Access to credit and land administration reform can help the sector mature and consolidate the country’s wider growth story

For many years the real estate market was an often-overlooked component of Ghana’s economy, failing to be as eye-catching to domestic and overseas investors as the better-known success stories in commodities, energy and agriculture. This is beginning to change, however, as capital generated by Ghana’s energy-led aggressive growth from 2010 onwards has both helped attract high-end real estate offerings, largely funded by foreign investors, and stoke home-grown demand. This is further complemented by a rapidly growing young population, shrinking household size, ever-quickening urbanisation and the consolidation of the spending power of an emergent middle class.

Returns on commercial property are steady but the real growth opportunity lies in the provision of affordable housing to the urbanised middle-income earners. Indeed, the government estimates that there will be a need for an additional 1.6m homes by 2020.

Economic Context

The discovery of the Jubilee oil fields in 2007 accelerated the economy into double-digit growth, attracting an influx of multinationals to the country, pushing up the price of real estate and encouraging higher investment. The 14.4% GDP growth rate of 2011/12 has steadied, with figures for Q1 2014 showing a moderate but respectable year-on-year rate of 6.7%, according to the Ghana Statistical Service (see Economy chapter).

The challenges faced by Ghana’s economy stem from depreciation of the cedi, the local currency, and the rise in living costs brought about through a reliance on imports, as well as a high inflation rate, rising budget deficit and increased cost of borrowing. In 2013 ratings agency Fitch downgraded Ghana’s foreign and local currency issuer default ratings and its senior unsecured ratings from B+ to B over concerns about the government’s inability to rein in its deficit. As of July 2014 creeping inflation reached levels of 15%, to which the Bank of Ghana (BoG) responded by bumping up the interest rate to 19%.

Home Ownership

Family houses in central Accra typically sell for $100,000, according to tonaton.com, Ghana’s free classified online site, pricing all but the very rich out of the property market. Of Ghana’s population, only about 3% of households can afford the cheapest formal sector dwelling on the market, which sells for $25,000. A buyer would have to put down a $2500 deposit and earn $970 per month to afford a 20-year mortgage (US dollar denominated) at 13.5%. Industry insiders report that a more realistic minimum price that would be in reach of the country’s middle class would be $5000.

The segment that has seen the greatest change from the uptick in real estate growth is the high-end residential market, which largely caters to overseas investors and wealthy Ghanaians, much of it selling off-plan. Prices range between $300,000 and more than $1m, while property rentals in the middle-to-upper segment range from $2500 to $8000 per month. In Accra’s Airport Residential Area, a three-bedroom, family-sized house can cost up to $550,000.

Affordable Housing

As Ghana’s middle class and urbanisation rates quickly advance, housing infrastructure has become a central concern for public policy. The present population is around 25m, with half living in urban areas. By 2020 UN-Habitat estimates that 2m new houses will be needed to satisfy Ghana’s rapidly growing housing demand. Between 1960 and 2010, the population in Greater Accra alone surged from 491,817 to 4m.

Affordable housing construction remains a serious challenge, as the wide margins private developers enjoy from higher-end developments discourage them from participating in low-income projects. Banks are also apprehensive about providing adequate financing for such projects in line with their adoption of more risk-averse lending policies. Consequently, small-to-mid-size construction projects take a long time to complete due to sporadic cash injections that finance only certain parts of projects. A report published by the World Bank in 2008, “Is Accra a Superstar City?”, ranked the city as the 75th most expensive in the world – comparable to Houston, Texas – but with a population that lacks the income to afford to live there. A UN-Habitat report graphically spelled out the speed at which Ghana would have to build to meet its required 5.7m new rooms by 2020. “If these are to be successfully supplied, 3.8 new rooms must be completed every minute of the working day for 10 years,” the report said.

Affordable housing “is without question the biggest problem that Accra faces,” Nat Amarteifio, the mayor of Accra between 1994 and 1998, told local press at the end of 2013. “The market is naturally interested in returns on investment, and private firms are much more assured of that when dealing with upper-income buyers than when building housing for the masses,” he continued.

However, at the same time this leaves ample opportunity for private developers to take advantage of a major gap in the market while facing low competition. “We need large-scale developers who can achieve economies of scale by delivering housing units in large numbers,” Ellis Atekpe, executive director of Ghana Home Loans, told OBG. “The government has to ensure the process of land acquisition is smooth, assure availability of utility services at sites, and ensure the environment is conducive for business. The private sector must lead the charge.”

In 2006 the Ministry of Water Resources, Works and Housing launched a major affordable housing initiative and the government worked with HFC Bank to roll out 10,000 units to public servants. Yet foreign partnerships were considered necessary due to the scale of construction required. The South Koreans were the first to sign up in 2010 with a $1.5bn, 30,000-unit project to be carried out by Korean group STX Engineering and Construction Ghana. The project was scrapped, however, in 2013 due to disagreements between the developers.

In late March 2014 the management of five out of six ongoing housing projects was handed over to the Social Security and National Insurance Trust. The Tema Development Corporation now runs the sixth project in Kpone. To finance the construction, the government secured $400m in funding from Barclays and Credit Suisse to enable two developers to build 9120 housing units. Brazilian company Construtora OAS is constructing 5000 units for $200m and Ghana’s Italconstruct International will build the remaining 4210 units for another $200m. The government is also in the midst of negotiations with both Moroccan and Indian developers for several thousand more units, according to local media.

Rental

High construction costs, low mortgage penetration and a rapid increase in property prices make renting the most widely used form of tenure, though it is fraught with difficulties for the tenant. Middle-income rent ranges from $150-800 per month. The property owners’ strong position means that they can, and often do, demand two years’ rent in advance, even though the law stipulates six months. This leads to overcrowding, with some who cannot gather up-front capital sub-letting from existing tenants or perhaps even staying rent-free.

According to Kofi Ampong, CEO of Broll Ghana, a local real estate group, “As time goes on, the structure of leases is changing significantly, particularly in first-class properties and retail facilities. Leases are increasingly structured in such a way as to give the landlord additional rights and freedoms.”

Regulatory Framework

While deliberations were ongoing at the time of writing regarding regulatory reforms, the legal framework around land ownership and the development of a national housing policy requires improvement. In recent years land reform has gained prominence at the policy level through the government’s pursuit of achieving the UN Millennium Development Goals, specifically with the implementation in 1999 of the National Land Policy. This laid the ground for the Second Ghana Land Administration Project (LAP-2), which came into force at the beginning of 2012 as an upgrade on the first project that ended in 2010. While LAP-2 is aimed at instilling more effective and efficient land administration, as of late 2014 the impact on the real estate market was difficult to measure.

That Ghana’s housing policy has been in draft form for more than seven years attracted criticism in parliamentary debates during 2013, though the water resources, works and housing minister, Alhaji Collins Dauda, did commit to finalising the draft policy document. The country’s first National Urban Policy and Action Plan, passed in May of 2013, is also in place. The emphasis is on macro-urban issues, however – promoting urban centres as engines of growth, encouraging development through an integrated settlement system, and facilitating socio-economic development of rural and lagging regions – rather than in the finer details of housing provision. Although the government withdrew an attempt to levy a 17.5% value-added tax (VAT) on the financial services sector in June 2014, it has stuck to its policy of extending VAT to include real estate development, despite opposition from the industry.

Paying Twice

Formal land registration is also predominantly an urban affair. The capacity to register a property remains limited to major centres such as Accra, Kumasi and a few smaller towns. Registering land through the Lands Commission is beset with administrative limitations for both buyers and sellers. Most land is held in either local custom hands (“stools”) or by the government, and the land administration framework is characterised by the coexistence of overlapping systems –state, traditional and private. Developers must navigate this challenging system with caution and can often find themselves paying two-to-three times the price for a piece of land due to duplicate land ownership by various chiefs. This and unreliable title documents heighten the risk of mortgage lending, with local banks often cautious of lending, or do so at a premium.

State Intervention

Meanwhile, the difficulty in finding affordable long-term funding means that most developers focus their efforts on properties for sale, which have a higher return on investment, rather than rental, even though the majority of Ghanaians are unable to afford these properties. Add to this the historic under-investment in public housing that came with the IMF-imposed reforms of the 1990s, which sought to minimise state spending, as well as the lack of financial incentive for developers to produce affordable housing, it becomes clear that some form of government intervention will be required to help meet the considerable demand for affordable housing, in both rental and sales markets. As Amarteifio says, “There is simply no way in which the private sector can meet the demand.”

Online

Increased connectivity and growth in digital services have helped make more sophisticated trading possible for many house hunters. Buyers and sellers of property have taken to tonaton.com, Ghana’s free classified site, to trade in the sales and rental markets. Between May and July 2013, a total of 5234 properties were advertised for sale on the classified ads site, according to the online international media group AllAfrica.com.

Kwabena Opoku-Boakye, marketing manager for tonaton.com, told OBG, “Heavy traffic in the cities today coupled with high transportation costs means people can neither afford the time nor the expense of travelling to find a home.” Against this backdrop, tonaton has seen the use of its website for property transactions increase three-fold.

Another tech start-up to break into the local real estate sector is meQasa, a service aimed at connecting landlords, brokers and other real estate professionals with customers through the online site meQasa.com, as well as bringing together tenants and landlords, buyers and sellers.

Office

Ghana’s strong growth and political stability have encouraged office developments to cater to the banking, professional, development and telecoms services, which have sprung up around the success of the country’s oil production, mining and cocoa exports. The main centres for office real estate are Accra and Kumasi, with increased demand for high-quality space quickly pushing up prices. Rents for Accra’s prime office space have risen from $22 per sq metre a month (sqm/m) in 2009 to $40 sqm/m, with yields remaining steady at 10%, according to property consultants Knight Frank.

Over the next year demand in the office market is expected to remain stable while supply increases. Kumasi has lower demand than Accra, with absorption taking between nine and 12 months after completion compared to Accra’s rate of six to nine months. Takoradi has also been very active since the discovery of oil, with companies flocking close to the source of production. Prime office rents there average $ 12-15 sqm/m. Recently completed major office projects include the World Trade Centre (Ridge), Trust Towers (Asylum Down) and Silverstar Tower (Airport City). A slew of new projects will come on-stream over the next 12 months, totalling approximately 166,000 sq metres of office space for rental.

Mixed-Use

Accra’s Airport City is a good example of mixed-use development that has attracted large amounts of foreign and domestic investment into real estate. Where once there was scrubland, there is now a new city, boasting hotels, 13-storey towers and Grade-A office space. Marina Mall, at Airport City, is one of the new malls that have started to appear in Ghana, to complement a retail environment of traditional street stalls and hawkers.

Also in Airport City, Stanbic Bank has taken on South Africa’s RMB Westport flagship mixed-use property Icon House. Prime retail rents in Accra have jumped from $40 sqm/m in 2009 to $45 sqm/m, while yields have dropped to 8%.

One example of the type of developer taking advantage of the attractive investment conditions is Dream Realty, a joint venture between the Lebanon-based Jamil Ibrahim and Ghana’s Interplast. Its specialty is building high-end retail and office space within Accra’s urban centre. Given the lack of competitive, big-name players in the contracting industry, developers at Dream Realty say that for projects in excess of 50,000 sq metres profits can reach beyond 40% of the cost. Dream Realty’s projects include the mixed-use beachfront Riviera development close to Accra High Street, comprising twin 17-storey buildings, complementing a five-star, 80-room hotel, as well as the Octagon, a $110m business centre and shopping facility, under construction in the centre of the capital. “There is a lot of hype around mixed use developments. Many developers are drafting plans for hotel, office space and more,” Karim Ibrahim, the managing director at Dream Realty, told OBG.

Industrial

The industrial real estate segment, while not as active as the residential segment, is significant, with the main activity areas being the Coast Road, Takoradi Airport Area and the Apowa industrial area. Land price inflation in Accra combined with increased demand from the energy sector has seen industrial land in and around the capital jump from $3.50 per sqm/m in 2009 to $8 per sqm/m, with yields sliding from 12% to 10%, according to Knight Frank. Both demand and supply in Accra for the coming year are expected to remain high, especially for warehousing and logistics, although Kumasi is forecast to see increases in neither demand nor supply this year. Major new developments in the pipeline include the Ghana Shippers Authority’s 4000-sq-metre warehouse and logistics platform facility and the Western Timber Warehouses. Future projects are also expected from Sabat Motors and Mantrac Caterpillar, which have also acquired large tracts of land for industrial development.

In January 2014 Chinese construction firm Huasheng Jiangquan Group announced its intention to invest more than $2bn to build an industrial park in Shama, a small fishing village 20 km east of Sekondi-Takordi in the Western Region. The development will be located close to the Pra River between Fomayeh and Anlo Beach, and it is expected to open up the Western Region and create 5000 jobs.

Bank Lending

Ghana offers a mixed picture on financing options and the availability of credit to would-be homeowners. According to HFC Bank estimates, four out of five Ghanaians operate entirely outside of the formal financial sector. However, the World Bank paints an entirely different picture.

According to the institution’s Global Financial Inclusion Database, known as the Global Findex, 26.2% of rural and 52.5% of urban Ghanaians over 15 years of age have an account with a formal financial institution. In addition, according to the World Bank’s 2014 “Doing Business Report”, in the “ease of getting credit” category, Ghana was positioned 28th out of 185 countries, which was fifth among sub-Saharan African countries and ahead of Côte d’Ivoire, Senegal and Togo, respectively.

Despite this, residential mortgage penetration remains very low, at 0.45% of GDP (compared to South Africa’s 33.7%) and only 1.9% of the top 60% of income earners and 3.1% of the bottom 40% of income earners have an outstanding loan to purchase a home, according to OECD figures. Aversion to borrowing is not the obstacle. The use of credit is fairly common – 39.2% of adults over 25 years of age report that they had a loan in the year to 2011. It is partly a result of two factors: a tendency of lending between family members rather than formal financial institutions, and the use of self-build as the dominant means of housing provision.

Most loans are from family or friends: only 7.5% (out of 39.2%) of adults had a loan from a financial institution and only 3.8% had a loan from a private lender. About 90% of Ghana's housing stock has been produced through self-build. Accordingly, construction loans are more common than traditional mortgage products: 8.9% of the top 60% of income earners had one, and 5.2% of the bottom 40% of income earners, as per 2013 statistics from the Centre for Affordable Housing Finance in Africa.

Borrowing Costs

The cost of borrowing has come down in Ghana, but it remains high. Local currency loans are among the most expensive in Africa, and non-local currencies are favoured: HFC Bank offers US dollar-denominated mortgages at 13.5%, while mortgages in Ghanaian cedi are offered at a high 28%. According to Alex Tweneboa, former president of the Ghana Real Estate Developers’ Association, “The biggest factor [facing real investment in Ghana] is money. As a developer, if I am borrowing in Ghana, I will end up paying close to 40% a year in interest,” he said. Moves by the BoG to allow trading in the Chinese Yuan to traders who import from China are aimed at mitigating the risk of overreliance on the dollar and pressure on the cedi.

Credits Scoring

Ghana’s first credit bureau started operating in 2010, with data collection beginning in earnest in 2011. Although the private credit bureau registry covered only 5.7% of the adult population in 2013, this was almost double its coverage for 2012. Rapid growth is also expected in the years to come, bringing with it and facilitating – it is hoped – an uptick in mortgage take-up, together with educational programmes aimed at increasing familiarity with the use of mortgage products.

Mortgage

The secondary mortgage market is largely absent in Ghana, something that hampers real estate as a sector. In addition, real estate investment trusts also have little presence, as the country lacks the appropriate legislative framework for them. This is, however, in the process of being transformed. One area of growth in financing provision that may well cater to the country’s middle-income earners is in the already well-developed micro-lending sector, which Community Housing Advocacy and Development’s “Housing Finance Report” indicates to have a gross loan portfolio of $225.1m from 301,338 borrowers. A project funded by MasterCard Foundation and Habitat for Humanity International is currently being rolled out in rural areas to promote the growth of housing microfinance and incremental housing construction sectors.

Ghanaian mortgage analyst and writer Andrews Agblobi told the Business and Financial Times, a local English-language newspaper, in July that the Public Sector Employees Affordable Housing Scheme managed by HFC Bank, which offers mortgages to government workers at below-market interest rates, should be expanded or replicated in the private sector. “With such a scheme, the government can set a ceiling on the amount that can be lent to an individual. So if you set that amount at, say, GHS50,000 ($19,600), it will force a lot of real estate companies to build houses worth that amount since that’s where the market is,” he explained.

Future Investments

In July of 2014 the announcement that the Sovereign Wealth Fund of Singapore, managed by GIC Private Limited and Temasek, was planning to direct some of its funds into Ghana’s real estate sector demonstrated the interest shown by foreign capital in this growing market and came as a fillip to the sector. Ian Lee, the centre director of International Enterprise Singapore – the investment promotion and facilitation agency of the government of Singapore – said officials of the real estate arm of the fund have already travelled to the West African country to assess the sector for potential investment. Investment could be directed through local developers and financial institutions as soon as late in 2014, he added.

Outlook

While the sector’s environment poses a range of challenges, such as currency depreciation and a lack of adequate financing, complex and potentially expensive land registration and overall affordability, the growing demand for infrastructure and housing, coupled with the country’s political stability and diverse natural resource wealth, is driving investment into the sector. Government intervention and public-private partnerships are viewed as strong options for serving the lower-to-middle income bracket of the population, and prime real estate value is expected to remain high for the upcoming year.