Interview: Brian Hull
What has been the impact of government policies on the local real estate sector?
BRIAN HULL: The first homeowner scheme, which has been handed over to Bank South Pacific, has had a significant effect on the real estate market. Under this scheme, people can apply for a loan of up to PGK400,000 ($118,000) at 4% interest for 40 years, with the borrower putting up 10% equity. With the funds acquired, people can buy both land and house as a package, and the house may even be fully furnished. They can also buy land and use an approved builder for construction.
Policies that would allow and encourage customary landowners to build and lease their land through regulated titles would be a major step forward for the real estate industry. There are some relevant policies to this end, but they are not yet formalised or enforced. As such, projects often fail due to poor organisation; for example, some landowners receive money directly from buyers and investors without the security of a formalised contract or title. Such a system might work in the short to medium term, but it can lead to problems over a longer period of time. Disputes over sales – for example, if the sales are not authorised – happen on a large scale for both customary and alienated land.
Further challenges to home ownership include dealings with financial institutions, such as banks. This is time consuming and frustrating for many people, and this can be solved through encouraging the real estate sector to deal directly with banks.
How are the fluctuations of supply and demand in the country affecting the market?
HULL: The current insolvency of the government is creating major problems for the unemployed, many of whom are categorised as middle class. As such, the demand for houses has declined. On the supply side, there are some real estate projects that offer value to middle-class buyers, and there is demand for projects such as Edai Town and North Lakes. In the latter, part of the infrastructure, such as the access road, is being constructed by Chinese contractors. It is important to realise, however, that construction in this country is very expensive, with virtually all material and equipment having to be imported. The only locally sourced material is timber, which requires extensive treatment against termites to ensure long-term reliability.
There is enough land to nourish supply, but large areas of alienated land owned by the state need to be opened up for productive use. The proper method for doing this would be to subdivide it, put titles in place and ensure the necessary infrastructure, such as sewage, water and electricity, is installed. This would create a framework for the private sector to build and sell properties. The government needs to facilitate this development, including monitoring the private sector for integrity. The way the private sector is currently operating is very expensive, resulting in a significant cost component to the final price of real estate.
Which regions outside of Port Moresby hold the most potential for real estate investment?
HULL: Whether a region is interesting to real estate investors depends to a major extent on the industry and the infrastructure required for that industry. For example, the port in Madang and facilities in Lae offer opportunities for the fishing industry. However, Lae is in a recession and the potential there can only be realised if there is rural development in the Highlands Region and additional economic activity spurred by large projects. Bougainville also has potential, but it will take a long time to develop.
Real estate investment is possible in rural areas throughout the country, especially related to the tourism industry. The major obstacle here is the issues surrounding law and order, which hinder demand for both construction and tourism. If the government can overcome these challenges, it would facilitate investment. I expect investment to rise from 2022 onwards.