Ghana: No place like home

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On the back of sound macroeconomic indicators – such as increasing purchasing power, stabilising inflation and projected near double-digit GDP growth – Ghana’s emerging middle class is looking to buy property, giving the country’s real estate sector a welcome fillip. Although the entire real estate market is growing, demand is greatest for residential property. According to estimates from the Ghana Investment Promotion Centre, the segment has been registering transactions worth around $1.7bn per year over the past decade.


Nationwide growth in demand for residential property in 2010 stood at 133,000 units, compared to 90,000 the year before. This has been consistently higher than supply and the accumulated mismatch has led to a deficit of around 1m housing units. As a result, the potential for investment is strong.

However, a number of obstacles continue to hold back growth. A much-cited constraint is the high cost of financing. Developers are faced with loan interest rates of 25-35%. Because of the country’s history of high inflation– which has only recently started to stabilise under the 10% mark – and the nascent state of the real estate sector, banks have been somewhat reluctant to fund property development. Equity financing structures have also been slow to take off as foreign investors, still recovering from liquidity squeezes in their home markets, have scaled back activity.

A second obstacle is the cumbersome process for obtaining land and construction permits. Weak administration of land ownership over the past decades has often led to a loss of money and time sorting out conflicts between landowners. Obtaining construction permits is a notoriously slow process in many sub-Saharan countries and Ghana is no exception. Although slightly shorter than the regional average, the Word Bank estimates the average length of time taken to process and obtain a permit at around 220 days.

Another difficulty shared with many other emerging economies is a legacy of underinvestment in road and utilities infrastructure. This is an increasing problem as Accra’s rapidly built residential neighbourhoods push developers to look beyond central metropolitan areas. Developers are forced to take on the costs of connecting their projects to the road, electricity and water networks, and these are eventually passed on to the end buyer.

As 2011 kicks off developers are likely to be faced with a regulatory change that will add to the complexities. The Ministry of Finance and Economic Planning has proposed the elimination of a five-year corporate tax break on all private real estate developments, adding 25% corporate tax to the existing costs. Only developers that partner with public affordable housing schemes will be able to benefit from the incentive from now on. “This can push up the cost of a house by a significant amount,” Samuel Ewool, the executive director of Buena Vista Homes, a high-end developer based in Accra, told OBG.

Whereas demand for property is strong at all levels of society, the cost of overcoming these obstacles pushes prices up to levels accessible only to a high-income clientele, contrary to the originally intended purpose of the tax break. “The policy is now being used by some of these local real estate companies investing in condominiums and luxurious houses for the upper class, who do not merit tax holidays, so we are emphasising that for any company to enjoy these tax holidays they have to partner with the government,” Alban SK Bagbin, the minister for water resources, works and housing, told local media.

The move is part of a widespread governmental effort to raise living standards through investment in public infrastructure and affordable housing, as part of what the government has dubbed “the Year of Action”. In a bid to kick-start the construction of affordable housing, the Ghanaian government last year signed an estimated $10bn deal with STX Corporation, a South Korean construction conglomerate. Branded the Ghana Housing Project, the deal will see the construction of 200,000 housing units over the coming five years.

The initial stage of the project, which was inaugurated by President Atta Mills in January of this year, will involve the construction of 30,000 housing units at a value of $1.5bn, and will accommodate parts of the country’s security services. Although the deal will substantially reduce the nation’s housing deficit, it has attracted criticism for the size and scope of the incentives granted to the South Korean partner.

As part of the conditions, all land and facilities will be provided by the government free of charge, STX will be exempted from taxes on all imports, as well as earnings and value-added tax, and the government has guaranteed the sale of 45% of the total output.

The need for a well-managed approach, kick-started by governmental incentives and followed up on by Ghanaian banks and developers, seems more pressing than ever. With Ghana’s middle class growing in size and wealth, and the recent start of oil production, residential real estate prices are set to grow further and faster. The effective implementation of public-private partnerships has the potential to fill the housing gap, create employment and get the real estate sector onto a solid long-term path.

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