Tuesday, January 19, 2010

Housing bombshell for Papua New Guinea!

Caption: Nasfund’s Malolo Estate at Nine-Mile.-Picture courtesy of Nasfund

Papua New Guineas will not be able to afford housing

Papua New Guineans will not be able to afford housing, despite the emergence of the LNG projects in the country, according to Nasfund joint chief executive officer Rod Mitchell.

He dropped the bombshell in a report on Nasfund’s Eight and Mile-Mile housing sub-divisions to members.

“The dilemma Port Moresby now faces is the LNG project,” Mr Mitchell said.

“LNG will accelerate the emerging middleclass, meaning a small but growing minority will be able to see home ownership within their grasp.

“The flipside is that the gas project will draw more citizens from rural areas around the country to Port Moresby on the false premise of jobs and the glamour of big town life.

“For most, it will be a heart-filled experience of loss of identity, poverty and disconnect from what is often a rewarding rural life and culture.

“A city of half a million inhabitants is expected to swell in the next decade to over a million, of which most will reside in the exploding settlements on the outskirts of Port Moresby.

“If we believe we have a housing problem now, we do not believe we have seen the worst of it.

“And clearly we need to continue the discussion until we bridge housing reality with housing expectations.”

Mr Mitchell said the housing affordability debate would and must continue.

“The reality is that in the absence of higher family disposable income and a very-visible middle class, housing as currently being offered will remain unaffordable for most,” he said.

Mr Mitchell said in discussing housing affordability, a number of issues present very clearly:

·        Lack of a middle class that can afford the cost of a dwelling;

·        Banking, funding, superannuation and savings; and

·        Housing expectations cannot be met at an affordable price;

“Firstly, in the absence of a readily-identifiable middle class, there remains a lack of savings and disposable income to purchase a dwelling,” he said.

“This can be starkly illustrated in comparison to Australian home ownership.

“In Australia, the average disposable income is approximately $A50, 000 and average house cost (Melbourne) is $A440, 000.

“This means that the average house is valued at approximately nine times a workers salary.

“In PNG it is 24 times an average workers salary.

“If we look at family income, the house to income ratio falls to 5.8 in Australia and 16 times in PNG.

“Clearly the average family and or worker in Papua New Guinea do not have the income generation to meet the current cost of housing.”

Commenting on bank funding, superannuation and savings, Mr Mitchell said the cultural aspect of communal sharing, family obligation or wantokism tended to reduce disposable income and savings levels dramatically.

“Typical savings patterns of a private sector worker tend to be dominated by their superannuation, both at the compulsory component and often extra superannuation contributed voluntarily, to avoid extended family pressures from accessing savings,” he said.

“In effect, superannuation is often the only safe guard a worker has for savings accumulation and protection.

“However, having said this, if we assume the average worker is earning somewhere between K10,000 and K14,000, the employee share of their superannuation balance will after five years be around K5, 600.

“This amount will still fall well short of the deposit required for a dwelling (K30, 000 to K 40,000 based on 10% deposit for a dwelling at Eight-mile).

“Superannuation is clearly part of the housing affordability equation but not the full solution.

“Similarly, bank finance has now tightened.

“Government also has charges, the largest being stamp duty on the purchase of house which amounts to 5% of the purchase price.

Banks are also looking very carefully at the credit worthiness of borrowers.

“Loan default is costly not only on the borrower but the bank as well.

“Evidence suggests that up to 15% of all housing loans at anyone time tend to be in arrears and subject to foreclosure.”

Mr Mitchell concluded that housing expectations could not be met at an affordable price.

“The lessons learned from Eight and Nine-Mile is that land servicing costs, irrespective of the price of the land, is expensive,” he said.

“Services such as bitumen roads, electricity, sewage, fencing, water can cost anywhere between K65, 000 and K80, 000 per block.

“Add the price of land – say K60, 000 and you have a base cost of K125, 000 per serviced block of land.

“Base housing costs tend to work out at K2, 000 per sq m.

“A typical 90 sq m dwelling will cost around K180, 000 to build.

“Therefore, a house and land package will cost in the vicinity of K300, 000 before we include developer’s margin (the developer does not construct for free) and cost of finance.

“Also, construction delays cost the project more as interest accumulates.”


  1. Reginald Renagi3:03 PM

    All this statistics show that the government for the last 3 decades has still not come up with an affordable housing solution for the majority of Papua New Guineans. The gap between the haves and the have-nots widens each year until we will have the have-nots posing a very bigh national security threat on the haves.

    It is no good quoating many figures to confuse and dissapoint our people, but the question remains: what is the solution? We do not want to see more squatter settlements growing up all over Port Moresby and other major centers.

    The Somare government must find an answer soon before the next elections as we are sitting on a very explosive national security situation.

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  3. Student UPNG said...
    I think that most or all Papua New Guineans living in the Urban centre of PNG can not afford housing...
    Due to the fact that housing is not fully regulated in the manner as those of the developed world.
    Also the Real Estate company have a greater monoply on the housing area then we are lead to believe by our current government and the previous once.....

  4. Anonymous10:17 AM

    Isnt it an irony that we can still experience housing problems in Papua New Guinea while, yet, boasting to other countries about having rich with the tropical rainforest which can be made into timbers to build the houses we needed?

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