Ruth Dea Juwita, Jakarta – Private investors are reluctant to engage in the development of Nusantara, the future capital city under construction in East Kalimantan, balking at its sparse population and a string of policy pivots that have eroded confidence in the project's long-term commercial prospects.

Under the original plan, private capital was expected to shoulder roughly 80 percent of Nusantara's US$30 billion price tag through a mix of incentives and public-private partnerships.

But realized investment remains modest, with about Rp 65.3 trillion ($4 billion) in cooperation deals recorded as of September 2025 from 49 investors under 52 cooperation agreements, according to the Nusantara Capital City (IKN) Authority, the special governing body for the future capital.

"Population size determines whether building a shopping center is viable or not," Alphonzus Widjaja, chairman of the Indonesian Shopping Center Association (APPBI), told The Jakarta Post on Thursday, adding that malls should follow demand, not precede it.

He stressed that retail development "must go hand in hand with population growth" as the main driver of commercial activity.

Budiharjo Iduansjah, chairman of the Indonesia Retail and Tenant Association (Hippindo), echoed that sentiment, saying retail players would only be ready to invest "once there was visible human traffic" or when offices, residents and tourist activities take shape.

"Essentially, when there's strong promotion, attractions as well as visible government backing to get things started, then [private investors] can [follow]," he added.

Similar caution prevails in the hospitality sector, with only one of a planned six initial hotels in the nascent city opened. The Indonesian Hotels and Restaurants Association (PHRI) has bemoaned a sharp decline in government events held in Nusantara.

Last year, hotel occupancy in East Kalimantan was the second-highest in Indonesia, after Bali, thanks to the flurry of government meetings, incentives, conferences and exhibitions (MICE) events, including the Independence Day ceremony, according to Statistics Indonesia (BPS).

But "Investors grew worried as the government transition approached in October last year, fearing uncertainty about the project's direction. It turned out to be true," PHRI secretary general Maulana Yusran said on Friday, referring to the inauguration of President Prabowo Subianto as successor to Joko "Jokowi" Widodo, who had initiated the megaproject.

Occupancy rates have yet to pick up this year, and construction on most of the remaining hotels has not begun, due to the uncertainty, he added, warning that future projects were likely to remain on hold until the relocation of government workers and market activity truly materializes.

"The mismatch is becoming costly for early movers. Private investors still have to pay their bank loans and cover daily costs, even when there's no market." Maulana warned. "The government must pay attention. It's unfair to the investors."

Nusantara is notably absent from the "top five" priorities in the 2025-2029 national medium-term development plan (RPJMN), where food security, defense and social aid programs, Prabowo's signature policy priorities, dominate.

Less than a year into his term, Prabowo redefined Nusantara as a "political capital" through a presidential regulation signed in June, shifting the vision from Jokowi's "global green city" blueprint for a smart, sustainable capital built to international standards to mark the country's centenary of Independence in 2045.

The decree frames ongoing development as preparation for realizing Nusantara's role as the political capital by 2028, tempering earlier ambitions to create a new economic hub and to break the Java-centric power structure as Jokowi had declared on many occasions.

Meanwhile, IKN Authority spokesman Troy Pantouw said Nusantara's construction had entered its "second phase" on Tuesday, focused on building public transportation facilities and expanding basic infrastructure.

"The first phase of civil servant relocation will begin this year, with a target [of moving] up to 4,100 personnel," he told the Post.

Private sector commitment to the project remained strong, he claimed, adding that the signed cooperation deals reflected confidence that was also reinforced by the June presidential regulation, which reaffirmed Nusantara's measures to accelerate its development.

Analysts warn that redefining Nusantara's ideology from a globally oriented city to a political capital weakens the project's commercial logic and exposes private investors to greater risk.

Mamay Sukaesih, an infrastructure analyst at state-owned lender Bank Mandiri, said the government's shifting focus and reduced activity in Nusantara sent a negative signal about the project's political backing, making investors wary of potential delays and uncertain investment returns.

"The government's most crucial commitment is policy consistency and a clear long-term direction," Mamay told the Post on Monday. "More state funding may help, but it won't automatically restore confidence if the project's trajectory remains unclear."

Urban planning expert Nirwono Joga said on Tuesday that the shift "had shrunk the original vision" and "lowered the standards" of facilities investors would reasonably aim for.

After "so many changes" over the past five years, Nirwono said, investors were likely to wait until at least 2028, he opined, when Nusantara officially became the "political capital" and actual residents would begin flocking in.

Until then, he warned, development would rely heavily on state funding, even though the 2022 Capital City Law mandates that no more than 20 percent of Nusantara's financing is to come from the state budget.

"If it's only meant to serve as a political capital or a tourist destination in Kalimantan, the city no longer needs facilities built to international standards," he told the Post.

"By lowering the city's ambition in this way," he added, "we're ultimately lowering the quality of Nusantara itself, and that's deeply unfortunate."

Prabowo has earmarked Rp 48.8 trillion for IKN's housing and government office projects through 2029, less than the Rp 75 trillion allocated for the project from 2022 to 2024 under Jokowi.

Source: https://asianews.network/investors-hold-back-as-plans-for-indonesias-future-capital-scaled-down