Interview: Andrew Potter
With real estate prices in Papua New Guinea gradually coming down, is the country likely to see an end to its property boom?
ANDREW POTTER: Historically the residential market in PNG has seen high demand and short supply. This has led to a construction frenzy over the last few years, even though at the moment the market is in consolidation mode. The premium segment is in fact coming down significantly – by as much as 25-30% – but prices at the lower and middle end stayed roughly the same, and the market is nowhere close to experiencing the burst some people had predicted in the past. Though the residential segment is experiencing a bit of deceleration, this is not always bad news, as it provides an opportunity for renovation, especially of mid-tier properties that have hardly been attended to since 2009.
Meanwhile, commercial real estate activities in Port Moresby and other major centres remain quite healthy and have retained momentum as investors continue to look for new opportunities in these segments. In this state of affairs, competition in the future will gravitate towards improved services, due to increased demand for better facilities in real estate investments. What used to be palatable four or five years ago would not withstand today’s level of competition.
With the PNG liquefied natural gas (LNG) project fully operational and thus employing a fraction of the workforce used during its construction, do you expect a further decrease in housing demand?
POTTER: As many as 20,000 people were employed during the peak construction period, but most of them resided on-site, so the residential segment did not benefit directly, although Port Moresby hosted a handful of LNG workers and there was an exceptional influx of lawyers, engineers and other professionals. Moving forward, new energy projects in the pipeline, especially the Total/InterOil LNG project, coupled with general business confidence in the economy, should sustain the market for residential and commercial properties.
Rental prices remain prohibitive, especially in the major cities. What steps must be taken to normalise the market and boost development?
POTTER: The only measure that could truly make a difference is if more state land is finally freed up. Currently most land is customary. There is mounting demand, especially for commercial properties, yet it is nearly impossible to find available land for development in Port Moresby, Lae and Mount Hagen, where virtually every new project must be a joint venture with local partners, as most of the cities’ commercial properties are fully occupied. In short, there is definitely a problem of supply, but certainly not of demand. The same is true for retail; customer demand is maturing, which may mean more opportunities in this area.
To what extent can the private sector help meet PNG’s urgent need for affordable housing?
POTTER: More and more people are migrating to major cities, and this influx will most likely increase as the highways connecting the capital with Lae and the Southern Highlands are progressed. This will put greater stress on the city’s infrastructure, which already operates at maximum capacity and often beyond.
Yet the cost of doing business in PNG continues to be prohibitive, and venturing into affordable housing is quite risky. It would be unrealistic, therefore, to expect significant involvement from the private sector in the process of jump-starting affordable housing.
Given the limitations of customary land ownership, where are cities like Port Moresby likely to expand?
POTTER: Revamping parts of the cities will create new opportunities for mixed-use real estate projects, as seen in other cities around the world. In Port Moresby there is great potential to develop the harbour area, as the commercial port will be relocated to Motukea Island just across the bay within the next five years. We can expect more office, residential and commercial projects to follow, redefining the real estate market in PNG.
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