THE real estate industry is vital to the development of commerce and is a key to determining the welfare of the growing urban population. There are multiple factors and interdependent stakeholders that influence the industry with more to be done to capitalise on its potential for the development of businesses and PNG. Business reporter MARK HAIHUIE spoke to Real Estate Industry Association president MIKE QUINN on some aspects of the real estate industry.
Q: Could you give a brief on the Real Estate Industry Association?
QUINN: The Real Estate Industry Association is an incorporated association of firms and individuals involved in the real estate industry in PNG advocating honesty and integrity in real estate dealings and subscribing to a code of ethics and annual auditing for real estate agents of trust funds.
The association was established in 2002 and membership required all real estate agent members to adopt the code of ethics.
By 2006, it became obvious that real estate agents were only a small part of the industry and in an effort to extend the aims and ideals of our association to other sectors of the real estate industry, we altered our constitution and name and became the Real Estate Industry Association.
This then enabled people in the real estate industry who were not real estate agents to become members of our association and subscribe to our code of ethics and ethos.
This include self-managed property owners, valuers, architects and draftsmen, builders and developers, banks and superfund managers, accountants and lawyers and other industry participants.
Q: Government regulation of the real estate market is an issue that had been trending recently. What are your thoughts on this?
QUINN: There had been a lot of commentary on the PNG property market and suggestions that it should be artificially controlled.
That scenario is fraught with danger. But more important is the fact that the market is, as it always does, already adjusting as a result of the free market factors that are at play. The Real Estate Industry Association and the real estate property owners do not set the prices of property.
The market does that.
All that people in the real estate industry do is try to get the best possible price that they can. Who doesn’t? A free market does that. It is called “supply and demand”.
For a long time earlier this decade, and even prior to that, demand exceeded supply.
We now have a trend in parts of the market where supply is greater than demand. That is when prices reduce.
This had been evident by the significant reductions in rentals and sales values of property in the upper end of the market, and the plateauing of rentals and sales prices in the middle and lower sections of the real estate market.
In the upper end of the market, rentals have reduced by as much as 40 per cent in some areas. This is as a direct result of supply and demand.
Q: Land influences the real estate market, especially in terms of its affordability and availability. Considering this, how can the benefits from this factor be maximised?
QUINN: In PNG, there is one significant factor that continues to exert upward pressure on property prices – and that is land availability. With 95 per cent of the PNG land mass held under traditional ownership, the ability to secure and develop land is stifled and creates inflated values on the alienated state leasehold land that is available with secure mortgagable tenure.
Creating a source of land able to be purchased, mortgaged and developed is the greatest hurdle that we experience currently. Increased availability of land will require the development of traditional land that currently remains largely unproductive.
There is now a relatively new land tenure model that potentially makes traditional land available for development without the landowners losing ownership of their land. This is the Integrated Land Group (ILG) title system which is a 99-year lease.
The land rent earned on the land goes to the traditional landowners and not the government. Ownership of the land is retained by the traditional landowners.
By utilisation of the ILG title system, we are hopeful that the new government will, in collaboration with a revitalised Lands Department, new progressive policies, a cashed-up banking sector and an improving economy, lay the foundations for further urban and rural development that will enable better utilisation of the existing un-utilised land resources.
Q: The real estate market had also seen fluctuations caused by the large projects such as the PNG LNG and the upcoming Asia-Pacific Economic Cooperation (Apec) summit and Papua LNG. Can you describe the impact and the prospects of these projects on the market?
QUINN: Port Moresby had enjoyed some significant beneficial projects that have provided a significant stimulus to the economy here.
First there was the ExxonMobil LNG Project that created huge demand for property primarily at the upper end of the rental market. But it created unprecedented demand across all sectors of the real estate industry, and pushed demand well above the ability of the market to absorb, and as a result pushed prices up.
That project was followed by the Pacific Games and the infrastructure that was required to make that happen was a welcome stimulus for Port Moresby, which was starting to feel the hangover effect from the ExxonMobil LNG Project.
This kept things percolating along and helped to cushion the decline that has been occurring since 2015, which has now been augmented by the Apec conference infrastructure development and preparations.
If there is no immediate stimulus after the Apec conference, then further market declines can be expected and a significant slowdown in the speed of development of residential properties will occur.
The most obvious project on the horizon to keep Port Moresby stimulated will be the Total LNG Project.
The time frame for the commencement of that project continues to move further away and so the real estate market after 2018 will likely depend on the commencement of Total LNG Project.
If that project commencement date continues to move out, then late 2018 will start to see a further decline in demand and a more sluggish market will begin to emerge and downward pressure on prices.
Q: The demand for property and housing is increasing in PNG. How can the government and the private sector cooperate to cater for this through policies and investments?
QUINN: Projections currently suggest that by 2050, Papua New Guinea will have a population of 20 million people – between two and three times as many as we have now.
Where will they all live, go to school, find hospitals and get their food? These are questions that government is grappling with.
Sensible policies that are arrived at with input from all the relevant stakeholders are required to achieve a successful result.
Policies designed to disenfranchise non-citizen state leaseholders and drive out foreign investment do nothing to encourage a stable and confident real estate market.
In actual fact they undermine it.
Ways to stimulate the real estate market are essential to its continued growth.
Generally speaking, our prime minister (Peter O’Neill) has been committing to projects that will provide stimulus to the economy which in turn affects the real estate sector.
Q: What are the prospects for the market in the medium to long-term for PNG?
QUINN: 2018 is just around the corner. Hausples did a fantastic job earlier this year producing a 2017 real estate sentiment survey on Papua New Guinea.
The results were positive and the aims and ambitions of the people who responded and their confidence in the future was gratifying.
But sentiment and reality are not always in harmony.
The reality of it is that a variety of factors are shaping the market at present and everything is pointing towards a soft and even further softening real estate market in 2018 in terms of prices and demand and a high probability of it plateauing late 2018 and staying flat into 2019.
When conditions improve, we feel that the rebound will be quite spectacular but for the foreseeable future it is a buyer’s market.