There is significant potential in Ghana’s real estate sector as the government implements initiatives aimed at increasing the affordable housing stock and establishing a robust mortgage market. After continued expansion in excess of 3% per year in real terms between 2015 and 2017, a slowdown in 2018 reflected weaker demand across the residential, commercial and retail segments, according to a 2019 report from the Ghana Statistical Service.
The lowered demand was attributed to sensitivity to depreciation and inflation, as sales and rentals are often priced in US dollars. However, in 2019 the Bank of Ghana (BoG) brought inflation down to its target range of 8%, plus or minus 2%. Inflation fell from 9.4% at the end of 2018 to 8.2% in November 2019. Meanwhile, the cedi depreciated against the US dollar by 12.9% over the course of 2019, according to the BoG. Measures put in place to stabilise the currency and boost consumer confidence could provide short-term relief, while renewed efforts to reduce foreign currency dependence in real estate are set to encourage long-term and sustainable growth.
Structure & Oversight
The Ministry of Works and Housing (MoWH) is responsible for regulating and implementing policy relating to the housing market. In recent years the MoWH has undertaken several programmes aimed at supporting the property market, including improvements in land registry, land acquisition systems and construction quality, as well as those that promote widened access to mortgages and housing finance. Taken together, the government’s efforts promise to address the structural challenges that have historically impeded growth.
The sector is dominated by informal developers, which account for 90% of the market. Homes built by such developers are usually constructed incrementally over five to 15 years. While slow, the phased construction of these basic units has proved to be more affordable for residents. Formal developers – represented by the Ghana Real Estate Developers Association (GREDA) – supply around 4500 units a year, mostly in the mid- and high-end segments.
In late 2018 a building standards code was launched by the Ghana Standards Authority (GSA). The code aims to improve the quality, safety and structural integrity of buildings across the country and was modelled on the International Building Code developed by the International Code Council at the request of the MoWH. Under the standards, the GSA is responsible for providing conformity assessments and certification of plans and materials.
Land acquisition and registration processes are also set to improve through the digitisation of land records, an initiative announced in March 2018 by Vice-president Mahamudu Bawumia to make land searches and registration easier. “The efforts to digitise the land registry are going to positively impact the ability of developers to close the affordable housing gap, but it will take several years for the benefits to fully materialise,” Ben Appah, managing director at B Appah Electricals, told OBG.
In April 2019 an automated permit process system (PPS) was similarly implemented to reduce the time and costs associated with the issuance and processing of construction permits. The PPS includes an electronic database of architectural and structural drawings that eliminates the need for in-person form submissions, payments and inspection. The system will be implemented by local authorities such as the Accra Metropolitan Authority and the Tema Metropolitan Assembly. These efforts will be supported by the National Housing Committee established the same month. The committee has been tasked with creating land banks to assist in the acquisition of land, and will oversee the implementation of the National Mortgage and Housing Finance Scheme (NMHFS), which features a targeted fund to support both developers and homeowners (see Construction analysis).
Performance & Size
Following a three-year period of growth, real estate contracted by 6.5% in 2018 to GHS1.2bn ($232.4m), at 2013 prices. In current terms, however, in 2018 the sector grew by 2.2%, contributing GHS6.1bn ($1.2bn) to GDP, up from GHS5.6bn ($1.1bn) in 2017. Real estate accounted for 2.2% of GDP in 2018, more than doubling its share from 2013. Despite mixed performance in 2018, the market has shown steady growth in recent years. Factors such as macroeconomic stability, improved regulatory and legal frameworks, and increasing rates of urbanisation have been vital. Looking ahead, efforts to improve the land registration and mortgage systems, as well as those that support pricing in local currency, are expected to bolster activity.
Ghana’s residential segment is the most active in the sector and accounts for an estimated 85,000 sale and rental transactions a year, according to the Ghana Investment Promotion Centre. While the country faces a growing housing deficit in excess of 2m units, inadequate supply is concentrated in the low-end segments that rely on state support.
Private developments are concentrated in the midto high-end segments, where prices are frequently set in US dollars. Much of this is due to high construction costs, which make up 59.8% of the costs associated with building homes as more than 80% of construction materials are imported and are subject to high taxation. Returns are also higher in the more expensive segments, with low-end buildings generating an average of 12.9% compared to mid- to high end at 15.5%. Foreign currency pricing ensures stability in the face of depreciation and safeguards returns, given that construction inputs tend to be dollar-denominated. However, this has led to an oversupply at the top of the market and an undersupply at the lower end, owing to a combination of high building costs and unaffordable, dollar-based mortgages.
Property prices are rising by around 6.9% a year, further constraining affordability. In the higher end, however, increases tend to be smaller, with prices typically reduced after units remain on the market. Steadily increasing high-end supply has outstripped demand that stagnated in 2019. Most developers have shifted to off-plan sales to reduce the risk of exposure to oversupply. Property management company Broll estimates that approximately 700 new sales of this kind will be developed within the next two years, despite relatively flat demand.
On the other hand, demand in the middle of the market is robust thanks to a growing middle class. Developers favour property sales over rentals in this segment as they are suited to the preference for home ownership, which is seen as a secure, long-term investment. Nonetheless, the country’s largest online property listing site, MeQasa, reports that 65% of new listings are rentals, with approximately 5000 properties listed per month. This reflects market dynamics where individuals own around 70% of housing stock. Rent is frequently charged one to three years in advance as a result of high demand and, as such, cheaper rentals on the city outskirts are highly sought after. Specifically, average rents per sq metre for the lower-middle, middle- and high-end segments were GHS14.70 ($2.85), GHS105 ($20.34) and GHS96.80 ($18.75), respectively, according to the 2019 “Housing Finance in Africa” report published by the Centre for Affordable Housing Finance in Africa (CAHF).
The average urban household in Ghana spends 80% of its income servicing mortgages, highlighting how unaffordable home ownership is for many. It reportedly costs at least GHS108,000 ($20,900) to purchase a newly built house in Ghana, a figure that roughly 9.4% of urban households can afford. Indeed, the mortgage industry remains relatively underdeveloped, with the ratio of mortgages to GDP at 1.1%. Banks have been unable to allocate adequate capital to long-term financing, increasing the costs of lending. As a result, high interest rates and uncertainty around repayments make mortgages inaccessible for most Ghanaians. To address these problems, officials are piloting reforms to reduce costs and enhance access to long-term lending.
The average mortgage covers 15 years and requires a 20% down payment. There are eight mortgage providers in Ghana, with a prevailing mortgage rate of 34.1%. Ghana Home Loans (GHL) is the largest provider, with nearly 50% of the market share. GHL typically borrows in foreign currency from development finance institutions and international agencies such as the World Bank and the International Finance Corporation to raise the capital required for long-term funding. Home loans are therefore denominated in US dollars to mitigate against exchange rate risks and losses. As dollar-based mortgages have interest rates of 12-13.5%, they are inaccessible to most who earn cedis, and depreciation has made repayment unaffordable for many fixed-income earners.
While mortgage interest rates have decreased from 33% in 2017, they remain high, varying between 28% and 30% over 20 years, according to MeQasa. The rates have held back the segment and resulted in non-performing loans (NPLs). However, efforts to shore up banks’ exposure have reversed increases in NPLs, which measured 23.5% in April 2018 but fell to 18.5% in December 2019 (see Banking chapter).
In response to the challenges experienced in the mortgage market, the National Mortgage and Housing Finance Scheme (NMHFS) was announced in the 2018 budget. Under the initiative, the government works with banks and pension funds to provide local-currency financing for mortgages and the construction of housing. The NMHFS enables banks to raise their capital requirements mortgage-backed securities from pension and institutional funds. By allowing ring-fenced pensions to be used as an alternative form of collateral, the scheme will enable workers to utilise tier-2 pension fund contributions to purchase a home.
As part of the pilot programme, in July 2018 Ken Ofori-Atta, the minister of finance, announced the establishment of a GHS40m ($7.7m) fund destined to the NMHFS and set to be expanded to GHS1bn ($193.7m) within five years. In April 2019 the newly formed National Housing Committee was tasked with developing and implementing the scheme. A month later the government announced the creation of the National Housing and Mortgage Fund as a special-purpose vehicle that will source capital from pension funds, housing bonds, grants, insurance companies, the primary reserve of the BoG and the Treasury.
Mortgage reforms could encourage the private sector to redefine its space in the market. “Several developers have considered entering the affordable housing segment amid predictions of a slow turnaround in demand for high-end homes,” Cynthia Opuni, vice-president of GREDA, told OBG.
Commercial & Retail
Several developers have turned their activities towards commercial property due to the slowdown in the residential market. More than half of ongoing development falls within the commercial segment, according to GREDA.
Over 54,658 sq metres of grade-A commercial office space was added to Ghana’s stock in 2018, according to Broll. This brought the country’s total office stock to 318,910 sq metres, with at least 200,000 sq metres of investment-grade office space in Accra. Lower demand in 2017 and 2018 resulted in downward pressure on rental prices. The trend continued into 2019 as there were over 37,000 sq metres of developments in the pipeline. The average office rental price stood between $30 and $38 per sq metre in 2018, with average yields reported at 8.5%.
Total formal retail stock stood at 131,405 sq metres in 2018, with occupancy rates averaging 80% at malls. JLL property group estimated that Accra had total retail space of between 200,000 and 230,000 sq metres. Vacancy rates vary from 5% to 50%. Negligible rates were reported at established malls, while those at newer malls were between 20% and 25%.
A number of reforms are set to enhance property development and sales. Efforts to narrow the housing deficit by increasing access to finance and encouraging the construction of well-built, affordable homes are expected to boost both supply and demand in the residential segment. As the mortgage market evolves, developers will have an added incentive to widen their investments. The commercial and retail segments continue to provide opportunities. Registration processes for businesses with foreign participation eased, which will boost demand for office space. Meanwhile, in retail, consumers reported renewed confidence and purchasing power.