Tough challenges facing industrial estates

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Industrial estates are in a state that befits a line in the lyrics of an old song, “… still the same old story.” If other property sectors are showing signs of recovery — with housing development coming to life and retail property forging ahead, the industrial estate business, however, remains stagnant.

“There is hardly any improvement compared to two or three years back,” said a marketing director of a property company developing a residential estate and integrated non-polluting industrial estate.

Arief Rahardjo, Procon’s research head, also voiced a similar opinion when divulging the company’s latest property research report, the Jakarta Quarterly Market Review, for the first quarter of 2007, in Jakarta earlier.

Procon Indah noted that in the first quarter of 2007, there was no new supply of industrial land in Jakarta, Bogor, Depok Tangerang or Bekasi, the areas serving as an indicator for economic growth. Up to March 2007, total industrial estates in these areas were recorded at only 7,304 hectares.

Indeed, there is a plan for fresh supplies from a number of industrial estates built in Bekasi, Karawang and Serang in 2007-2008, measuring a total of about 400 hectares in area. However, the realization of the plan is dependent upon demand.

Pursuant to Presidential Decree No. 41/1996 dated June 4, 1996 and Industry and Trade Minister Decree No. 50/MPP/Kep/2/1997 dated Feb. 20, 1997, an industrial estate is an area where industrial activities are concentrated. Such estates must measure at least 20 hectares and provide auxiliary infrastructure and facilities.

However, when a company or a number of companies controls a plot of land measuring at least 10 hectares in an area designated for industrial purposes and complies with the Regional Spatial Layout Design Plan and is already used for industrial purposes, it can become an industrial estate. The owning company or companies will enjoy the same rights and bear the same obligations as companies in an industrial estate.

But it is not easy to sell a plot of land in an industrial estate because it is dependent on the growth of business in its surrounding areas.

According to data compiled by the Office of the State Minister of Cooperatives and Small and Medium Enterprises, there are currently 63 industrial estates but only four house small and medium enterprises (SMEs). These four are Jababeka (Bekasi), JIEP (Jakarta), KIMA (Makassar) and KIM (Medan). “The fact that industrial estates are not being used much has led to less than optimum development in the small and medium business sector,” Ali said.

Admittedly this sector is not as bright as it was a few years ago prior to the monetary crisis that swept Indonesia. Prior to 1997, businesspeople vied with each other to meet the high demand in the industrial estate sector following economic growth in urban areas. Cities, as providers of employment opportunities, are generally magnets that prompt businesspeople to continue building factories.

Unfortunately, when the crisis hit the country and production costs as well as loan burdens increased, the growth in this sector also weakened, if not completely ground to a stop. The weakening interest of local businessmen to expand their investments and waning foreign investor interest in Indonesia dealt a big blow to the players in this business.

As a result, interest in investing in industrial estates does not burn as bright as it does in other property business sectors. In terms of area, this business is yet to spread, with industrial estates remaining concentrated in certain areas only. According to PT Capicron Indonesia Consult Inc. data, industrial estates that remain in operation are in Jakarta, West Java, Central Java, East Java, Riau, North Sumatra, West Sumatra, South Sulawesi and East Kalimantan.

Of these nine regions, West Java, particularly Bogor, Tangerang, Depok and Bekasi, is home to the biggest number of industrial estates. This reality is inseparable from the fact that several areas are buffer-zones of Jakarta. Another region that can boast a lot of industrial estates is East Java.

Ironically, the plots of land for which a license has been issued have yet to be snapped up by buyers. Some people predict it will take another three to five years to sell these plots of land. The reason is easy to guess: foreign businesspeople are not interested in investing as there is no guarantees of security or political stability, while the national economy remains sluggish and is yet to undergo major recovery.

It is true that improvement in nearly all economic indicators as evident in early 2007 — such as a slightly lower inflation rate and an economic growth of 5.4 percent in the first quarter of 2007, up from 4.6 percent in the same period the year before — has led to some recovery in the industrial estate business.

According to Procon data, sales of industrial land in Jakarta, Bogor, Depok, Tangerang and Bekasi in the first quarter of 2007 rose by 0.4 percent to 73.8 percent. Net purchases of industrial land in this quarter were recorded at about 30 hectares, or close to 17 percent of the total purchases in 2006.

However, purchases in this quarter were 65 percent lower than those in the first quarter of the year before, registered at a total of 85.3 hectares. Total purchases in this 12-month period stood at 118.4 hectares, down by some 51 percent over the previous 12-month period.

The demand for industrial land in this period came mostly from automotive spare part companies, electronic component companies, manufacturing companies and food packaging companies. Meanwhile, demand for industrial buildings came from the industrial machinery workshop and logistics sectors. As for foreign investors, most of them come from Japan and Holland.

Of the total net purchases of industrial land in the first quarter of 2007, half were made by Krakatau Cilegon industrial estate (four transactions). Industrial estates in Bekasi and Karawang have seen the sale of 8.4 hectares and 6.6 hectares of industrial land respectively. In Bekasi, Bekasi Fajar Industrial Estate has purchased six hectares of industrial land in two transactions, while Surya Cipta City of Industry has registered the biggest purchase in Karawang, namely six hectares in three transactions.

“Demand for industrial land ranges between 1,000 square meters and over two hectares. Demand for rented factories has also been recorded at industrial estates in Bekasi and Karawang,” said Arief Rahardjo of Procon.

The average selling price of industrial land today is Rp 386,000 per square meter. The U.S. dollar selling price, as quoted by some 30 percent of industrial estates, stands at $42.30 per square meter. Service fees at a number of industrial estates average $55.50 per square meter/month.

Rent of industrial land in industrial estates in Bogor and Serang averages 3 cents per square meter/month. Meanwhile, the rent of standard industrial building ranges between Rp 25,000 and Rp 30,000 per square meter/month.

According to a Procon analyst, in general, although belatedly, the industrial estate market is showing signs of increased demand, particularly from local investors looking for land for small and medium industry.

Demand for industrial land of a rather large scale, which comes mostly from foreign investors, will remain highly dependent on government-sponsored improvements in the investment climate. (Burhanuddin Abe)

The Jakarta Post
June 26, 2007