Interview: Ken Richardson
What impact do fluctuations in global commodity prices have on the Port Moresby real estate market?
KEN RICHARDSON: Papua New Guinea is fundamentally a commodity-driven market. Most of that activity is not centred in Port Moresby, although developments in agriculture and other commodity sectors will increase consumer confidence and investment in the capital.
Buyers have been reluctant in the past few years, and it is not unrealistic to believe that rental and sales prices will decrease further in 2019. That said, increased confidence in the economy, particularly as the second liquefied natural gas (LNG) project starts up, may bring stability, persuading people that now is the time to buy.
The impact of the new projects will be limited and unlikely to return to the levels of the boom period 10 years ago. Energy companies are no longer just writing cheques for accommodation, unlike when they first arrived in PNG. During the first LNG project, there was very little suitable accommodation. Now, there is plenty of capacity, especially at the higher end of the market.
The upcoming LNG project might also have less impact because many of the services it requires are already established, which was not the case during the first LNG project. I believe that we are nearing the bottom of the market, and now is the time that prospective investors should be looking to make purchases.
Which segment trends do you see as long term?
RICHARDSON: The Port Moresby real estate sector remains competitive in terms of price and demand. One ought to distinguish between competition at the higher and lower ends of the market. The definition of “high end” is changing, and buyers and renters expect high quality, not only in terms of the accommodation, but more importantly in terms of amenities and services. Several major refurbishment programmes have been undertaken that helped retain higher rents.
The middle range of the rental market has stalled and rents have dropped considerably, sometimes by as much as 60%. The apartments were primarily occupied by expatriates in the kinds of mid-level management and technical roles that are shed during an economic downturn, and we hope that economic improvement will increase demand for accommodation at this level.
The commercial and industrial markets have also undergone a large downturn. Property demand has fallen in areas where demand used to be high, due to the relocation of light industrial and logistics services towards the wharf, as well as the opening of new areas via improvements in the capital’s road system.
How are wage and mortgage growth correlated?
RICHARDSON: Domestic middle class growth will move the industry from a centrally controlled, rental-based market to a broader, owner-occupied model, particularly at the lower end of the market. PNG’s first home ownership scheme allows buyers to borrow PGK400,000 ($121,000) at a 4% interest rate over a 40-year term. It can be considered a success, as it allowed many to become first-time home owners. However, reaching the next phase of development and enabling broader home ownership can only be achieved if we realise certain priorities. First, we need to bring prices down. Second, we need to tailor schemes to PNG, rather than adopting housing models from foreign markets. If developers start to tailor their products to a broader PNG market, it will create significant growth opportunities.
Additionally, the government needs to study ways to increase the availability of land lease options. Many consumers do not acquire a state lease; rather, they acquire a sublease that entitles them to a right of occupancy. Strata title legislation may prove to be a viable way to open up access to land. As the market grows, it will need to better regulate who can participate. At present there are few safeguards for consumers, though membership of the Real Estate Industry Association, a voluntary organisation advocating for honesty and integrity, can be considered a sign of reliability for consumers.