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.

NASFUND has largest property development programme in PNG

From NASFUND Newsletter

Doing the talk, doing the walk
This month NASFUND will show case its property development programme which is the largest of any locally owned company in Papua New Guinea. Importantly we provide an insight into our investment thinking and how so far we have stayed ahead of the property curve.
Higher interest rates, with even further rate rises looming in a backdrop of continued international uncertainty can give concern to any one with an interest in property. We explain to members in this edition why the word caution remains the most important advice anyone can give as the country enters a significant drop in international tax receipts and revenues brought on by the downturn in commodity prices. Like equities, property has shown to be a strong long tern investment but in the short term, risks present them selves and at the end of the day, timing is a crucial element in getting the return equation right.

Construction that is relevant for the new Century
Much of the countries property stock is 35 to 40 years old. This stock is very quickly diminishing in value due to it being more assessed as land value, with the only meaningful course of action being demolition and rebuild. The market for old commercial buildings outside an historical context or for the intention of demolition and rebuild has diminished and this is set to continue as new stock hits the market place.
Recent attempts by some institutions to renovate existing aging stock is really about throwing good money up against the wall or as one property expert stated, “trying to dress up mutton as lamb.” The NASFUND approach is about ensuring that our property stock is new and relevant for this century with lifts, air-conditioning, along with smart amenities at the forefront of any new build.

NASFUND’s Eight and Nine-Mile Estates, Port Moresby – a legacy
The other exciting NASFUND led development has been in the way of residential housing. NASFUND has with its partners Consap Developers kick-started, residential housing estate development in Port Moresby in 2007. Phase one, delivered 32 houses at Eight-Mile which have all been sold and another 62 houses at Nine Mile, currently pre selling or in the process of being sold. NASFUND is pleased that other institutions are following our lead. Housing is a national issue and we are please to have led the way in meeting this challenge.
NASFUND will launch a stage three at Eight-Mile, later this year covering initially another 30 houses. More details will be forth coming.

NASFUND a job creator!
Finally, governments around the world are implementing stimulus packages to boost demand within their failing economies. The PNG government has also recently begun discussing its own stimulus package. NASFUND added the jobs that it has created with its construction program, with over 1, 000 direct jobs and through a multiplier effect of indirect job creation; we are looking at a stimulus of 3, 000 local jobs. Not bad for your No.1 Super Fund!
NASFUND has shared the development work among five construction companies. It is imperative that we have a vibrant construction industry and the best way to do it is to spread the work among the best.

Managing risk
The economic crisis with its increasing volatility means that more importantly than for a long time, much more work is required by investment managers, financers and superannuation funds on risk management. NASFUND has for many years been well disciplined when it comes to risk management. Every year, the NASFUND Board reviews risk; what variables affect the portfolio and what measures are in place to minimise risk. This year is no exception with the 2009- 2010 risk management draft finalised in mid March for board review. The 43 page document is a comprehensive review of portfolio risk and importantly with a plan to manage and minimise risk within your Fund over 2009 and beyond.

Papua New Guinea property outlook 2009

From NASFUND Newsletter

 

In the exuberance that naturally comes with a burgeoning Papua New Guinea economy over the last few years, we often forget how fragile this reality can dissipate if there is a change in some of the key drivers. Already we are seeing a raft of data, often anecdotal that the economy while on a different and far more positive growth projectory is never the less not as decoupled from what is going on internationally as first expected. Signs are emerging of:

·           Lower commodity prices translating into lower government receipts;

·           Less certainty as to the timing of the gas project;

·           Lower occupancy rates in major hotels; and

·           A slight softening in property prices at the upper end.

Similarly inflationary pressures are evident and the likelihood of higher interest rates is also becoming more of a certainty over the next six months. The dream run of a 6% growth rate in Papua New Guinea is still within reach, however signs are emerging that the economy’s bubble is slowly deflating.

So what implications does this have for property? Currently under construction (estimates) in Port Moresby there are

Hotels and serviced apartments

·           A minimum of 92 rooms being added as serviced apartments (now in a market where hotels are finding occupancy rates falling).

·           An additional 140 hotel rooms by Steamships Limited.

·           An additional 290 hotel rooms will be added on the completion of Vision City by RH.

·           A minimum of 100 hotel rooms at Four-Mile.

·           An additional 60 hotel rooms by Airways Hotel Limited.

·           Additional hotel room’s ear marked for the Holiday Inn.

 

Commercial

There is currently approximately 18,300 square metres under construction in Port Moresby central business area of which NASFUND is building 11,000 square metres over three sites, of which will be the first offered to the market. Of the 11,000 square meters, over 4,000 have been pre let. Another 4,000 m2 is now under consideration from seven expressions of interest.

Additionally on the drawing board there is a further 43,000 square metres in the Town, Gordons, Waigani drive area. To give you an idea of size, we are looking at the equivalent of another four Deloitte Towers over the coming three to five years coming on stream, if all projects commence as planned.

 

Apartments

Apartment (non-serviced) estimates are close to another 140 coming on stream in the next few years.

Clearly we have an enormous construction boom at present which is contributing to the strong performance of the PNG economy but built on a premise that the economy will absorb this new construction. Without the gas project, the medium term prognosis is that the economy will not absorb this anticipated supply. With firming interest rates some of these projects will be put on hold or shelved. Effectively we will also see higher vacancy rates and a corresponding cap on rents.

The implications from a worst case scenario are:

• Those companies that began commercial construction early will be the winners. It’s now a case of “first in best dressed”. Their projects will be leased before a serious downturn in property should occur and be able to lock in some good rents. We will also see tenants migrating from older buildings to newer construction. Old commercial stock in town even with attempts to renovate will fail to keep tenants as preferences shift to newer, cleaner and better air-conditioned offices. Similarly, traffic congestion in Port Moresby town has become a serious issue and there will be a tendency of tenants to shift to Harbour City to escape this difficulty;
• The effects of the Harbour City constructions will be seen within nine months when at least nine floors around town will be freed up as tenants move to the new premises. Clearly the freeing up of office space in Town expected early 2010 will signal the beginning of rent stabilisation;
• Accommodation will behave similarly but within a longer time frame due to the current construction lag. While we anticipate that the high Kina/AUD exchange rates will most likely fall over the coming year, it is important to note that the high Kina value is already causing dislocation in the accommodation market for AID advisers and consultants;
• Hotel and serviced accommodation outlook will significantly face downward price pressure due to oversupply in the medium term exacerbated by the fall in international business travel and need for short term corporate stays. Further as more apartments are constructed, many long term “hotel dwellers” will shift from hotel accommodation to apartment living. Already there is anecdotal evidence that demand for hotel accommodation is weakening;
• The current economic crisis internationally and the issues as raised will also be reflected in the thinking of lenders. Banks and other institutions are already assessing these risks and obviously lending to some construction projects may not eventuate. Higher interest rates also may negate project returns.

The NASFUND property strategy has been as follows:

Immediate commercial focus

NASFUND has concentrated on CBD land and commercial construction. The focus as discussed is driven by the fact that there has been no major commercial construction since Deloitte Tower in 1996. Most commercial space is aging and in need of an urgent upgrade. Add to the fact that there is a shortage of quality space and we have a rental market skewed well in favour of landlords. Top end rates for commercial leasing sit at around the K700- K850 per square metre including outgoings. Out goings represent around 25%-30% of a buildings total revenue, so all up costs can be close to the K900 -K1,000 per square metre when outgoings cost are passed through to the client. Middle quality buildings are around K500-K600 per square plus outgoings. In 2007, NASFUND estimated the shortage of commercial space at around 11,000 -14,000 square metres, equivalent of one Deloitte Tower. We have no reason to assume it is much higher than that at present. In this respect, NASFUND having conservatively estimated the size of commercial requirement has not over extended itself so as to cause any large immediate vacancy issue within its own portfolio. That combined with the fact that NASFUND committed well before other developers and chose premier sites for construction like at Harbour City, means that it is well ahead on the leasing curve.

NASFUND land bank strategy

Land holdings also feature strongly in the plan. NASFUND has effectively land banked parts of Port Moresby for future development. NASFUND’s view is that the economy is undergoing a fundamental shift in what we describe as the “Asianisation” of the country. More and more of the economic resources will be eyed by Asia and especially the Chinese to meet their long-term insatiable appetite at home and this will include secondary spin off developments like hotels, accommodation and commercial space. 

With the long term economic scenario we are facing, it is imperative that NASFUND took centre stage on securing a large footprint in the CBD. Any major development will mean local participation and ensure equity benefits are also enjoyed by PNG workers through their superannuation.Land banking is important for the future as it presents a low cost foothold on future development. To that end NASFUND has secured a 50% interest in the undeveloped land adjacent to BSP head office, land on, the potential to redevelop the Burns Philp site and 4,000 square metre of prime residential land at the top of Lawes road.

While we do not want to throw a too negative picture on the coming three to five years, we all need to take a realistic and cautionary approach on what potential downsides exist if the international economic crisis with its flow on effects to Papua New Guinea is prolonged. We will leave the readers with these thoughts

A senior retired head of banking who had lived through a number of these cycles in PNG said to us once – “just remember, the country like resource markets tends to go through booms and busts - while it is exciting during the booms, the busts tend to bring you down to earth quickly.”

We remember nearly 10 years ago with a brand new building called Deloitte Tower and only one tenant. We remember the rent free periods of 12 months, free fit out costs and low rents just to induce tenants; and we also remember that it took five years to fill. - Sobering thinking if you get your timing wrong.

 

World Press Freedom Day 2009: Dialogue, mutual understanding and reconciliation

23-04-2009 (Paris)

 

The way the media influences thought and action and its capacity to foster dialogue, understanding and reconciliation will be the focus of discussions at a UNESCO conference marking World Press Freedom Day 2009, to be held in Doha (Qatar) on 2 and 3 May.

In his message for World Press Freedom Day 2009, the Director-General of UNESCO, Koïchiro Matsuura, stressed: “We must strengthen our efforts to build a media that is critical of inherited assumptions yet tolerant of alternative perspectives; a media that brings competing narratives into a shared story of interdependence; a media that responds to diversity through dialogue.”
Based on the premise that only a free media will innately contribute to the dialogue and understanding across divides, the two-day programme will be divided into four sessions, during which media professionals from around the world will discuss:

§         The capacity of the media for intercultural dialogue and mutual understanding;

§         The need to establish ethical and professional standards in order to build models of accountability as well as effective self regulation for journalists;

§         What specific place for media in promoting interreligious dialogue and mutual understanding?

§         Media and enhancing dialogue as a tool for empowering citizens.

The conference has been organised under the patronage of Her Highness Sheikha Mozah Bint Nasser Al Missned, consort of His Highness the Emir of Qatar Shiekh Hamad Bin Khalifa Al Thani.
H.E. Sheikh Hamad bin Thamer Al Thani, Chairman of the Board, Doha Center for Media Freedom (Qatar), will open the event with George Anastassopoulos, President of UNESCO’s General Conference, and Abdul Waheed Khan, UNESCO Assistant Director-General for Communication and Information.
South-African journalist Allister Sparks, the author of several critically-acclaimed books on his country’s transition from apartheid including, most recently, Beyond the Miracle: Inside the New South Africa, will present the keynote speech.
During the conference, Mr Matsuura will present the 2009 World Press Freedom Prize, awarded posthumously to murdered Sri Lankan journalist Lasantha Wickrematunge. Mr Wickrematunge’s widow, Sonali Wickrematunge, will accept the prize, which is supported by the Ottaway and Cano foundations and JP/Politiken Newspaper LTD

 

 

Dictator's plea to Kevin Rudd: let's talk to help restore Fijian democracy

EXCLUSIVE: Graham Davis, Suva | May 01, 2009

Article from:  The Australian

FIJI'S military leader, Frank Bainimarama, has proposed a summit meeting with Australia and New Zealand to try to resolve the impasse over his refusal to hold elections for another five years.

 

With the expiration of the deadline today for Commodore Bainimarama to announce an election date this year or face suspension from the Pacific Islands Forum, the dictator has defiantly said his own agenda stands.

"It is not going to happen. There will be no elections until September 2014," he said.

Commodore Bainimarama said an election this year would restore the "racist" government of former prime minister Laisenia Qarase, whom he deposed at gunpoint in 2006.

"Qarase is finished. He will only return over my dead body," he insisted. But the Fijian Prime Minister wants to map out a way forward to rebuild Fiji's shattered relationship with its traditional partners and has challenged the Australian and New Zealand leaders to confront him in person.

"I would like to see Kevin Rudd and John Key face to face so I can explain things clearly to them about the changes we need to bring about," Commodore Bainimarama said.

Stressing that the summit should be "immediate", the Fijian leader expressed frustration about the attitude of Australia and New Zealand to his attempts to purge Fiji of racism and undertake electoral reform before elections in 2014.

"That's the sad part about it. I don't think the international community much appreciates what's happening here.

"They need to come and find out," he said.

Commodore Bainimarama was speaking after Fiji suffered fresh political upheaval early last month, when the Fiji constitution was abrogated, a clampdown launched on dissent and the media, and President Josefa Iloilo said elections would be delayed until September 2014.

Fiji faces becoming the first member to be suspended from the 16-nation Pacific Islands Forum.

In a wide-ranging interview with The Australian, Commodore Bainimarama was both conciliatory and pugnacious.

He predicted that the forum would baulk at suspending Fiji in spite of sustained lobbying from Australia and New Zealand.

He announced that the month-long state of emergency imposed in Fiji would be extended, including media restrictions.

And he repeated allegations that Australia was spying on Fiji and tapping his telephones.

He revealed that his long-term plans to produce a multi-racial democracy included the restoration of the Queen as Fiji's head of state.

On his summit proposal, Commodore Bainimarama called on Canberra and Wellington to drop their insistence on an election in Fiji this year.

"That will only ensure the return of the racist government I overthrew in 2006. We need to get rid of racism in the next five years and then have elections that people recognise will bring about true democracy in Fiji."

Commodore Bainimarama said he was prepared to give the Australian and New Zealand leaders a "cast-iron guarantee" that elections would be held in 2014, but not before.

Anticipating their response that he had broken a pledge to hold elections this year, Commodore Bainimarama denied that it was ever a formal undertaking.

"The Tongan Prime Minister, who was chairman of the Pacific Islands Forum, came to me for an informal chat and said 'Look, there's a lot of pressure on us and on you to set a date for elections. Why don't you come up with 2009?' So I said, 'If we want to change that, we can talk about it later on'. I thought it was something we could discuss, a possibility, not something set in stone," Commodore Bainimarama insisted.

The military chief said he did not believe the forum would proceed with its threat to suspend Fiji.

"No one has ever been suspended from the forum, and I just can't see it happening. It's beyond its mandate to suspend a member nation. In fact, if it was up to me, we would have removed Australia and New Zealand because they're putting undue pressure on the Pacific islands and that's not how we operate in the Pacific," Commodore Bainimarama said.

The region's elder statesman, Papua New Guinea's Prime Minister Michael Somare, warned on Tuesday that he was running out of patience with Commodore Bainimarama's regime, and the forum had no choice but to suspend Fiji if it failed to meet today's deadline.

But the Fijian leader said Sir Michael "would be thinking twice" about telling member countries of the need to do so.

"Sir Michael Somare and Fiji have a very wonderful, strong relationship going back to the days when he and Ratu Mara (the founder of modern Fiji) were friends. That relationship will remain," he said.

Commodore Bainimarama appealed to his fellow island leaders not to be swayed by Australia and New Zealand.

"Fiji was one of the initiators of the forum. Why would they want to suspend Fiji? Is there killing on the roadside? Why suspension, just because we don't go along with what the Australians and the Kiwis want?"

He also asked his fellow leaders to consider, in their deliberations, supportive comments last week to a US congressional hearing by a Samoan member of the congress, Eni Faleomavaega.

He told US Secretary of State Hillary Clinton that Australia and New Zealand were making "nasty accusations" against Fiji and "acting with a heavy hand" about a "situation that is more complex than it appears".

Ms Clinton promised to examine Mr Faleomavaega's complaints and acknowledged Australia and New Zealand as the source of much of the US's information about Fiji.

"She should listen to his advice," Commodore Bainimarama said, expressing his hope for a change in US policy.

"There's someone who understands what's happening in Fiji. At least she will have somebody else besides Australia and New Zealand to listen to."

Commodore Bainimarama also said he was unfazed by threats to move the forum secretariat from Suva, Fiji's capital.

"There's no need to move the forum headquarters, but I guess if they come to that decision, we'll assist them. I don't think it's going to happen."

In his interview with The Australian, the military chief also announced that Fiji's month-long state of emergency, due to expire on May 10, would be extended.

The clampdown has seen the media muzzled and a prominent indigenous nationalist, Iliesa Duvuloco, detained for allegedly distributing pamphlets calling for a military uprising.

"We want this calm to continue for a while. The emergency regulations were brought in entirely for media censorship to ensure calm. I'm very worried about people like Duvuloco inciting people to rise up against the military and the Government of the day," Commodore Bainimarama said.

He repeated allegations previously made by his Attorney-General, Aiyaz Sayed-Khaiyum, that Australia has been spying on Fiji.

He said he had personally confronted Foreign Minister Stephen Smith with evidence that his telephone calls had been tapped in breach of Fiji's laws.

"We had to caution Stephen Smith about spying on us, that this was illegal in Fiji, and in that meeting he didn't say anything. He didn't deny or admit it, but I took that as confirmation, bugging our phones and listening to our conversations."

But the military chief described it as an irritant, and said it had not made him more cautious about what he said on the phone.

"I really don't give a damn what they hear," he said.

The Fijian leader outlined some of his plans, including closer ties with China and India, which have replaced Australia and New Zealand as Fiji's confidants and evident means of support.

Confirming that Chinese aid to Fiji had risen dramatically, he said: "Yes, the Chinese are giving us money. We have a wonderful relationship with China and we're trying to build on that. They're very sympathetic and understand what's happening here, that we need to do things our own way."

Commodore Bainimarama said his main task in the next five years before an election was to promote the notion of racial equality over the indigenous supremacist agenda of the government he deposed.

Pointing to recent high-level Indo-Fijian appointments, including the governor of the Reserve Bank, Sada Reddy - who replaced an indigenous Fijian - the military chief said: "My vision for Fiji is one that is free of racism. That's the biggest problem we've had in the last 20 years and it needs to be taken out.

"It's the lies that are being fed to indigenous Fijians that's causing this. We need to get rid of Qarase and everything associated with the 2000 coup and begin entirely on a new path."

The military chief envisaged that when democracy was eventually restored in five years, Fiji would ask the Queen to resume her position as head of state. The country declared itself a republic during the first coups of 1987. "I'm still loyal to the Queen - many people in Fiji are," he said, acknowledging her photograph above his desk. "One of the things I'd like to do is see her become Queen of Fiji again."

Set a date for World Environment Day on June 5

World Environment Day (WED) was established by the UN General Assembly in 1972 to mark the opening of the Stockholm Conference on the Human Environment.

Commemorated yearly on June 5, WED is one of the principal vehicles through which the United Nations stimulates worldwide awareness of the environment and enhances political attention and action. The day's agenda is to:

• Give a human face to environmental issues;
• Empower people to become active agents of sustainable and equitable development;
• Promote an understanding that communities are pivotal to changing attitudes towards environmental issues;
• Advocate partnership which will ensure all nations and peoples enjoy a safer and more prosperous future.

The theme for WED 2009 is 'Your Planet Needs You-UNite to Combat Climate Change'.

It reflects the urgency for nations to agree on a new deal at the crucial climate convention meeting in Copenhagen some 180 days later in the year, and the links with overcoming poverty and improved management of forests.

Breaking news! Fiji military regime suspended from the Pacific Islands Forum

The Chair of the Pacific Islands Forum and Premier of Niue, the Hon. Toke Talagi MP, has announced that the military regime of Fiji has been suspended from the Forum. 

“It is with considerable sorrow and disappointment that I confirm the suspension of the current military regime in the Republic of the Fiji Islands, from full participation in the Pacific Islands Forum, with immediate effect from 2 May 2009.”   

Hon. Talagi added: “This difficult decision, agreed unanimously between all Forum leaders at our Retreat in Port Moresby on 27 January 2009, responds to Commodore Bainimarama’s failure to address constructively by 1 May 2009 the expectations of Forum Leaders to return Fiji to democratic governance in an acceptable time-frame, in addition to responding to a range of other concerns (the Port Moresby Leaders’ Retreat Decisions are attached).  It is also particularly timely given the recent disturbing deterioration of the political, legal and human rights situation in Fiji since 10 April 2009.” 

“These measures respond directly to the confirmation by the military regime in Fiji, particularly through its recent actions, that it rejects fundamental Forum obligations and core principles, as outlined in the Biketawa Declaration and other key guiding documents of the Forum.  Reflecting on the Leaders Vision Statement of 2004, this involves cooperation through the Forum to create a Pacific region respected for the quality of its governance, the sustainable management of its resources, the full observance of democratic values and for its defence and promotion of human rights.” 

The Forum Chair confirmed: “This decision does not amount to the expulsion of Fiji, as a nation, from its membership of the Forum.  That proposition has not been considered by Leaders in their deliberations. As such, the Pacific Islands Forum remains a 16-member body and the Republic of the Fiji Islands continues to be part of the Forum group of nations, albeit with participation of the current regime suspended until further notice.”   

“A regime which displays such a total disregard for basic human rights, democracy and freedom has no place in the Pacific Islands Forum.  Nevertheless, we look forward with great hope to Fiji’s earliest possible return to constitutional democracy, through free and fair elections, when we will be able to restore this country to its rightful place among our family of Pacific Islands Forum nations.  The Forum, as always, stands ready to assist Fiji’s return to democratic rule, concerned, in particular, by the increasingly negative and wide-ranging impacts of events over the past two and a half years on the people of Fiji,” Hon. Talagi reaffirmed.  

The Leaders’ decision involves implementation of two specific targeted measures, taken in accordance with the 2000 Biketawa Declaration.  The first involves suspension of participation by the leader, ministers and officials of Fiji from all Forum meetings and events arranged by the Pacific Islands Forum Secretariat, including the annual Pacific Islands Forum Leaders Meeting.  The second measure involves ensuring the military regime in Fiji does not benefit directly from Forum regional cooperation initiatives or any new financial or technical assistance, other than assistance toward the restoration of democracy