Banks and the real estate sector have always worked together. More often than not, they have been partners in development.
Working or partnering with the real estate sector has exposed banks to some of the challenges the sector is facing. While there are banks that have easily weathered these challenges or hardly been affected by them, some of these banks, including a few in Papua New Guinea (PNG), have been seriously affected.
First Home Ownership Scheme (FHOS)
Speaking during the 2018 PNG Real Estate Show, Kili Tambula, Deputy General Manager of Bank South Pacific (BSP), said they encountered firsthand some of these challenges with the First Home Ownership Scheme (FHOS) loan program.
FHOS is a joint initiative of BSP and PNG Government under which qualified citizens can avail of a loan to buy their first homes. Aimed at helping families, the program loans K200,000 to K400,000 to qualified applicants for buying a newly-built home or to erect a new home on Government-owned land.
“At 4 percent interest rate and 10 percent equity, that’s the cheapest at the moment, compared to what other commercial banks are doing at the moment,” he stressed.
Mr. Tambula said the program is going well so far. “We have seen rapid growth in the market for FHOS. This is largely driven by the LNG construction phase, and also accelerated by the product we have developed together with the Government,” he pointed out.
“We got a total portfolio of 597 customers who have already been funded by the loan. We have a book balance of over K200 million, funded out to the customers, and the interest is still growing,” he added.
Despite their success, Mr. Tambula said they continue to face challenges. It is understood that the challenges facing BSP is not unique to the bank and are also being encountered by other banks and financial institutions who are working with the real estate industry.
“There has been a number of challenges we have encountered,” said Mr. Tambula, who stressed that among the major challenges they had is the accessibility of service land.
Mr. Tambula said the challenge is compounded by the fact that about 97 percent of land in PNG is under customary ownership. “Only 3 percent has been delineated to the State,” he noted.
Customary land ownership in PNG has been viewed as an obstacle to progress.
Another challenge identified by Mr. Tambula is lack of access to water, power, road, and sewerage. Many places in PNG, including State-owned areas where houses under FHOS are supposed to be built, don’t have access to enough supply of water for drinking, bathing, washing, and other purposes.
Many parts of PNG also suffer from frequent blackouts, sewerage systems are inadequate, and many places are inaccessible or hard to reach because of lack of roads.
“Accessibility to water, power, road access, sewerage. That has been lacking. That has been one of the biggest challenges we have seen so far. It impedes some other infrastructure development programs and excellent business opportunities,” he said.
Missing Land Files
Mr. Tambula also took issue with inconvenience caused by missing land files at the Lands Department.
One of the requirements for the loan application is the submission of Title Deed confirming ownership of land/Lease is State-owned. “The missing files have caused a lot of challenges,” he pointed out.
According to Mr. Tambula 147 customers, loans already approved but pending settlement because the files are missing and cannot be located.
Despite the challenges, Mr. Tambula strongly believes that FHOS is on the right track. “The future prospects remain positive and it is expected to grow,” he stressed.
According to him, the prospects for FHOS will especially brighten if another major mining development project like the Wafi-Golpu gold mining in Morobe kicks off. “We will see another big push in the marketplace,” he concluded.