Port Moresby artificial property bubble is about to burst

Home owners in Port Moresby, the nation’s Capital of Papua New Guinea (PNG) been hit hard by high rentals over the years despite the economic boom the country has been enjoying. Rentals have gone sky high forcing many working class people to move the settlements. 

According to inside sources, the artificial property bubble is about to burst. There is a good reason to believe that because PNG's economy is resource driven. The two-train facility owned by Exxon PNG Limited is just about done and so the top end market is coming off but not so fast for the middle and lower classes as yet. Therefore we expect a slow down for the next 18 months or so and then there might be another boom period if, the rumour that Oil search might have just enough gas for a third and fourth train LNG facility.

There is yet another interesting side to the same story from the banks. Commercial banks are no longer funding property loans due to oversupply. Existing Developers and landlords are desperate to find tenants to have the cash flow to repay their loans. Rentals for up market properties declining. A block of units downtown that would fetch K10 million in 2011 is selling for K4 million as reported in The National. Good news for first home buyers, you will soon be able to afford a brand new 3 bedroom home complete for under K300, 000.

Property prices and rental rates for the up market properties like down town and Boroko have surely come down but the standard houses in the regular suburbs remain relatively high due to the high demand since this is the category where the majority of buyers and renters are in.

We also noted that The Department of lands is also working on Strata-title legislation which will make life easier for multiple owners on a single block of land. One could build a high-rise building and have the title shared between multiple shareholders (e.g. one unit per shareholder).

However, the real effect of the so called property bubble is yet to be seen and felt and this does not translate well if it is only confined to a specific "high end" section of the market.

Occupancy rate is one way of probably looking at it, but it’s important to be more focused on the price of properties. The rule of thumb still stands, "high supply, low demand, price drops", and that is where efforts by NHC and Lands Department for example will help.