NASFUND

THE LONG ANTICIPATED stabilisation in Port Moresby property prices is now evident as increased supply spills on to the market and anecdotal evidence suggests that the market may have already peaked.

This view is supported by real estate participants who have seen a softening in demand for both commercial and up market residential accommodation.

Clearly such high returns do not go on indefinitely and suggests a market that is moving to being fully priced.

This growth has been driven as much by internal catch up as it has by the LNG project. The LNG project has put additional pressure on upper end residential and commercial space.

However to attribute the growth in prices to LNG alone ignores a number of other important factors. One was the reform of the financial system in early 2000 which led to a more flexible consumer focused lending regime by the banks.

Other important factors include political stability, an increased aid focus on Papua New Guinea and a general resource boom emanating from Asia.

While growth has been phenomenal over the last decade, this year has seen stabilisation. Increased supply is a large factor but also there are strong concerns within the PNG banking system that a “bubble” is about to burst and hence a reluctance to lend on property assets.

The better view in our opinion is that any correction in the property market will not be a bust but more of a consolidation with minimal impact on the economy.