After several years of rapid growth in Port Moresby’s residential real estate sector, the market is in consolidation mode. In response, investors are eyeing commercial and retail segments for new opportunities.
Government data show that the finance, real estate and business services sector grew by 10% in 2012, down from 20% the prior year. In 2013 expansion is projected to fall further to 1.5%, according to the Department of Treasury.
Another indicator of a slow-down in the residential market is a decline in the rate of growth for home loans, which fell from 150% for the year ended March 2012 to 41% for the year ended September 2012, according to the World Bank. While this is still fast-paced expansion, caution among lenders is rising. Equity demands for loan approval have reportedly risen from 10% in 2009 to more than 30% in 2013.
Fewer projects are being launched, but on-going market deceleration is not all bad news. It has provided the first opportunity since 2009 for renovations in mid-tier properties, and market conditions have not yet affected the top-end residential market, which has held its ground, according to Ingrid Richardson, general manager at Strickland Real Estate, a local realtor. “We have found that the good properties are still able to lease quite readily and sustain the rents that they have been achieving. It shows that there are still companies that are prepared to pay higher rates of PGK4000-5000 ($1361-1702) per week for the right property,” she told OBG.
Yet throughout the market there is a visible retreat from further residential investments. Focus has instead begun to shift toward the commercial and retail sectors, which are expected to retain their momentum.
Demand for retail properties is growing as incomes rise and urbanisation continues, loosening the informal market’s hold on the economy. “Retail shopping centres could be another area of interest. There has been activity in this asset class lately with three new supermarkets in Port Moresby. As customer demand matures and shopping expectations rise, there may be more opportunities in this segment,” Andrew Esler, acting managing director of Nambawan Super, one of PNG’s largest pension funds, told OBG.
Initial investments are already indicative of developers’ confidence in the sector. Garamut Enterprises’ PGK100m ($44.4m) retail complex Waterfront Foodworld opened in August 2012, the first phase of a seven-stage, 20,100-sq-metre Waterfront Mall that will eventually include residential, commercial and retail facilities.
In 2012, the owners of PNG’s largest retailing network, CPL Group, also broke ground on the 9300-sq-metre Waigani Central Retail Complex. This project is set to be completed in 2014 and will include a supermarket, shops and a cinema. These developments will join Port Moresby’s first major retail success story, the PGK1bn ($443.5m), 45,000-sq-metre Vision City mall.
Looking ahead, developers are expected to focus on smaller projects in both the retail and commercial segments.
Nambawan Super’s 9900-sq-metre OPH Tower is the largest tower under construction today, far smaller than the already completed 14,000-sq-metre Deloitte Tower and the 15-storey Pacific Place. Other developers, such as Pacific Palms Property and CB Builders, are working on projects that will lease office space to tenants looking for less than 200 sq metres.
Such design trends are likely the future of PNG’s real estate development, but there is a possibility of price movement. Port Moresby’s commercial sector has maintained record market rates of PGK1300-1600 ($577-710) per sq metre, up from PGK600 ($266) five years previously. However, with about 25,000 sq metres of additional space set to come onto the market by the end of this year, prices are expected to decline.