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Capital Move: Double-Edged Sword for Property Developers

The President of the Republic of Indonesia, Joko Widodo, has announced the national capital will be moved from Jakarta to a region in East Kalimantan after a period of planning lawmaking. He told a press conference on Monday (29/8): “The government has conducted in-depth studies in the past three years and as a result of those studies the new capital will be built in part of North Penajam Paser regency and part of Kutai Kertanegara regency in East Kalimantan.” The government will prepare a bill to be considered by the House of Representatives. If approved, construction could start next year. The moving of the capital would cost 466 trillion rupiah ($32.7bn), of which the state would fund 19%, with the rest from public-private partnerships and private investment in total 150 trillion rupiah. The move is seen as a catalyst to solve Jakarta’s administerial problems, with pollution, rapid sinking, and population density at the forefront.

The announcement to move Indonesia’s capital brings certain advantages and disadvantages to the country’s property industry, as the move will need heavy support from private property companies in order to develop the new capital as quick as possible. Many big developers like Agung Podomoro have already prepared by acquiring land in East Kalimantan. On the plus side, revenues will increase as demand for new property will skyrocket in the development of the Kalimantan capital. However, the move is seen as a potential for unfair competition, especially for the developers who are not prepared for the move. As the news broke, the index for property sector actually went down 1,43%, as developers seem to hold and see, where the direction of this plan is going.

The plan of moving the Capital made an impact in the market. The country's developer property players welcome this moving with positive expectations of the property sector on the Indonesia Stock Exchange (IDX). There are at least 62 property and real estate companies listed on the IDX. Some property stocks recorded a correction in today's trading, including PT Summarecon Agung Tbk (SMRA) minus 3.21% at the level of Rp 1,205/share, PT Ciputra Development Tbk (CTRA) collapsed 3.67% at the level of Rp 1,175/shares, and PT Lippo Cikarang Tbk (LPCK) dropped 1.29% at the level of Rp 1,530/share. On the flip side, five property issuers on the Indonesia Stock Exchange (IDX) recorded a significant increase in share prices at the close of session I, with PPRO, APLN, BSDE, CPRI, and TARE. PT. PP. Properti (PPRO) TBk even recorded a 17,55% increase of its stocks, as they announced that they have created a roadplan for its development in East Kalimantan. As property developers battle for demand in the new capital, the news of the capital move has impacted the sector directly.



CNBC Indonesia

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