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NEWS UPDATES Asean Affairs        18  April 2011

Land rush in Indonesia

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Infrastructure development is not the only pressing issue in the Indonesia, with prices for industrial land also being driven upward by demand from home and abroad.

A report by commercial real estate broker and consultant Cushman & Wakefield showed the average price of industrial land in Greater Jakarta and West Java grew in the first quarter this year, with demand from companies exceeding the supply of available land.

Analysts and industry players said Indonesia’s huge population, which is projected to add more middle-income earners in the future, has attracted foreign investors to establish manufacturing bases in a bid to get closer to the expanding market.

“Imbalance in demand and a lack of good stock has continued to increase the asking price of industrial land during the review quarter,” the Cushman & Wakefield report said.

Government estimates show about 7 million people join the middle class each year. Indonesia’s per-capita income is expected to increase to $5,000 by 2014 from about $3,000 currently.

Average industrial land prices jumped 11.1 percent from the previous quarter to Rp 800,000 ($92) per square meter, it said.

Arief Rahadjo, head researcher and adviser at Cushman & Wakefield, said foreign firms wanted to get closer to the Indonesian market, which relies heavily on consumer spending for its growth.

Only 70 hectares of land were added to the market in the first quarter, while 322 hectares were sold. Nationwide, the supply of industrial land grew 0.8 percent to 8,702 hectares.

The report did not give the names of companies buying industrial land, though it did affirm a trend showing foreign manufacturers establishing more factories in Indonesia.

In December, consumer goods company Nestle announced that it was ready to open a new factory worth $100 million in Karawang to fulfill domestic demand of Milo and Cerelac. Vehicle maker Yamaha Motor said it would open a new factory in West Java to increase production by 10 percent annually. Daihatsu invested 10 billion yen ($120 million) to open a factory in Karawang to produce low-cost cars to be marketed in Southeast Asia.

The report said the industrial property sector saw 2010 as its best year in the last five years, and the bullish trend is expected to continue this year with foreign firms dominating demand.

Although prices have increased steadily, Cushman & Wakefield’s research showed Greater Jakarta is still the world’s third-cheapest location for industrial land. Guayaquil, Ecuador, is the world’s cheapest, followed by the Southern Economic Zone in Vietnam.

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