Over the past 20 years, Ghana has outperformed its neighbours in reducing poverty and ensuring political stability, which resulted in an influx of foreign direct investment. The real estate sector in particular saw rapid growth after the discovery of oil in 2007, as dozens of multinational companies and surveyors flooded the country, driving up demand for temporary housing. Shopping centres and prime real estate were quickly developed, and prices increased sharply.
However, given the country’s high interest rates, a depreciating currency, the drop in commodity prices and slower-than-expected offshore exploration, growth and private investment in the real estate sector has decreased substantially. “Sales of property have dropped, and we have incurred heavy debt in unpaid loans,” Samuel Amegayibor, executive secretary of the Ghana Real Estate Developers Association (GREDA), told OBG. “Normally, if it is an election year, we expect things to be much easier because quite a number of people are willing to spend and there is a lot of money flowing in the system. Unfortunately, this year, it is not happening like that.”
Depreciation of the cedi in 2014-15 has also had a significant effect on the market, as real estate developments are indexed in foreign currency. Given the volatility of the cedi, the value of a home could fluctuate thousands of dollars over the course of a few months, discouraging investors from developing or purchasing real estate. The cedi did receive some relief from a World Bank partial bond guarantee and gained value in mid-2015 before stabilising during the first part of 2016. However, some additional appreciation was recorded later in the year.
Ghana is home to over 27m people and is growing at a rate of more than 2% annually. 40% of Ghana’s population is under the age of 15, and will be within the home-buying range by 2036, according to Kelvin Nyame, CEO of meQasa, an online real estate platform, told OBG. Urbanisation in Ghana has already reached roughly 54% and is growing at an average rate of 3.4% per year. This is being most particularly felt in the capital, Accra, and the northern city of Kumasi. “As people become more affluent, they also become better educated, more careerminded and therefore they have more purchasing power as they enter the property market. They buy houses earlier and more often, leading to increased turnover and search volume,” Kian Moini, co-founder and managing director of the online real estate platform Lamudi, told local press.
This rapid demographic shift has led Ghana to a 1.7m-unit housing deficit, which is projected to grow to 2m units by 2018. These trends signal a real estate market, especially the residential segment, that is likely to continue expanding for decades to come.
Oversight & Regulation
There is no single government body that oversees the entire real estate sector in Ghana; rather, a number of ministries and offices play roles in the sector.
The Ministry of Water Resources, Works and Housing (MWRWH) is responsible for developing policies and programmes for housing and public utilities in the country. There are a number of departments within MWRWH that play roles in the sector, including the Rent Control Department, which works with and settles disputes between landlords and tenants, and the Department of Rural Housing, which helps implement policies at the district level.
During then-President John Dramani Mahama’s 2015 State of the Nation address, he said that the MWRWH was exploring the establishment of a regulatory body for operations in the real estate sector. One year later, Kwaku Agyemang-Mensah, then-minister of water resources, works and housing, introduced the 2016 Real Estate Authority Bill to Parliament. According to Agyemang-Mensah, the bill is intended to regulate the sale, purchase, rental and leasing of real estate; prohibit cash transactions; as well as require detailed records of all transactions to avoid money laundering, tax evasion and duplicate sales of property. This bill is also intended to professionalise the industry and prevent unfair practices. Many in the real estate sector believe a strong regulatory body is long overdue and necessary to streamline processes and enforce regulation.
Ghana’s housing deficit has become a challenge at both the national and local levels, driven in part by the lack of an overarching policy for housing. Fortunately, in early 2015, after 10 years of development, the MWRWH published a holistic National Housing Policy (NHP) for the country. While the NHP is comprehensive in its scope, it specifically focuses on improving access to land, housing finance, housing design and construction, institutional reforms and housing governance. The NHP recommends setting up a National Housing Authority to oversee implementation. The NHP also suggests the establishment of a National Housing Fund to support affordable mortgages and construction finance, as well as to create an enabling environment for the private sector to take more leadership in housing development. The policy does not, however, outline specific incentives that would be provided to attract private sector investment. While this policy was greatly anticipated and welcomed, many in the sector are waiting to see how the government plans to fund and execute the policy.
Most place the current housing deficit at 1.7m units, and while 40,000 units are built each year, there is demand for roughly 170,000 houses annually. Following the discovery of oil in 2007, high-end real estate received a lot of attention. Now, due in part to a climate of lower oil prices and the depreciation and volatility of the cedi, growth has slowed.
“The upper market is declining,” Eunice Ofori, managing partner of Westfields Real Estate, told OBG. ”Mid-range properties are becoming increasingly popular as expats are looking to buy vacation homes.”
Traditionally, high-end residential investment, especially with expatriates, has taken place in the Airport Residential, Cantonments and Labone areas of Greater Accra. These areas offer quality rental properties — often in gated compounds — and though slowing, are continuing to see developments. According to property management company Broll Ghana, over 800 new units are expected to come on-line this year in Cantonments, more than 400 units in Airport Residential and over 200 in Labone. There are a number of other locations gaining residential interest as well, with areas like Spintex and Dzorwulu expected to see developments in the coming year.
Renting is the most common way to secure housing in urban areas. Just outside of Accra, a two-or three-bedroom house in an area like Tema would cost around $250 per month, while a four- to six-bedroom house in Kumasi would cost approximately $2500 per month. Renting in Accra is a bit more expensive. According to Nyame, rent for a furnished two-bedroom apartment – the most popular rental unit according to meQasa’s data, would cost between $1000 and $1500 per month, while a three-bedroom unit would run between $3000 and $5000.
However, Clovis Abi-Nader, area general manager of MAN Enterprise, explained that the market is down. “Now you can easily find a furnished apartment for an affordable price. In 2015 a median class, furnished, three-bedroom apartment would have been around $2800 to $3000 per month,” he told OBG. “Now, that same apartment can be negotiated down to $2000 easily. But these prices cannot be used as a measurement for future development. We expect that after the election, there will be another rise in real estate prices.”
While certain developers see rental prices as low, many consumers are calling for the government to set price caps on rent to get costs under control. The MWRWH is working to amend the Rent Act of 1963, which regulates issues ranging from the payment of rent to the ejection of tenants. The amended law, if it receives parliamentary approval, will limit payments to six months, instead of a one-year upfront payment.
This change would make housing more affordable for many renters who cannot pay six months in advance. However, many in the industry are not confident the law will be followed or enforced. “There is no enforcement mechanism for the current Rent Act, and landlords are still insisting on one year’s rent. Ghanaians are so used to it by now that it would take a large marketing plan to educate the country about the new norm. This becomes even more difficult in rural areas,” Ofori told OBG.
Others state that while the updated law would benefit renters, it could potentially increase the country’s housing deficit. Narteh Tetteh, CEO of Realty Connection, told local media that this cap would serve as a disincentive for investors. Rather than propose a lower limit on permitted advanced pay, he suggested fully funding the Rent Control Department to enforce the six-month law that is already in place.
Many individuals and households seeking homes are looking for more affordable alternatives. If private investors are willing to accept the risk of monthly payments and require less capital up front, the market is ripe with opportunity.
Upfront payment is also a factor on the sales side of the market. Most households cannot afford to purchase a home in Ghana, in part because the minimum mortgage down payment is 20% of the purchase price of the house. A number of real estate developers, including Devtraco, Regimanuel Gray and Comet Properties, have built houses that now sit empty because they are unable to find buyers. A two-to three-bedroom house in an area like Tema would sell for an average price of $80,000, while a four- to six-bedroom house in Kumasi would cost roughly $300,000. According to the Centre for Affordable Housing Finance in Africa (CAHF), due to difficulties securing capital, up to 90% of Ghana’s housing is built incrementally by private homeowners and small-scale contractors over the course of five to 15 years.
Some developers believe that demand for high-end home-ownership will increase after the election that took place at the end of 2016. “At the beginning of 2017, the market will be for buying smaller-sized apartments that are nice and neat. There will be a number of expats who want to come to Ghana because of its stability and security. People are starting to look at buying homes here,” Abi-Nader told OBG.
Financing A Home
Housing costs on top of high interest rates, inflation and the depreciation of the cedi have also decreased the number of Ghanaians eligible for mortgage, with housing finance in Ghana still relatively underdeveloped. According to the CAHF, less than 3% of commercial bank loans finance housing, and only five of Ghana’s 26 banks officially offer mortgage loans — namely, HFC Bank, Fidelity Bank, CAL Bank, Stanbic Bank and UT Bank. Ghana Home Loans (GHL), the country’s only residential mortgage lender, also provides financing. These limited resources tend to target middle- or high-income earners who make at least $1200 monthly, and only 10% of households meet this criteria. Financial barriers make homeownership even more difficult for the roughly 80% of Ghanaians working in the informal sector. HFC has attempted to serve this community through its Informal Sector Operations Programme, which allows people to save daily or weekly in order to build credit. However, this programme has had little success, and over its eight years of operation, only three mortgages have been granted.
Lack of financing options means a number of residential units are unable to find tenants and are left vacant. A number of banks are foreclosing on developers who are unable to repay their loan because they could not sell their properties, leading some real estate developers to use presales to ensure they cover their costs. Given the lack of affordable financing, some in the sector are advocating for the re-establishment of the Bank for Housing and Construction (BHC), which historically provided affordable funding to real estate developers but was dissolved in 2000 by the Bank of Ghana. Reinstating the BHC and providing affordable capital and access to mortgages could reduce the housing deficit. The lack of institutions in this subsector provides a unique opportunity for investors. However, it is a relatively risky industry given high default rates in Ghana.
Recent developments in residential real estate have catered to the influx of multinationals, and have therefore focused on high-end properties. Ghana has yet to see significant development of low- to middle-income housing in urban areas. In rural parts of the country, affordable housing is much more widely available. A community compound room can be purchased for $5000 or rented for $5 per month. However, as Ghana continues to urbanise and young people flock to city centres seeking employment opportunities, demand for lower-income housing in and around areas like Accra and Kumasi is growing. The most affordable housing unit built in Accra in 2015 cost $24,358. According to the CAHF, a 20-year mortgage for this home would require an annual income of $21,982, over four times Ghana’s average annual household income of $4489. Based on CAHF calculations, less than 1% of urban households in Ghana could afford to purchase this home. This gap highlights significant market opportunity for the development of affordable housing.
One hurdle preventing Ghana from meeting housing demand is the lack of a common understanding of what constitutes affordable housing. Additionally, the depreciation of the cedi and the challenge of securing a mortgage has contributed to some Ghanaians’ inability to afford housing. Many households that just a few years ago qualified for a mortgage are no longer eligible because of their loss in income due to the less favourable exchange rate. The government is slowly tackling the challenge of access to affordable housing.
The Borteyman and Kpone housing projects are two of six affordable developments the government is supporting in order to address the housing deficit. These two projects are expected to add 5000 affordable one- and two-bedroom homes to the market to be rented by public sector employees.
More affordable property is available just outside of the main city centres; however, these are in areas that often lack basic infrastructure and services. When provision of basic services falls on real estate developers, costs are typically pushed onto consumers raising the price out of the range of affordable housing. If the government is able to work with the private sector to help provide water, electricity and road access to these satellite cities, then developing affordable housing would be a significantly more attractive investment option.
According to the Broll “Ghana Residential Barometer Q2, 2015” report, “The use of prefabricated materials for construction remains an untapped apparatus in the industry. It has the potential to revolutionise the affordable housing market; cheaper construction costs ultimately lead to relatively cheaper property prices. Pre-fab housing has the potential to curb the country’s growing housing deficit.”
Office development has continued to increase in recent years, especially around the Airport City and Ridge neighbourhoods of Accra, despite reports that demand has remained stable since 2015. Ofori has seen office rentals increase slowly, “Demand for commercial space is starting to grow. People who used to work out of their houses now want formal office space. One of the main reasons for this is the cost and inconsistent supply of electricity. People want to rent space in a building with generators and lower collective energy costs,” she told OBG.
Broll Ghana reported that demand for office space came primarily from new market entrants looking for 100- to 200-sq-metre units, with a few requests for offices over 2000 sq metres. Airport City and Ridge received 39,500 sq metres of office space during the last quarter of 2015 from a number of developments including Grand Oyeeman, One Airport Square, Manet 3 and NCA Towers. Given the significant expansion at the end of 2015, new developments are unlikely to come on-line in 2016, driving landlords to compete creatively with incentives like rent-free periods.
Despite the benefits of formal office space, rent in the Accra area is stretching many businesses thin, especially small enterprises. According to the Broll “Ghana Retail, Office and Industrial Market Report Q3 2016”, A-grade rentals cost between $32 and $35 per sq metre, while B-grade rent ranges from between $18 and $25. According to Ofori, depending on location and building amenities, service charges range from between $3 and $5 per sq metre.
While these prices represent a more than 2% drop from the second half of 2015, they still place Ghana at the high end of its West African neighbours. Prices are likely to continue slowly decreasing given the recent influx of office space in Airport City and Ridge while demand for small office space is predicted to maintain its current rate for the coming year. With 193,300 sq metres of new office space planned for development over the next 24 months, it is very clear the investment community feels confident about the sector over the long term.
Most retail activity in Ghana centres around shopping malls in the capital, Accra. Overall consumer activity has been hurt by inflation and high fuel costs, which have driven down disposable income and consumer spending. However, the online retail segment is experiencing growth. These two trends are affecting brick-and-mortar stores, which saw little growth in the second quarter of 2016. According to Broll Ghana, most demand was for spaces below 100 sq metres, with the exception of Accra Mall, which has had a more successful 2016.
Accra Mall, built in 2008, was Ghana’s first large-scale mall, with roughly 20,000 sq metres of retail space. In 2014 the West Hills Mall was opened in Widja, a neighbourhood in the western part of the Greater Accra area, offering 27,000 sq metres of retail space. Large retail projects in the city include Edge, an 8728-sq-metre space scheduled for construction in 2016 and 2017, and the 1000-sq-metre LA Union, where construction has been delayed. Given recent economic pressures across the country, vacancies are becoming increasingly common at malls, leading landlords to offer concessions to potential tenants. In the second quarter of 2016 the average monthly rent in Accra was between $45 and $60 per sq metre.
Outside of the capital, other cities are developing retail space and emerging as some of the most promising markets. Ongoing projects include the Kumasi City Mall in Ghana’s second-largest city, Kumasi, which was 60% let as of October 2016, and Takoradi Mall, which is in the pre-letting phase.
Companies with a presence in Accra, especially international retailers, are demonstrating interest in these markets, with an estimated 67,000 sq metres of retail space set to be available for lease outside of Accra over the next 18 months.
According to Broll, leasing industrial space in Ghana costs between $5 and $10 per sq metre per month. Rent in Ghana is higher than the $8 per sq metre it costs in neighbouring Côte d’Ivoire and Nigeria. Retail and industrial real estate is associated with other costs. “The usage rates for water and electricity are higher for commercial and industrial properties compared to residential rates. This is despite higher utilisation for longer periods of time and during peak hours,” A Y Abebrese, managing director of Taysec Group, told OBG.
Ghana’s most important industrial areas include the North Industrial Area and South Industrial Area, where average warehouses leases are for 1000-sq-metre units. Tema and Takoradi, the centre of Ghana’s trade, are also important industrial areas. Tema handles 95% of Ghana’s imports, while Takoradi sees 68% of exports and is becoming a hub for the growing oil and gas sector. Both ports are currently undergoing expansions and a Kuwaiti developer is leading construction of a 40-acre logistics park in the Tema Port Free Zone.
According to GREDA’s Amegayibor, about 30% of house prices come from charges unrelated to input costs, and these expenses tend to be passed on to consumers. For example, the lengthy processes for acquiring land and securing a building permit, which can take six months or longer, add significant time and costs to projects.
Additionally, Chinese investment in infrastructure is continuing to decrease across Africa, and the government of Ghana, constrained by budget cuts, is unlikely to fulfil a number of infrastructure commitments (see Transport chapter). As a result, developers are becoming increasingly responsible for things like the installation of electricity transformers, poles, cables, water and road networks.
These expanded responsibilities make it difficult for developers that are considering developing more affordable property outside of the city centres. In October 2015, following successful discussions between the government and real estate associations like GREDA, the existing 17.5% value-added tax (VAT) on the purchase of all properties was reduced to 5%. However, the government applied the VAT retroactively to all units purchased prior to implementation but with remaining payments.
Ghana’s real estate sector provides promising opportunities for private investors despite bureaucratic and infrastructure challenges. Notwithstanding saturation at the high end of the market, there is strong demand for mid-range and low-income housing. For the office, retail, and industrial subsectors, growth may be limited in the short term, but the overall economic outlook is predicted to improve and long-term fundamentals are strong. With the economy continuing to stabilise, along with favourable demographic trends and rapid urbanisation, future prospects for real estate are promising.
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