A profile of the real estate sector in Papua New Guinea, including relevant regulations, the residential and commercial markets, and key trends.

Overview

The Papua New Guinea real estate market is based around two types of land. One is alienated, or ‘fee simple’ land, which is land registered at the PNG Department of Lands’ Land Title Registry.

The second, and largest portion, is customary land, which is owned by the indigenous Papua New Guineans. About 97 per cent of PNG’s land is of this type.

Most new commercially developed housing in PNG is built on alienated land because customary land is considered too risky.

(For more on PNG’s land laws, see Land ownership in Papua New Guinea explained.)

Residential real estate

According to real estate service provider Hausples, over 80 per cent of buyers need a mortgage to purchase a property. Location and surrounding infrastructure are considered important factors for property buyers.

High set housing (built on elevated foundations) continues to be the number one preference (42 per cent) compared with 16 per cent for low set housing. Only four per cent of buyers prefer apartments and 13 per cent are investment properties. Brick and concrete homes account for about a third of the total, as do houses with light steel frames and modern materials. Timber homes account for 22 per cent of the total. There is growing interest in kit or prefabricated homes.

Eighty five per cent of Papua New Guineans prefer to have either three or four bedrooms and the preferred land size is 300 to 500 square metres. Household occupancy levels are high with 40 per cent of households having between four and six and 6 occupants. Two thirds have six or more people in their homes and just over 16 per cent have 10 or more people, according to Hausples.

A fifth of PNG house owners own their house outright, with nine per cent owning their property with a loan. Seventy per cent are renting.

The price-to-income ratio of housing in PNG is 131.5. The price-to-rent ratio in the centre of Port Moresby is 40.14, while outside the centre it is 67.98.

The National Land Development Program (NLDP) potentially provides a path to free up customary land for developments through the incorporation of customary land groups and voluntary customary land registration.

The government in February 2020 announced a pilot program, using existing provisions in the Land Act 1996 to empower customary landowners surrounding urban centers in PNG to commercialise their land by creating State leases and granting titles to fully or partially landowner-owned companies. This was done in recognition of the fact that State land is all but exhausted in urban centres and that the demand for land by both the State and the private sector is increasing.

The pilot project is to be conduced in the Napa Napa area in Port Moresby. The aim is to generate templates that can be used elsewhere in the country, such as in satellite townships throughout PNG 

Affordability

Housing is generally seen as difficult to afford in Papua New Guinea. According to Hausples, 53 per cent of locals think the market is ‘very unaffordable’ and 27 per cent believe it is ‘moderately unaffordable.’ In 2019, nearly a quarter of respondents said they would pay up to K200,000 for a home, while 37 per cent were looking between K200,000-K400,000. A further 18 per cent were looking between K400-500,000, and a 21 per cent were looking above the half million mark. There is a strong desire (42 per cent) for more affordable housing developments. The level of interest rates and the quality of the building are not considered high priorities.

The National Executive Council (NEC) in October 2013 approved the establishment of the National Affordable Lands and Housing Program with the task of developing an ‘Affordable Housing Policy’. The government continues to consider programs to create more affordable housing. 

Preferred locations

For buyers in the National Capital District, the suburbs of Waigani, Gerehu, and Boroko are the most popular choices, with 8-mile also being noted as a preference for a satellite suburb. The out-of-town, or satellite suburbs, have increased in popularity, probably because of cheaper land prices. These areas are now serviced by better road systems, mobile communications and local shopping centres and, over time, may become part of the suburbs of Port Moresby.

For renters, the National Capital District is the preferred location (72 per cent) followed by Momase (17 per cent) and Southern (four per cent). The Islands and Highlands made up the remaining seven per cent. According to Hausples, within the National Capital District Waigani is the most popular location, followed by: Boroko, Korobosea, East Boroko and Town. Suburbs within close proximity to shops, schools, health centres and amenities are preferred.

Valuations

The real estate market is unregulated and getting reliable valuations can be a challenge, although the Real Estate Industry Association (REIA) does provide pointers. One source of price data is Hausples.

Generally offers for sale of land are made and accepted in writing and purchasers are typically asked to pay a 10 per cent deposit. Payment of the deposit is usually made via a lawyer or real estate agent and it is kept secure in a trust until the sale is final. Buyers usually get a law firm to search the title.

Stamp duty

Most real estate transactions in PNG attract stamp duty, according to a scale published by the Internal Revenue Commission. The fee is between two and five per cent. There is a stamp duty calculator at Hausples.com.pg.

Grants and advances

The First Home Ownership Scheme is an initiative between the Government of PNG and Bank South Pacific and offers up to K400,000 over a 40 year term, at a rate of four per cent. Kina Bank offers a 30 year loan term at 6.95 per cent. It is only available to PNG citizens.

PNG’s superannuation companies also offer a Housing Advance, which can be used as a deposit.

Deposits and insurance

Almost half (44 per cent) of mortgagees put up a 10 per cent deposit, while nine per cent put up a 15 per cent deposit and 22 per cent put up a 20 per cent deposit. Seventeen per cent put up a deposit between 20-5- per cent and six per cent put up a deposit higher than 40 per cent.

Home insurance is compulsory when taking out a loan.

Commissions

Real estate agents charge sellers a commission. The standard base fee in PNG is:

• 5 per cent on the first K100,000
• 5 per cent on the next K100,000
• 3 per cent on the next K100,000
• 5 per cent on the balance.

Source: REIA

If the agent is GST registered, then it may also be necessary to pay GST on the fee. Commissions can be renegotiated.

Ministerial approval

Non-citizens or company buyers usually need approval from the Minister of Lands to buy land in PNG. After settlement, the transaction needs to be registered with the PNG Department of Lands and Physical Planning. Registration fees are around 0.01 per cent of the property value. Registration fees include transfer of title documents and the title documents. This is often done by a bank or other lender. The lending body will then hold the original documents associated with the registration, including the title, until the loan obligations are discharged.

Rental market

Apartment living is considered a more attractive option in the renting market, in contrast to the sales market. About two fifths of renters prefer this property type, ten times the level for buyers. Security is considered more important in the rental market. Gross rental yields usually range from 1.4-2.5 per cent.

State land leases

Management of leases on state-owned land is done by the Department of Lands and Physical Planning, which has recently launched an online payment system for state leases.

Rental regulations

Renters typically have either a Tenancy Agreement or Lease over the property, which is drafted by a lawyer. Renters are generally required to pay for the preparation of the lease by the lawyer plus stamp duty on the amount of rent payable over the period of the lease. Renters are not required to pay for preparation of a tenancy agreement, which is not a legal document and is not as specific as a lease. Rent is usually paid on the first day of the month.

A bond, usually equal to a month’s rent is usually payable by the tenant to the real estate agent before entering the property. It is held to cover any outstanding rental or costs or damages and if there is nothing owing at the end of the tenancy it is refundable in full. Tenants who wish to terminate usually give one month’s notice in writing.

In most cases the owner is responsible for maintaining the structures and ensuring that they are safe. The tenant is normally required to keep the property clean. both inside and outside.

Housing development

Papua New Guinea is a high-risk market for private developers because of the shortage of land, a lack of financing options for both developers and buyers, a dearth of skills and high costs. Communication charges, legal fees, investigational costs of finding the price, quality, and durability of a service all increase the cost and risk of doing business in PNG.

Nevertheless, the demand for so-called ‘affordable’ housing is high. According to the National Research Institute, in most areas of PNG, state land, which can be used for housing development, is already exhausted.

According to the NRI, property developers have several obstacles to overcome:

• No program in place to finance private initiatives
• A need for more training of skilled labour
• High material costs due to a lack of a local supporting industries, which means materials for large scale development projects have to be imported from overseas.
• High construction costs because cost intensive expatriates with required skillsets have to train local
• High business costs due to insecurity in dealing with the public sector.
• High financing costs
• A shortage of foreign currency
• The absence of legislative protection for house buyers if the developer fails or abandons a project.
• A risk that the development will turn into an organised slum after the developer completes the project.
• A lack of regulation, meaning developers are at risk of becoming victims in the unregulated market. There is no legal framework or policy in place for affordable housing and no legal requirement for property purchasers to be represented by a conveyancing lawyer to protect their interests.
• The vagaries of the traditional ‘wantok’ system, which can support the progress of individual home buyers through financial support, or it can hold them back through payment expectations to other wantok members.

Key players

Information on properties for sale or rent can be obtained from real estate agents such as  LJ Hooker, The Professionals, Century21 and pngbuynrent.com.

Hauples provides an umbrella online listing service for many PNG real estate agents.

Further information

• PNG Department of Lands and Physical Planning (https://dlpp.gov.pg/)
• The Real Estate Industry Association (http://www.reia.org.pg/)
• Hausples (https://www.hausples.com.pg)

What else would you like to know?

This sector file is a living document created as a service to our subscribers. It is updated from time to time, as new information comes to hand.

Is there something else you’d like to know about this sector? Is there new information we haven’t included? Let us know in the Comment section below, or email editor@businessadvantageinternational.com and we’ll look into it.