Land for investors

In Indonesia, with a land area of almost two million square kilometers, land is supposed to be one of the cheapest factors of production. In reality, though, land transactions have been so complex and risky that investors often consider land acquisition one of the biggest difficulties they usually face in establishing businesses. The government, therefore, has promoted the concept of industrial estates, where investors can easily buy developed industrial lots for their projects or lease standard factory buildings from estate developers.

Industrial estates have been designed to make things much easier for investors because estate developers are authorized by the government to handle, on behalf of the investors, all the permits needed for industrial plant establishment. However, the realization of the concept has not been as smooth as it seems to be on paper.

A recent study by the National Land Agency and the ministers of industry and trade and investment development found that developers had been able to acquire only around 17,995 of the 53,000 hectares of land they have been allocated for developing industrial estates. Of the acquired land, only 6,370 ha have been developed into industrial plots ready to accommodate industrial plants.

The survey concluded that many investors still preferred to establish their plants outside industrial estates, because they considered the land prices charged by developers much higher than those outside the estates. Many industrial estates have also passed on the capital costs of basic infrastructures to investors. Several industrial estates have apparently been developed like isolated islands, without access roads.

These problems should not, however, be blamed only on unprofessional developers. For one thing, the absence of an organized land market in the country has long been identified as one of the major sources of the difficulties in land acquisition. The government seems to have been very slow in addressing that problem. An efficient land market requires a reliable land registry and a transparent information system, but these two crucial factors are still in the early stages of development.

Adding to the complexity of land transactions are the numerous regulations, both at the central and local government levels, which govern land titles and administration, along with the large number of different government institutions involved in land administration and management. A study by the World Bank last year identified almost 2,000 land-related laws and regulations

It is no wonder that land transactions, besides being very complex, arduous and time-consuming, often set off conflicts with land owners, especially in the absence of clear rules on the resettlement of the people whose land is acquired for industrial projects. Land disputes also often arise because of the vagueness of the legal framework on the recognition of traditional property rights.

Because the demand for commercial land in the cities and areas around urban centers will continue to increase and its prices will consequently rise steadily and sometimes astronomically, land problems and disputes could worsen to become a potential source of major conflicts.

The planned establishment of an inter-ministerial team by the National Land Agency to look into the problems of land transactions could be a small, yet good start towards solving the complex and often delicate issues of land acquisition. But whatever might be the findings of the study team, any efforts to solve the problems should not be of an ad hoc nature or case by case basis, but should focus on the development of an efficient land titling and registration system. Only with such an efficient and transparent system can the government set up a one-stop permit system for all matters related to land and enforce adequate protection of property rights.