OBG: Property boom to ease

RAPID expansion in Papua New Guinea’s property market is set to be further heated by new foreign investment, according to Oxford Business Group.
However, industry players reject fears of a bubble and predict that rising prices will soon stabilise.
Malaysian firm Iris Land announced in February that it had entered into a US$53.4 million agreement with Kida Maru Holdings to develop a housing project in Port Moresby.
Kida Maru, which owns 14.75ha of land in Granville, Port Moresby, says it will join Iris Land in the deve­lopment of a project that includes 275 units.
The agreement highlights a surge in pro­perty development that has been building momentum in the past decade, with factors such as urbanisation and investor confidence in the country’s natural gas resources driving growth.
Observers also point to reforms of the financial system that they say have led to a more flexible, consumer-focused lending regime.
Recently completed projects include the 20-storey Grand Papua Hotel and the three-storey Vision City Mega mall, as well as new buildings for ITC firm Datec and ANZ Bank.
Major construction developments under way include apartment blocks being built for Steamships Property, a Bank South Pacific headquarters in Harbour City, preparations for the 2015 Pacific Games to be held in PNG, and the University of PNG’s plans to build new housing for athletes and guests who will participate at the games.
The swift re-drawing of the capital’s low-set skyline has raised fears of a bubble. But, with the IMF is advising PNG’s financial sector to be cautious of overheating in the property market, as real estate prices in the capital are already unsustainably high.
The IMF also noted last July that high real estate demand and market assessments of potential future constraints relating to the progress of the A$15.7 billion, ExxonMobil-backed, liquefied natural gas (LNG) project are expected to support property valuations in the short term.
Meanwhile, major property player Nasfund – a superannuation fund – is forecasting a property glut by 2014.
The firm believes that the current rate of construction will see demand dissipate as rental rates retreat, with the past 18 months witnessing rates for up market accommodation reach A$4,500 per week.
“While growth has been phenomenal over the last decade, (2011) has seen stabilisation,” Nasfund wrote last August.
“Any correction in the property market will not be a bust, but more a consolidation with minimal impact

n the economy.
“The reason is that much of the major commercial and real estate holdings are held by large, well-capitalised institutions, and that in a downturn in property, the assets are generally held not sold by these institutions.”
However, the issue of landownership is a substantial challenge to real estate investment.
Critics say that confusion about ownership of land – whether it is communally owned or owned by a single person – is a problem for the economic development of the country, particularly in major mining projects.
Around 15%, or some one million people, of PNG’s six million population currently live in urban centres.
By 2030, however, the country is expected to have around 3.5 million people living in towns and cities.
The rapid urbanisation represents a potential opportunity for real estate firms but creates a significant challenge for the government.
In February, Dr Billy Manoka, the chief executive officer of the Independent Consumer and Competition Commission (ICCC), said the government has identified a “critical” shortage of housing faced by Papua New Guineans and had requested the commission to conduct a comprehensive review of the housing and real estate industry in PNG.