snapping up land around the new capital to leverage on its growth. 

The industry’s representative body – The Association of Indonesian Real Estate Companies – is now calling for President Jokowi to take steps to rein in those seeking to profiteer from the soaring demand. The association’s chairman, Soelaeman Soemawinata said the government should secure land and sell it to private builders for a reasonable price.

Some developers looking to capitalise on the growth include PT Agung Podomoro Land, a developer of luxury condos in Jakarta. According to a Bloomberg report, it recently advertised its residential and commercial project in Balikpapan as a 20-minute drive to the new capital city, saying that foreigners were eligible to buy.

Meanwhile, PT PP Properti said it was looking to develop about 500 hectares in East Kalimantan. 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.

 

What does this mean for property prices in Jakarta?

Many are wondering how this planned relocation would affect property prices in the city. In the long haul, some market observers think that the move would actually boost Jakarta property prices. Here’s why.

 Jakarta will remain the economic hub of Indonesia.

Some compare the city to New York and Mumbai, which are not capital cities, but are the most expensive cities in their countries due to their economic hub status. Going by this comparison, some are convinced that Jakarta will follow a similar track, as only political or government offices will move.

The Capital is moving, but Jakarta is not being abandoned.

New infrastructure such as a new MRT phase and LRT has also been planned, with Jokowi recently announcing a US$70 billion (S$95.56 billion) toll-road spending plan for the country. The improvement in infrastructure is expected to bring about an uplift in housing demand as well as property prices in time to come.

Ironically, Jakarta might actually become more livable

In addition, the relocation will reduce the city’s burden quite substantially. This focus on sustainability is expected to enhance living standards and make the city a more comfortable home for future generations.

It is for these factors that Jakarta will remain the vibrant city as it is today, and continue to offer prime opportunities for work and for leisure – with or without its capital city status.

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