Thinking of Buying a Home
If you are considering purchasing a property in Papua New Guinea then you might like to consider going through this basic guide. Note that this guide relates to alienated land (not customary) of which the
If you are considering purchasing a property in Papua New Guinea then you might like to consider going through this basic guide. Note that this guide relates to alienated land (not customary) of which the land is duly registered in the Land Title Registry at the Department of Lands.
You might already be looking for a property but the first most important step is to have the necessary finance ready. In most cases, you will need the assistance of a bank or financial institution for the purchase.
It’s important to sort your finance out not only because there’s no other to pay for the property but also to know your budget and the kind of property you will be looking at to buy.
Talk to the bank about your needs and your financial standing so that they can better understand your requirements and offer a product that best meets your needs.
The BSP bank calculator is a good starting point to have an idea of how much you will be required to pay in repayments of the loan. Note that although the calculator is helpful, it should not be solely relied on as the Bank has other factors to take into account which the calculator may not cover.
Hunting for property
Once you have a fair idea of your budget, it’s time to go looking for a property that fits the budget. No doubt you may have already seen a few properties prior to looking for finance but now with a firm idea on your budget it’s time to look around with a bit more certainty, negotiate and if all goes well enter into agreement with the relevant real estate agent or owner on the price and other factors on your purchase.
Note that a real estate agent is usually acting in the best interest of the seller, not you. So don’t always agree to everything they say but consider it carefully and determine whether it meets your requirements.
Always ask questions to the agent and the owner about the property such as its features, what’s included in the sale and any other important feature you should know about the property.
The questioning and negotiations on price may take some time but it’s better to be thorough in the whole process then finding out later that what you were told is in fact not true. You’re making a big purchase, so make sure you know everything about the property and most importantly you agree on a price that you’re happy with. That brings us to the next step – valuation.
Knowing the value of a property is important simply because you don’t want to spend more on the property than what it is actually worth. The bank who has agreed to finance the property will no doubt conduct its own valuation but it’s important for you to have an idea of the value of the property during the negotiation stages so that you try and come to agree to a price that is equal to or less than the value of the property.
You can either hire your own valuer at your own cost or conduct your own investigations on what the going rate is for a similar property in the same area. Check the local real estate property listings and see what similar properties are priced at. Again, that will only be guess work but that’s part of the whole process unless of course you pay for a valuer to do this.
Agreeing to terms
Once you have agreed to terms and the price with the owner, this should be put in writing. Normally, you will make a written offer to the seller and the seller will in return agree or disagree in writing. When informing the seller of your price, always make sure that you let the seller know that the purchase will be financed by a bank. This is important because it lets the seller know that what has been agreed to is preliminary and the sale is dependent on the bank formally agreeing to finance the purchase.
At this point, you should inform your financier of the agreement and the financier will then further consider your loan application taking into account the relevant property, the price and other terms of the sale.
You will be informed by your financier whether your loan application has been approved or not.
To secure a property you will need to pay a deposit to the owner or the real estate agent. It may be best to hold off paying the deposit until the bank has officially approved your loan application.
It is possible to pay the deposit once terms are agreed to at the initial stages just to secure the property however the problem with this is that should the bank decline your application, it will be your responsibility to chase the owner for the deposit paid. Not only is this a frustrating task where the owner holds off paying the deposit it will not be surprising of the owner deducts a certain amount for a lost opportunity.
So don’t pay any money until all your finance is in place.
The rate of deposit under current practices is 10% of the purchase price. So if the property you want to buy is K500,000 than you will be required to pay K50,000 as a deposit.
When paying the deposit be very careful to whom you pay it to. So if you do pay the deposit, pay it to a reputable real estate agent or the lawyer for the seller. Paying it to either of these two is more secure as both will deposit it into their trust account pending completion of the sale. How the deposit is dealt with will be determined by the contract for sale of land which is normally drafted by the seller’s lawyers.
Contract for sale of land
Once the deposit is paid this triggers the lawyers (usually the seller’s lawyer) to draft the contracts. In the meantime, you too will need to obtain the services of a lawyer and they will conduct checks with the Department of Lands and other relevant statutory organisations to ensure that the owner has good clear title and that there are no issues with the transfer of the title to you. If any issues are encountered, your lawyer will normally raise this with the seller’s lawyer and have them resolved prior to finalising the contract.
Once the terms of the contracts are agreed, both parties will then sign the contract for sale of land.
Stamp duty is normally payable on transfer of real property. The amount of duty depends on the value of the property.
The seller’s lawyer on obtaining the signed contracts by both parties will then submit the documents to the Internal Revenue Commission for stamping. If duty is payable, it is normally the responsibility of the purchaser, which is you, to pay the duty. Note that the duty is separate from the purchase price so you will be expected to pay over and above the purchase price if you are to purchase this property. Your lawyer should advise you on the amount of duty you may likely pay.
There are some concessions available for first home buyers and you should ask your lawyer of this and other applicable concessions.
Under the relevant legislation, there are certain categories of people that require Ministerial approval. Citizens are normally exempt and do not require such approval by the Minister of Lands or his delegate. However, non-citizens and those who purchase under a company name will require Ministerial approval.
Depending on your status, your lawyer will advise you whether approval is required or not. If approval is not required, then it lessens the time to completion of the sale. If approval is required, then it can take a while for Ministerial approval to be granted.
Once all necessary statutory approvals have been obtained the sellers lawyers will advise your lawyer and your financier (where relevant) on the date and venue of settlement. At settlement, your lawyer and your financier will take a look at all documents such as the contract and title to ensure that they are in order before handing over the bank cheques for the purchase price.
If there are any issues with the title or any document that is necessary to assist you register your name as the new owner or the financier as mortgagee either may refuse to settle until the issue is resolved. If all is well, you, your lawyer or financier will then have the relevant documents for you to be recorded as the new owner on the title and where relevant the financier as the mortgagee.
At settlement, what you your lawyer or your financier will have on settlement is the necessary documents that enable you to be registered as the new owner. The next step depending on who has these documents will be to actually file these documents with the Department of Lands to have your name recorded and registered in the title register.
Normally, if you are purchasing with assistance from a bank or other financial institution, the registration documents normally consisting of the title, contract, transfer instrument and mortgage documents will be held by the financier and will attend to registration of these documents. Once the documents are registered, the financier will hold the original title with your name as the new owner and the bank as mortgagee until you have settled your loan with the mortgagee (lender).
Purchasing a property is a big investment and following the correct process is important to ensuring you minimise your costs and register your name successfully on the title deed.
This guide is only a guide and should not be totally relied upon. You are strongly recommended to get independent legal advice for your own circumstances.