Building and Construction: a sector profile

Welcome,

A profile of the building and construction sector in Papua New Guinea, including information on acquisition of land, approvals, building boards and taxes.

Construction work in Lae

Overview

Construction generated an estimated K6.4 billion in 2018, which equated with eight per cent of GDP.

Resources-related projects are likely to remain the sector’s engine, but there is a growing number of residential, hotel, retail, transportation and office developments.

Investment in the sector has been fuelled by an acute shortage of real estate since the mid-2000s – initially triggered by the PNG LNG project, with the consequent increased presence of expat workers in Papua New Guinea, and then by the emergence of a growing middle class. It is estimated that 20,000 to 40,000 houses will be needed over the next three years to meet pent-up demand.

The sector is volatile, in part because of the relatively small number of major projects providing stimulus to the economy. The lead-up to PNG’s hosting of the 2018 Asia-Pacific Economic Cooperation (APEC) Leaders’ Summit was a catalyst for the sector. But, according to the Bank of Papua New Guinea, turnover in the sector in 2018 fell by 77.6 per cent.

Turnover in the March quarter of 2019, however, increased by 30.2 per cent, compared with a decline of 54.7 per cent in the September quarter of 2018.

The level of employment in the sector decreased by 4.5 per cent in the March quarter of 2019, compared with a decline of 1.1 per cent in the December quarter of 2018.

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Increased liquidity, especially from the PNG superannuation funds, NASFUND and Nambawan Super, has freed up capital for real estate development.

Residential housing developments have also increased substantially in scope and size in recent years, particularly in Port Moresby, as PNG’s middle class has grown and a market for home loans has been encouraged by the government’s First Home Ownership Scheme.

Recent and current major office, retail and accommodation developments in Port Moresby include the Nambawan Plaza, China Railway’s 23-storey Nobel Centre (the country’s tallest building) and Steamships’ Harbourside South (commenced in October 2019).

A proposed marine industrial zone in Madang and a new government policy of encouraging further Special Economic Zones (announced in August 2019), could also boost the civil works sector, as should the Department of Works and Implementation’s National Road Network Strategy 2018-2037.

The gas greement between the French oil and gas major Total SA and the State, which opens the way to proceed to the Front End Engineering Design (FEED) stage of the Papua LNG project, is also expected to stimulate construction, as will the proposed Wafi-Golpu gold–copper mine in Morobe Province.

The 2018 National Procurement Act (NPA) will have the effect of quarantining about a quarter of the construction industry for PNG suppliers. The NPA, which abolishes the Central Supply and Tenders Board and creates a new National Procurement Commission, gives local companies exclusive rights to bid for State contracts valued at under K10 million.

Key players

Key construction companies with a presence in PNG include Avenell Engineering Systems, China Railway Group, Curtain Brothers, Clough Niugini, Lamana Development, L&A Construction, Lae Builders and Contractors and Leighton PNG.

Acquisition of land for building

97% of land in PNG is customary land, with some leasehold in towns and cities. To ascertain if land is zoned for building, developers need to check the Subdivision Code in the municipality in which they are building.

The two largest municipal authorities in PNG are the National Capital District Commission (Port Moresby) and the Lae City Council (Lae).

Building developments in PNG must comply with the Building Act and Physical Planning Act. Major centres also have their own Building and Physical Planning Boards.

Physical Planning Approval

Before building can commence, a developer must obtain Physical Planning Approval from PNG’s Department of Lands and Physical Planning. Application forms and fee structures are available from the relevant municipal council.

The department of Lands and Physical Planning may stipulate certain conditions for the development in its letter of approval.

Building boards

Downtown Port Moresby, with the new Noble Centre under construction.

Once Physical Planning Approval has been obtained, a submission must be made to the local municipality’s Building Board, including complete documentation on the project. Outside municipal boundaries, applications should go to the relevant provincial building board.

Included in the submission must be stamped approvals from the local fire department and water authority (in Port Moresby, the local water authority is Eda Ranu). Developments costing in excess of K50 million(US$18.82 million) must also obtain additional approval from the Department of Environment and Conservation, as stipulated by the Environment Act, 2000.

A Structural Adequacy Certificate issued by a PNG-registered structural engineer is also required for Building Board approval. Under PNG’s Engineers Act, all construction design work must be done by a PNG-registered structural engineer.

Once Building Board approval is obtained, construction must commence within 18 months, although extensions may be obtained.

The World Bank estimates that in the National Capital District getting planning permission, obtaining a certificate of ownership and receiving fire authority permission typically take 30 days. Health and Water and Sewage Authority permissions typically take 29 days. Building permits on average take 90 days and cost K2,516. Inspections usually take one day each. Occupancy permits take on average 29 days.

Building workers and materials

Employment of building labourers should follow Department of Labour and Industrial Relations guidelines.

All foreign contractors must be registered with the Investment Promotion Authority.

Certification during and after construction

It is a requirement to notify the Building Board’s inspectors before pouring a building’s concrete footings, and a pre-pour inspection may occur.

A Certificate of Occupancy must be issued by the municipal authority before the building may be occupied.

A Certificate of Practical Completion must be issued by the contractor prior to the owner taking possession, following by a Certificate of Final Completion.

Tax

Accelerated tax depreciation may be available in certain cases.

Non-resident contractors involved in construction are subject to a 15 per cent withholding tax at source on gross receipts.

Businesses that make eligible business payments must withhold and remit 10 per cent of all such payments to persons or organizations that do not hold a valid Certificate of Compliance. The tax is applicable to payees.

Further information and contacts

 

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