First Home Ownership Scheme (FHOS) a catalyst for growth in PNG

BANK SOUTH PACIFIC (BSP) has funded loans with a total value of K160m, for first home buyers under the National Government First Home Ownership Scheme (FHOS).

The interest in the home ownership and for affordable Home Loan Products has been relatively high since the introduction of BSP and Government of PNG's (GoPNG) First Home Owners scheme in 2014. The majority of loans funded are mostly in Port Moresby largely due to size of market and increased interest from housing developers. However, interests from potential home buyers also remain high across PNG, from young professionals to long-serving employees in both the public and private sectors.

BSP's General Manager Retail, Paul Thornton says, "The FHOS is now considered a catalyst for growth in the housing market. The market has been attractive to property developers who started building homes and offering them for sale in and around Port Moresby."

Mr Thornton said this in response to a recent article published, in The Post Courier newspaper, under the headline "NRI: Government Housing Scheme beyond reach".

The article stated that, "the Government's so-called First Home Buyer Scheme is beyond the reach of most citizens, and that, it was almost impossible for an average worker on a K30,000 per annum salary to put up a 10 percent deposit to get a K200,000 loan with regular fortnightly repayments over 40 years given the high cost of living in a city like Port Moresby."

While the NRI discussion paper which is the source of the story did quote Dr Charles Yala as saying in 2015, that the FHOS is possibly beyond the income levels of most low and middle income earners in the Public Service, the report also said of the First Home Ownership scheme that "this is now enabling First Home buyers seeking properties developed by the private sector and hence is driving expansion in property development".

Mr Thornton adds, "While there are many constraints to affordable home ownership equally, there is a concerted effort being made by both the private sector and Government to overcome these constraints."

"BSP has significantly changed the nature of housing loans products. In the past, a housing loan would normally be for a term of 25 years, have an annual interest rate of 8% and require an equity contribution of 20%. This would result in fortnightly repayments of around K1,425."

"With the introduction of the First Home Owners loan product, the term of the loan has been extended to 40 years, the interest rate reduced to 4% pa and require a 10% equity contribution.  This reduces the fortnightly loan repayments to around K771."

Thornton added, "In relation to the BSP and GoPNG's First Home Owners scheme, it is also important to understand that, BSP has not been given a grant of K200m to lend to First Home Owners.  Rather, the National Government has placed funds with BSP to allow the Bank to reduce its cost of funds and offer a Home Loan Product with low interest rate, longer repayment terms and special eligibility requirements."

Some of the developers have already invested in the market and selling home packages that comprise of land and building while others have products to offer but unable to secure land.

The FHOS is for newly constructed homes and this is driving employment at a time when it is most needed.  Customers who are not First Home Owners or who are borrowing for existing homes or for amounts greater than K400,000 with the intention to reside in that home, can still obtain a standard housing loan for a term of 40 years at rates between 7% and 8% pa.