Located in East Kalimantan on the resource-rich island of Borneo, Nusantara has been designated as the new administrative capital of Indonesia. The plan – first announced in August 2019 – was ratified in January 2022 when the House of Representatives approved the new national capital city (IKN) Law, providing the legal basis for the capital’s relocation. The new city, which will span approximately 256,000 ha, is expected to cost Rp466trn ($30.3bn). Of this, 20% is expected to be sourced from the country’s budget, while the remaining 80% is expected to come from either public-private partnerships or private sector financing.
Opportunities
Relocating the capital represents a monumental urban planning undertaking and promises a major boost to the economy. Envisioned as a smart, sustainable and green city, the new capital aims for netzero carbon emissions, extensive public transportation, reliance on renewable energy and a commitment to allocate at least 75% of its area to green spaces.
The project offers numerous opportunities for contractors and real estate developers, as the new capital will require housing for government employees, commercial spaces for businesses and social infrastructure such as schools, hospitals and recreational facilities. It is projected that by 2045 the new capital will have a population of 1.9m, which is around 10 times the area’s 2023 population, while the population of East Kalimantan is expected to grow from 3.7m to 11m.
In October 2023 Indonesia’s Parliament passed Regulation No. 12 of 2023, revising the IKN Law, and preventing future presidents from abandoning the project and expanding the power of the IKN to manage its own budget. Under the new legislature, investors are granted land rights for a maximum of 95 years, extendable for an equal duration, while the right of use is granted for 80 years, with the option of extension for another 80 years. Furthermore, the updated law introduced several incentives to stimulate investment, including up to 100% corporate income tax exemption for domestic taxpayers investing at least Rp10bn ($650,000) for 10 to 30 years, along with tax holidays and personal income tax exemptions for investment in projects such as ports, airports and renewable energy.
Major Projects
The development of Nusantara necessitates significant investment in infrastructure to ensure connectivity within the city and with other parts of Indonesia. Consequently, two ongoing projects stand out: the Balikpapan-Nusantara toll road and the Nusantara International Airport. The toll road, which was 90% complete as of July 2024, is expected to significantly reduce the travel time and distance between Balikpapan, a vital seaport city and economic centre, and the IKN. The new motorway will reduce the current 95km journey, taking two hours and 15 minutes, to 57 km, with a travel time of just 45 minutes.
Additionally, the Rp4.2trn ($273m) Nusantara International Airport is set to boast a 3000-metre runway and span 7350 sq metre. The airport’s development is led by the Ministry of Transportation and the Ministry of Public Works and Public Housing, and it is expected to be operational by the end of 2024.
By December 2023 the Nusantara project had attracted 328 letters of intent from investors interested in contributing to the future capital. Foreign investors constitute 45% of the total number, primarily hailing from China, Japan, Malaysia and Singapore. Notably, ongoing projects include a $1.3bn venture led by a consortium of Indonesian conglomerates spearheaded by construction giant Agung Sedayu Group. This project encompasses the construction of a five-star hotel, shopping malls and office towers.
December 2023 also saw construction begin on the Central General Hospital and the Pakuwon Nusantara Superblock project, a mixed-use project spanning 7.5 ha that includes a shopping centre, hotels and an international school. This followed the initiation of construction on the Abdi Waluyo Hospital in September, and the Hermina Hospital and Mayapada Hospital in November.
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