With a new proposal to fund affordable housing on the table, along with a previously mooted abolition of the value-added tax (VAT) on property sales, the 2017 outlook for Ghana’s housing market has brightened.
Speaking to local media in January, Samuel Atta Akyea, the minister for housing and works, said the government planned to set up a fund to subsidise the cost of housing for low-income earners.
Atta Akyea also announced that the Ministry of Housing and Works (MoHW) is considering setting up a bank for the housing sector to help with the administration of the fund, which itself will support the restructuring of the existing home loan system to ensure that mortgage repayments are affordable.
The need for improved access to housing finance is clear: as of September last year, the average interest rate on home loans stood at 31.5%, according to the Bank of Ghana (BoG), and the country has some of the highest mortgage interest rates in the world.
While the BoG does not publish data on the volume of mortgage loans, most estimates place the penetration rate at only around 3% – higher than Nigeria but well below that of many other markets on the continent, including South Africa and Morocco.
This has had a significant dampening effect on demand, with BoG’s most recent financial stability report published in September 2016 showing that loan demand for home purchases remained in negative territory for much of the first seven months of 2016.
During this period credit demand in net percentage terms peaked at approximately 3% in April, but fell to -5% by July – the lowest demand recorded in eight months. By comparison, consumer credit loan demand remained in positive territory over the period, reaching a high of 15% in February and roughly 8% in July.
Even beyond credit issues, the challenges many Ghanaians face in securing suitable housing was a key campaign issue in the lead-up to the country’s presidential election in December 2016, and for good reason.
Ghana currently faces a significant housing shortage, with various industry estimates putting the deficit at roughly 1.7m units and growing at a rate of 70,000 units a year.
This problem is compounded by the fact that many existing dwellings are sub-standard. According to the Ghana Real Estate Developers Association (GREDA), around half of the population lives in unsuitable accommodation.
Speaking to local media last month Frank Aboagye Danyansah, CEO of Ghana’s Danywise Estate and Construction, said that the cost of bridging Ghana’s housing gap could reach $34bn over the coming decade, based on the construction of 200,000 residential units annually.
In addition to the launch of the new housing fund, the government has also announced plans for more direct intervention. Last month the MoHW stated that it was planning to complete a series of affordable housing projects in the Greater Accra, Ashanti, Eastern, Upper West and Northern Regions.
These developments comprise around 4900 units started during the term of former President John Agyekum, which ran between 2001 and 2009, as well as 5000 that were left unfinished but near completion due to austerity measures pursued by the previous government, according to Danyansah.
Although there have not yet been any official pronouncements, property developers are hoping the Akufo-Addo administration will follow through with a campaign pledge to abolish the 5% VAT on property sales.
The levy had originally been set at 17.5% when introduced in 2015, but was reduced by the previous government to its present level last year over concerns of the impact on the VAT on home ownership.
GREDA called for the levy to be scrapped, saying its abolition would “help boost the capacity of developers to be able to expand by producing more housing units”.
Some stakeholders also argue that by lowering the taxes imposed on interest earned by financial institutions on mortgage repayments, the financial burden of home ownership could be lessened.
“If, for example, the taxes are reduced, you can see the mortgage interest rate declining from about 50% to about 20%,” Robert Le Hunte, managing director of Ghana’s HFC Bank, told media in November last year.
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