Rental business surges despite lack of FDI

Rental business surges despite lack of FDI

Sudibyo M. Wiradji, The Jakarta Post, Jakarta

While industrial estates are facing tough times due to a lack
of foreign direct investment (FDI), those involved in the rental
business can still do well.

Amid lingering security concerns, investors, both local and
foreigner, now prefer to rent ready-to-occupy factories rather
than buying industrial sites to accommodate their business
activities.

This situation has consequently changed the business pattern
of the existing industrial estates. Many of them now focus on
building ready-to-occupy factories to take the advantage of the
growth in rental demand.

Those industrial estates that are involved in the rental
business can still produce good results. "We enjoyed good growth
in 2003 thanks to the growing demand for rental factories," said
PT Bestland Pertiwi's marketing general manager Irwan Makinto

The tenants of rental factory units are mostly small and
medium enterprises (SMEs), most of which are engaged in supplying
large companies, such as automotive and electronics producers.
The expansion of an automotive producer has the potential, for
example, to attract spare parts or tire producers to a particular
industrial estate.

Large companies generally require large sites for their
business activities. Usually, they buy these. Unlike large
companies, SMEs only need small or standard factories. Renting a
standard factory already provided by the industrial estates is
normally enough for them.

PT Bestland Pertiwi, which operates 2,000-hectare industrial
estates in Karawang and Purwakarta, West Jakarta, has 70 tenants,
mostly engaged in producing car parts and electronics products.
Foreign investors, of which 50 percent are from Japan, account
for almost 85 percent of their tenants. Other investors come from
Germany, Italy, Hongkong, Taiwan, Korea and Singapore.

Another industrial estate that has benefited from offering
ready-to-occupy factories is PT Industrial Estate Pulogadung
(JIEP), which is located in Pulogadung, East Jakarta.

"In 2003, we saw 95 percent of our standard factory units
occupied," said Asrul Waryanto, who is in charge of legal affairs
and public relations at the company.

"By focusing on rental factory units, we have made good
profits despite the sluggish growth in industrial estates around
the country in general," he said.

Currently, about 400 small and large firms owned by local and
foreign investors, including investors from Japan, Taiwan and
Korea, are taking advantage of JIEP's facilities. Many tenants
produce garments for export.

"To accommodate the increasing demand for factory buildings
and warehouses, JIEP will set aside more land for constructing
factory units in 2004. We also plan to build two more warehouses
this year," Asrul of JIEP said.

Most of the industrial estates which still focus on selling
industrial sites are doing poorly due to the continued sluggish
demand from foreign investors.

For instance, PT SuryaCipta Swadaya, which operates a 2,400-
hectare industrial estate in Karawang, West Java, has seen only
30 percent of its industrial sites occupied since its started
marketing in 1995.

However, despite the declining trend in demand for industrial
sites, the company can survive thanks to its diversified
business. "We do not only focus on the sale of land, but we also
provide overall maintenance services to companies operating in
the estate. These services include a water treatment plant, fire
prevention services, power supply capacity and telephone lines,"
said the company's marketing director Singgih Pratista.

Singgih said that the company was conducting a study on the
possibility of offering industrial sites with factory units for
rent. "We will have to identify the market first, but hopefully,
we will decide this year," he said.

Currently, PT SuryaCipta Swadaya has 31 tenants, of which 26
are active. Most of the tenants are engaged in producing
automotive, electronics and chemical products.

Meanwhile, PT Kawasan Industri Jababeka, which operates 3,000-
hectare industrial estates in Cikarang and Bekasi, saw a slight
increase in land sales to existing investors in 2003.

"Most of the buyers are existing investors who want to expand
their businesses. They are not new investors," said PT Jababeka's
general manager for marketing Agus H. Canny.

Even though its policy on offering industrial sites for rent,
which it adopted last year, has received little response, it will
continue with the policy pending an improved business climate
following this year's general election.

Jababeka's industrial sites range from 3,000 square meters to
5,000 square meters.

PT Jababeka has attracted leading national and multinational
companies to set up factories in the estate. Investors include
those from the United States, Japan, Korea, China, Singapore,
Malaysia, Norway and Sweden.

Although there has been a slight increase over the past two
years, the flow of FDI generally remains low.

According to data issued by the Investment Coordinating Board
(BKPM), the value of new foreign investment rose slightly to
US$4.62 billion in the January to November period last year from
$4.21 billion in the same period of 2002. But the number of
foreign investment projects dropped to 773 from 976.

The value of foreign investment made for the expansion of
existing factories declined to $3.31 billion from 3.63 billion in
the same period last year.

In the domestic investment sector, approvals for new projects
rose to Rp 40.87 trillion during the January to November period
in 2003 from Rp 12.37 trillion in the same period of 2002. But
the number of domestic investment projects during the period
dropped to 144 from 158.

The country's economic situation is showing some improvement
as indicated by an increase in economic growth, the strengthening
of the rupiah and the low inflation rate. Economic growth is
expected to increase to five percent this year from about 4.5
percent last year. The inflation rate is also projected to
continue to decline to between 5 percent and 6 percent this year
from between 6 percent and 7 percent in 2003.

However, economic analysts estimate the inflow of FDI will
remain low despite the improvement in the economy. Many people
fear that the general and presidential elections that will be
held during the year might incite social unrest. If this comes to
pass, it will not only discourage foreign investors but also
reverse the current positive economic trends.