Investors have demanded hefty returns in order to get engaged in the future capital city, Nusantara, despite numerous incentives already offered to woo them.
Public Works and Housing Minister Basuki Hadimuljono, who also serves as acting head of the Nusantara Capital City (IKN) Authority, said potential investors typically sought a minimum internal rate of return (IRR) above 12 percent, based on his experience with handling construction projects under his ministry.
In simple terms, the IRR represents the annual profit a project yields for its investors.
“An IRR above 12 percent will definitely be attractive for both foreign and domestic investors,” Basuki said on Friday, as quoted by Bisnis.
The government might need to provide additional support to make construction projects more appealing should the return rate fell below 11 percent, he added, but if the return rate was 12 percent or higher, the project could attract purely foreign direct investment (FDI) without any additional government assistance.
The IKN Authority’s special staffer for regional economic area development and peer regions, Rusmin Lawin, said on Monday that an IRR above 11 percent was “attractive enough” for government construction projects.
“An attractive IRR for government projects and public-private partnership (PPP) typically ranges between 12 to 15 percent, while private sector projects typically aim for 15 to 20 percent,” said Rusmin, who also serves as deputy chair for foreign relations at property group Real Estate Indonesia (REI).
Source: Asia News Network
