Last Wednesday, The National reporter REBECCA KUKU addressed the massive challenges and the history of the government’s efforts to provide affordable housing in Papua New Guinea. In this second part of her report, she examines the details and qualifications for government-assisted funding.
Interest in home ownership and affordable home loan products has been high since the introduction of the Bank of the South Pacific (BSP) -Papua New Guinea Government’s First Home Owners Scheme (FHOS) ( PNG) (GoPNG) in 2014.
As part of GoPNG, the government has provided BSP with up to K200 million seed funding as a deposit to support its initiative to improve access to credit for first-time homebuyers in Papua New Guinea.
The program is now seen as a catalyst for the growth of the housing market. The market has since become attractive to real estate developers who have started building affordable homes in Port Moresby.
Some of the developers have already invested in the market, selling residential developments that include land and building, while others have products to offer but are unable to secure land.
The FHOS is a medium and long term loan available for the construction of houses to be occupied by the borrower on vacant land titled by the State.
The loan is also available for new home buyers who are not older than six months.
The FHOS is accessible to any Papua New Guinea by birth who is employed on a permanent basis in the public service or in the private sector and who, together with his partners (married or de facto), does not already own or do not have a part of property on land leased by the State.
Eligible public service and private sector employees who meet the bank’s requirements, credit terms, repayment and loan service standards can apply.
Those who have home ownership programs in place to help employees become first-time home owners can also apply.
The only rule being that the property cannot be leased / sublet or leased.
However, restrictions will apply to refinancing or reselling the property under this program. The loan must be for the borrower’s first home and must be owner occupied.
The FHOS loan
Loans can be obtained under this program at a minimum of K200,000 and up to K400,000.
The minimum and maximum loan amounts are subject to a debt service ratio not exceeding 40 percent of the borrower’s gross basic income.
The maximum loan term is 40 years. It is not linked to the age of 65 of the borrower. The loan can be transferred or amended to include the borrower’s immediate dependents, provided they find employment to help with future loan repayments.
Total loan repayments will not exceed 40 percent of the total basic income of the borrower (s). Where salary deductions cannot be facilitated, a standing order authorization may also be used.
This loan is available within PNG and applications can be submitted to any BSP branch, while the loan is subject to the bank’s normal credit assessment and approval.
Any one-time charges, including the loan set-up fee at the time of settlement and the first year insurance fee and property tax, may be added to the total loan amount during the initial appraisal process.
The renewal feature is available to cover annual recurring costs only, such as insurance policy renewal and property tax.
Government fees and charges
A one-time setup fee is calculated at 1 percent of the approved loan amount. There are no other fees applicable to the product during the life of the loan, which means that all arrears on the loan (interest and principal) will incur late interest charged at the standard rate. And all other bank charges will be exempt at the origin of the loan; only applicable fees are government and statutory fees.
The FHOS loan is available in PNG only and applies to natural persons who are nationals of PNG who:
- ARE applying for a home loan from BSP;
- DO NOT own or partially own any property under a state lease;
- WHOSE spouse or common-law partner does not own or own property under a state lease; and
- HAVE not already applied for another housing program.
Terms & Conditions
- BSP FHOS loan request COMPLETED;
- PROVIDED three (3) last payslips;
CONFIRMATION of employer’s letter of employment disclosing salary and housing allowance (if applicable) or copy of employment contract;
- COPY of the seller’s title deed confirming that the land and lease are owned by the State;
- PROOF and proof of a 10% capital contribution;
- STATUTORY Declaration – declaring that no other property is owned by the borrower (s) and that this acquisition is the first house that will be occupied by the owner;
- STATEMENT of outstanding debts with other banks or lenders showing three-month transactions; and
- PROVIDE a three (3) month statement if another bank customer.
Papua New Guinea wishing to obtain a loan should bring the following documents with them to their nearest BSP bank.
- BSP mortgage application completed;
- THREE (3) last payslips;
- letter of CONFIRMATION of employment from employer disclosing salary and housing allowance (if applicable) or copy of employment contract (if applicable);
- LETTER of offer disclosing the purchase price; and
- ACCEPTANCE of the offer by the seller.
- COPY of seller’s title deed confirming ownership;
- PROOF of 20% equity contribution;
- STATEMENT of outstanding debts with other banks or lenders showing three-month transactions;
- PROVIDE a three (3) month statement if you are banking with other banks.
The majority of loans financed are primarily in Port Moresby, largely due to the size of the market and increased interest from real estate developers. However, the interests of potential home buyers also remain nationwide, from young professionals to long-time employees in the public and private sectors.
There are currently 54 real estate developers registered with the BSP that Papua New Guinea can buy their FHOS homes.
However, like all things, there have also been many reviews of the BSP FHOS, with many critics claiming that it is beyond the reach of the majority, and that it has been impossible for an average worker with a salary of K 30,000 a year set up a 10 percent deposit to secure a K 200,000 loan with regular bi-weekly repayments over 40 years, given the high cost of living in a town like Port Moresby.
Most middle and low income Papua New Guinea do not have access to this loan.
In 2016, a report (not The National) was titled âNRI: Government Housing Scheme out of reachâ.
The report stated that the government’s so-called FHOS was beyond the reach of most citizens and that it was nearly impossible for an average worker with an annual salary of K 30,000 to put down a 10% deposit to get a 200 K, 000,000 loan with regular bi-weekly repayments over 40 years given the high cost of living in a town like Port Moresby.
At that time, BSP (Retail) Managing Director Paul Thornton said that while there were many constraints to affordable homeownership, there were concerted efforts from both the industry private and government to overcome the problems.
âBSP has dramatically changed the nature of home loan products. In the past, a home loan was normally for 25 years, had an annual interest rate of 8 percent, and required a 20 percent equity contribution. This would translate into bimonthly repayments of approximately K1425.
âWith the introduction of FHOS loans, the duration of the facility has been extended to 40 years, the interest rate has been reduced to 4 percent and only requires a 10 percent equity contribution. This reduces the bi-monthly loan repayments to around K771.
Thornton added, âWhen it comes to GoPNG’s BSP and FHOS, it’s also important to understand that BSP did not receive a K 200 million grant to lend to FHOS homeowners. Instead, the government placed the funds with BSP to enable the bank to lower the cost of its funds and offer a home loan product with a low interest rate, longer repayment terms, and special eligibility conditions.
âThe FHOS is for newly built homes and it generates employment when it is most needed. Customers who are not FHOS or who are borrowing for existing homes or for amounts over K 400,000 in owner-occupied, can still get a 40-year standard home loan at rates between 7-8 %.
Thornton also told The National in a recent interview that when it comes to the 10 percent equity (or down payment), borrowers could raise that amount from a variety of sources.
âSome employees help their staff with this capital contribution, but most borrowers get their capital as an advance on their pension contributions. The maximum loan amount is K400,000.
âBecause the loan term is relatively long (40 years), it is in the interest of the home owner and the bank to ensure that the home is built with quality materials and built by a qualified builder. . For a similar reason, the FHOS applies to new homes that are no more than six months old.
âThe repayment of a loan of 200,000 K at an interest rate of 4% per annum over 40 years is approximately 385 K per fortnight. Not all borrowers are the same and many have different financial and family commitments, but based on an annual salary of K 30,000, repayments of K 385 per fortnight represent 34% of their gross income before taxes and other expenses. .
âBuying a home is a commitment and in addition to making regular loan repayments every fortnight, a homeowner will also need to set aside or save funds to cover annual insurance premiums, property rates. , water tariffs and municipal charges. They should also set aside funds to perform occasional maintenance on the house to ensure that it is always kept in good repair.
âSince the introduction of FHOS, BSP has approved 850 loans and the number is steadily increasing.
âIt’s really within the grasp of a lot of people, but it’s also a long-term commitment,â Thornton said.