Credit tightens up on housing and the property market

By RICHARD SAPIAS in NASFUND Newsletter

The local economy like the rest of the world is slowing down and the effects are starting to hit the local market.

The banks and other financial institutions are tightening up on their lending policy. We now have a situation where a mandatory requirement ( apart from being able to service the loan facility) is 20% equity ( of the loan amount) prior to applying for a home loan. This has been raised from 10% previously required by some commercial banks.

Also interest rates have been raised and this will put further strain on a borrowers ability to service a loan.

The housing market has already started to tighten in some areas and in turn property values are starting to feel the effect in some areas.

One of two things is now happening:
Potential buyers have shelved plans to purchase because of the shortfall in the new equity requirements for banks; and
Some employers have stepped in to assist their employees with the equity shortfall.

Referring to point two from above, some employers have been quite supportive and almost aggressive in their attitude about supporting staff into housing schemes. This is probably the only way that certain purchasers will get access to finance because the cost of living is rising at a much faster rate than the basic wage.

As far as the market is concerned some areas of the market will tighten up more than others.

The top end will slow more than anything under the K400, 000 mark and investment property will be traded a lot more cautiously as any prudent investor will nervously watch the direction of interest rates in relation to market conditions for the next six months at least this is of course unless you are totally cashed up.

Required rates of return will rise as banks are starting to hike their interest rates and that in turn will slow down the hype of some areas of the market.

Interestingly enough pressure cookers like Port Moresby and Lae still experience high rates of demand and one thing that has become apparent is the emerging PNG middle class. This has been evidenced by the fast rate of sales in the K250, 000 to K350, 000 mark in the past 12 months. Also the surplus in prospective buyers who have access to finance in that range but are unable to get access to stock.

Next month we will try and provide you with an overview on market movements and the direction that we see some property prices heading.