Since 2007 Ghana’s real estate market has continued to follow a cyclical trajectory, booming when headline growth is strong, but slowing in recent years in line with the commodity price drop in 2014. The sector is also affected by other pro-cyclical factors: as reported in the Bank of Ghana’s March 2017 “Monetary Policy Report”, the Ghanaian cedi had depreciated by 9.6% against the dollar by the end of 2016, while the inflation rate hit a six-year high of 19%. The trend continued in 2017 with depreciation recorded at 4.7% at the end of September 2017.
This has affected demand for real estate across the residential, commercial and retail segments, particularly the latter two; as companies have paused major projects there is less demand for commercial space, while the depreciation of the cedi and inflation has hit consumers as well as the retail market that caters to them. Certain major projects planned in 2013-14 when oil prices were higher are still coming on-line, but subdued demand has led to higher vacancy rates, as interested tenants are no longer in a strong position to make commitments.
However, as the forecast for oil exports slowly rises and the government launches programmes to stimulate economic growth and engage the private sector, Ghana is expected to see increased activity in the property market in the medium term. The government has already made efforts to boost the sector, most notably with the abolition of 5% value-added tax (VAT) on all real estate sales. Originally a 17.5% VAT, the reduction to 5% was implemented in October 2015 before removed completely in 2017.
Ghana’s population, estimated at more than 28m, has become increasingly urban, and with this migration there has been an increased need for housing in cities. According to the Work Bank, the urban population has more than tripled over the past three decades, rising from 4m in 1985 to 14m in 2015, and has outpaced rural population growth.
As such, Ghana’s housing deficit – cited at 1.8m units by the then-Ministry of Water Resources, Works and Housing in 2016 – is on the rise, estimated to reach 2m units in 2018. Sammy Amegayibor, secretary to the executive council of the Ghana Real Estate Association, told OBG, “We have not been able to meet annual housing demands, which is on average 70,000 units; at best we are completing about half each year.”
These figures are in line with estimates from the Centre for Affordable Housing Finance in Africa (CAHF), which stated that 40,000 housing units are delivered by real estate companies each year, which is less than half of the estimated annual housing demand of approximately 100,000 units. Time is also a factor when it comes to bridging the housing gap; CAHF estimates that up to 90% of Ghana’s housing is built by small-scale contractors and self-build houses can take up to 15 years to complete. Larger developers face challenges from changing needs. “The degree of unpredictability in demand forces many developers to execute construction in phases to adapt to changes in demand,” Karim Ibrahim, managing director at Dream Reality, told OBG.
Furthermore, not only is the current annual housing supply insufficient, but new residential properties are not matched to the needs of most Ghanaians. “Between players, you have a minimum of 3000 homes a year being built in the upper-middle-income space,” Lawrence Nana Yaw Oteng Asante, business development manager at local real estate company Devtraco Plus, told OBG. “However, this is woefully inadequate, because not only does it does not curb the existing housing deficit, but also because the average Ghanaian salary does not allow you to purchase it.”
Eunice Ofori, managing partner at Westfields Real Estate, has also seen that the bulk of demand is not for these high-end properties. “There is a lot more choice – different styles, more amenities – and more luxury properties, but demand is slowing down for these high-end options,” he told OBG.
In line with trends across the region, the bulk of the demand comes from the lower-income segments of the market. Ghana has been making some progress in improving access for lower-income households: according to the 2015 Ghana Millennium Development Goals report, for example, the population living in informal housing – estimated at 20% in 2010 – has been declining and is projected to reach about 14% by 2020.
However, despite this progress, meeting the demand for low- to medium-income housing stocks remains a significant challenge. According to CAHF, the starting price for a new 50-sq-metre house built by a developer in Ghana stands at around $20,223, which would only be affordable to 4.3% of urban households. Similarly, according to a 2015 report from the German international development agency GIZ, to be considered an affordable house, the price range would have to be between GHS100,000 ($23,900) and GHS200,000 ($47,900).
Ghana is tackling this shortage with a mixture of government, private and joint initiatives. Ghana’s new National Housing Policy, officially launched in February 2017, includes the goal of universal access to safe and affordable housing that is either owned or rented, defining affordability as costing no more than 30% of its gross annual income on rent or purchase. This builds on the previous administration’s revised Housing Policy published in 2015, which centred on increasing private sector participation in housing construction, streamlining land access and working with the World Bank to improve urban infrastructure in order to reduce construction costs for housing developments.
The National Housing Fund, a mechanism to finance low-income housing projects and related infrastructure development, has also been revived. In February 2017 Samuel Atta Akyea, minister of works and housing, announced his support for the establishment of such a fund as it would allow for reasonable mortgages and support for small-scale local building material manufacturers.
The 2017 budget also laid out plans to resume stalled affordable housing projects at Borteyman in Greater Accra, which, when completed, will include 1478 units housing 4500 people. There are also plans to finish the 1030-unit Asokore-Mampong project in Kumasi. The budget noted that the government will “create the enabling environment for the private sector to fully participate in the second phase of the project scheduled to commence in 2017.”
A number of other affordable projects are reaching their commercialisation date. Notably, the first phase of the Saglemi Housing Project – being constructed by local firm Construtora Oas– is reportedly 70% complete, and the first phase of Nyame Dua City Apartments project is finished. In addition, Swiss impact investor Vital Capital inaugurated the Prabon Greenfield project, an integrated 500-unit community near Kumasi, the second-largest city.
Another issue which exacerbates the housing gap is real estate financing, both for end-buyers and the developers themselves. The issue is not a lack of lending tools: nine of Ghana’s 31 banks offer mortgage loans, while Ghana Home Loans, the country’s residential mortgage lender, provides home-financing options with conventional mortgages and home-improvement loans.
However, despite this increased availability, as of September 2017 the lowest interest rate on a mortgage in Ghana was 29% with a requirement of 20% down payment, much more stringent conditions than in other African economies. For example, in Botswana borrowers pay 7% and South African banks charge 10.25% on mortgage loans.
“Repayments are pegged against your salary and the fundamental issue here is that they will take 30-40% of income,” Amegayibor told OBG. For example, someone who wants to qualify for a $35,000 house – which would be the most basic house – must be earning a minimum of GHS3500 ($837.90) per month. Repayment will average GHS1200 ($287.30) per month, which is not sustainable for most Ghanaians when the average monthly salary is far below GHS2000 ($478.80).”
Developers face a similar issue, lacking access to favourable financing options for projects. “At the moment we are borrowing about 32% on local currency and 15-17% on dollars,” Amegayibor told OBG. “Apart from it not being cheap, most banks are only willing to give you a loan for up to two years and when it expires, you need to renegotiate the loan. This is a problem because real estate projects can take two years before you even start selling.”
Rent Or Buy
These factors would normally strengthen the attraction of the rental sphere, but the market has yet to reach maturity. Renting remains expensive, especially in premium locations, because of policies that require up to three years of payment in advance. Such high upfront payments help developers finance some of their construction costs, which can be considerable, in addition to mitigating the risk of defaulted payments.
Given this, Nyame told OBG, “Renting is becoming too expensive if you are giving two years rent to a landlord, so we have actually seen a steady decline in the average age of those interested in buying a house. Also, a lot of the youth are looking for alternatives to invest their money aside from a Treasury bill.” Ofori has also observed this trend, noting that, “Upmarket customers are trying to rent, while the working class is trying to buy because they know if they don’t do so now, buying in Ghana will become impossible as properties get more expensive.”
While Accra is still the largest real estate market, there is also the need to address housing shortages beyond the capital. “The issue with most government housing policies is they are always concentrated in or close to the capital, but the populace’s inability to purchase a home cuts across the whole country, not only the capital,” Asante told OBG. This can be seen in the rise of mixed-use developments that provide office space, as well as housing units coming up in secondary markets like Kumasi and Tema. As traffic and commute times continue to increase across the country, these developments will likely become increasingly appealing to a significant number of Ghanaians. Increased provision of basic infrastructure before developers take possession of land in these important secondary markets could lower prices, thus making affordable housing more readily available to the populace across the country. “Mixed-use developments offer significant benefits in Ghana, given their ability to manage large tracts of fully serviced land, reduce unit costs and contribute to reducing the housing deficit,” Bright Owusu-Amofah, CEO of Appolonia City, a housing development, told OBG.
The country’s retail markets mirrors that of may sub-Saharan markets, with a lack of formal capacity having prompted a surge of investment in recent years. Real estate management firm JLL reported in September 2016 that some 42,000 sq metres of new space had been introduced to Ghana’s market in the past two years, with an additional 31,000 sq metres of construction under way.
Demand has dipped along with the currency fluctuation and high rates of inflation; JLL estimates rents in new shopping centres could be a third lower than prevailing market rents. Broll Property Group, a South Africa-based commercial property services company, noted in its first quarter of 2017 report that average asking rents range from $40-60 per sq metre for space ranging from 50-100 sq metres, though they appear more expensive due to the cedi depreciation against the dollar. Broll estimates that retail space supply will increase over the course of the next two years by approximately 80,228 sq metres, particularly as projects outside Accra are completed. In the capital the mixed-use Exchange project is scheduled to be completed in 2018 and will include 12,000 sq metres of retail space.
Kumasi and Takoradi also have new up and coming retail developments; the $95m Kumasi Mall opened in July 2017 as the first major mixed-use mall in the city, while the 19,000-sq-metre Takoradi Mall is expected to open in 2018. The $60m Greenwich Business Park in Tema will also include a shopping mall, and is expected to open in October 2018.
With regard to commercial space, JLL reported that the office market received 49,000 sq metres of new space in the premium Accra neighbourhoods of Airport City and the Ridge in the second half of 2015, but there were no new developments completed in 2016. Broll estimated in its first quarter of 2017 report that 150,000 sq metres of commercial space is anticipated to come onto the market over the next 24 months. JLL reports office rents in premium areas as high, with average estimates for the Central Business District at $25 per sq metre, Airport City at $38-40 per sq metre and the Ridge at $35 per sq metre.
However, this is competitive in a regional context. Indeed, a 2016 report by international engineering firm AECOM comparing premium-area office rents across African cities put Accra at an average of $444 per sq metre per year compared with $1119 in Lagos, but only $300 in Johannesburg. As is traditional in West African markets, the line between commercial and residential space has become blurred in Accra. “For a small office space in the city, you would have to pay one to three years in advance, and a lot of these companies do not have those funds readily available for a commercial space. They would rather rent a residential house and use that as an office,” Kelvin Nyame, co-founder and CEO of local online real estate consultant meQasa, told OBG.
Land acquisition has long been a challenge given the high prices and a complex registration system. As noted in a 2016 Overseas Development Institute (ODI) report, around 80% of Ghana’s land is communal land vested in traditional communities, and is, therefore, governed by an informal system that makes documented, guaranteed land rights difficult to come by, which in turn can dissuade investors. Consolidation of land under the parallel, formal government system can confuse things further and includes possible legal costs, which can result in a developer having to invest money before a project has even broken ground.
This can become even more complex when the landowners are foreign; as laid out in the 1992 constitution, non-Ghanaian citizens and entities cannot purchase land, but are rather permitted a maximum 50-year lease – shorter than the 99-year tenure common in many other African markets.
One step towards organising oversight of the land is the government’s initiative to digitise a national address system. As covered by the local press, at the May 2017 National Policy Summit, the vice-president Mahamudu Bawumia announced the target to complete a national database of standardised addresses by the end of 2017. There are also other innovative efforts under way: local organisation Bit-land is conducting a pilot to record title deeds with blockchain technology in 28 communities around Kumasi in an endeavour to create an extra record of transactions that cannot be forged or destroyed.
Addressing Ghana’s underlying infrastructure gap is another one of the most cited ways to make real estate ownership more affordable and widespread. “Development is often taking place on lands that are away from access roads, water and electricity services, and basic necessities,” Amegayibor told OBG. “Developers are financing these costs themselves and all this is ultimately added to the cost of the house, which is why affordable rates are so difficult.”
The undertaking of such public works by the government would reduce the upfront costs for developers, savings that could then be passed on to buyers. As the government continues to invest in infrastructure developments these concerns should start to wane, though pressures on public finances may slow progress. In the meantime, focusing on developed areas may be a solution. “The obvious places for development are those with street lights, security and tarred roads,” Nyame told OBG.
Increased regulation of the real estate market is also emerging as a way to solve key housing access challenges. Ghana has made progress in developing an industry that is standardised; in the 2016 Global Real Estate Transparency Index, JLL highlighted Ghana as one of the six markets in sub-Saharan Africa that have seen reasonable progress in transparency. “Real estate in Ghana is still relatively non-regulated. There are no pricing structures or thresholds, and there are few market analyses of trends done to inform the pricing of homes,” Asante told OBG. “Once there is a regulatory framework as to what homes are being built and at what cost such homes can be sold, that in itself can affect market prices.” The government has recognised the need to address this issue and the Real Estate Authority Bill introduced in 2016 to provide further regulation to the industry was expected to come out in 2017.
Construction costs have long been a challenge for West Africa’s property developers and Ghana is no different. “There are alternative forms of housing on which we need to engage the Ghanaian people to alter their way of thinking and curb this housing deficit. Homes are not only made of brick and mortar and intermodal steel building units, for example, have proven to be solid homes in Canada, the US and Singapore,” Asante told OBG. In addition, in July 2017 local press reported that IndigoHomes, a division of Accra-based BlackIvy Ghana, which in turn is part of the BlackIvy Group, partnered with local Mercury Estates in a joint venture to build a 218-unit community in Greater Accra using a reduced-cost construction technology. The $30m Ayi Mensah Park development will consist of condos, two-bedroom terrace townhomes and three-bedroom semi-detached townhomes.
After years of stagnation, the future is starting to look promising for the real estate sector, especially as revenues are expected to increase with rising oil and gas production. The fact that there is still such a significant shortage of housing, as well as the potential to introduce new, more cost-effective construction technologies could provide additional opportunities for private sector engagement.
As of November 2017 real estate sector leaders were cautiously optimistic. Ofori told OBG that since the new government came in, she has received many more inquires from interested buyers: “The market is picking up slowly with the new government, and so far this year we have seen an increase in demand we have not seen in the past two to three years. I’m hopeful the market will be busier with the government’s promises to bring in investors.” Amegayibor also told OBG that the general impression in 2017 is that it things are slowly getting better: “I believe there is going to be a shift. Most of our members are saying there have been a number of inquiries about houses, people who in 2016 were perhaps not able to make decisions have started calling in 2017.”
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