Ghana’s Real Estate Market: Growth Enhancing, Immense Opportunities For Investors

PREFACE

There is an increasing demand for residential, as well as commercial property in Ghana amidst low supply in the Real Estate market which has brought about a huge deficit in the sector. The government, together with other developers are trying its best to address this situation. In spite of this, there is an increasing need for investors (both domestic and foreign) in the sector to help close the housing gap or reduce the deficit. In relation to this, we decided to provide a brief analysis of the real estate market in Ghana and to also point out the various areas in the sector that needs the attention of potential investors.

ABSTRACT

This article provides an analysis of the Ghana real estate market which is increasingly becoming one of the most patronized markets in Sub-Saharan Africa. It provides a brief overview of Ghana’s economy and recent developments in the economy, especially in the real estate sector. The article also discusses current trends and segments in the real estate sector and provides some future projections and prospects in the real estate industry in the country.

 

CURRENT ECONOMY

Ghana’s economy in recent times has been growing at a higher rate compared to other countries in the West African region. For instance, the economy accelerated to 8.1% in 2017 (World Bank 2019). The country’s economy has a market base component with less investment and trade policy barriers. Its natural resource endowment is also massive. Some aspects of the economic growth of the country can be attributed to the oil discovery a few years back, increasing foreign direct investment, agriculture, and industrial development, amongst others. The country, like other African countries, is heavily dependent on its agriculture sector to provide for most of its economic needs and also employs a large number of the labor force in the country. The sector contributes to about 20% of the country’s GDP (CIA, 2019). The major commodities that generate foreign exchange for the country are cocoa, oil, and gold. According to the World Bank (2019), the economy accelerated to 8.1% in 2017 attributed to growth in the oil and mining sector. The economy’s growth in 2018 was much slower compared to that of 2017 with a figure of 5.6%. However, growth in 2019 is expected to be higher with a target of 7.4%, which is much higher than the 5.6% in 2018 (World Bank 2019). This is also expected to be driven by the oil, gas and mining sectors.

The economy is being faced with various challenges, some of which are the issue of electricity and its distribution amidst falling oil prices. This notwithstanding, there is the recent crisis in the banking industry where bank owners are losing their firms due to the financial sector clean up by the current administration. This is happening as a result of the failure of these banks to meet the minimum requirement set by the Central Bank of Ghana. In spite of this, the business environment in Ghana is still sound and booming.

One sector that is growing at a faster pace at the moment in Ghana is the real estate industry. The sector is being patronized by both domestic and foreign investors or multinational organizations who want either office space or accommodation for their workers and expatriates.

REAL ESTATE MARKET

The real estate sector in Ghana has become one of the most interesting sectors, moving at a significantly faster pace. There was an upsurge in the demand for a real estate property, spurring growth in the sector from 2007 to 2013. Growth in the sector, however, slowed alongside the fall in commodity prices in 2014 and the depreciation of the cedi in 2016 and 2017. These affected the demand in the real estate sector. In 2017, the government of Ghana started making efforts to boost the sector by abolition the value-added tax of 5% on sales in the real estate market.

The real estate development sector has three major areas whose activities are facilitated by the banks and the mortgage markets. These areas are the public sector real estate development, private sector real estate development and private individuals. The private sector participation in the real estate market is massive and impressive compared to that of the government which is minimal.

The three major segments come with three different segments, thus, the residential, commercial and industrial segments. According to the Ghana Investment Promotion Centre (hereafter, GIPC) (2019), the property market in Ghana is dominated by residential and commercial developments with the residential market being the most active. Transactions in the residential market alone can be estimated at 85,000 yearly since the past decade, valuing around US$1.7billion (GIPC, 2019). The commercial segment is the second-largest while the industrial market is significantly smaller in size. The residential ones are mostly patronized by first-time homeowners, retirees, seniors, newlyweds, new parents and other individuals of related interests. The commercial market mostly consists of sale and demand for property for retail and office space whereas the industrial segment comprises warehousing facilities and light industrial parks.

There has been an upsurge in demand for housing in the urban areas of the country, especially in Accra, Kumasi and Takoradi owing to the increasing number of migrants from then rural areas to these areas. Aside from this, these three are the most populous cities in the country hence the demand for either accommodation or office space for the businesses by individuals as well as companies and other agencies is on the rise. However, the real estate developers in the country have not been able to meet the yearly demand for housing in the country. According to the Ministry of Water Resource Works and housing, the high demand for real estate in the country has brought about housing deficit with a rate being purge at 2.5 million units in 2019. To address this situation, the government is entering into a partnership with private real estate developers in others to provide access to affordable homes to individuals. A typical example is the official launch of the National Housing Policy in 2017, the establishment of the National housing fund and the construction bank to help individuals and real estate developers to access loans to finance real estate development projects. A recent intervention is the launch of the US$5 billion affordable housing project in Accra by the Ministry of Works and Housing, done in collaboration with the United Office for Project Services (UNOPS) and Sustainable Housing Solutions (SHS) in August 2019.

These notwithstanding, there are lots of investment opportunities in the real estate sector. For instance, there is a high demand for hostels in various public and private universities. Real estate developers (both foreign and domestic) who wish to invest in this sector could look at constructing hostel in and around these universities. Hotels are also on high demand in the country and as such investing in this area would be very beneficial to the property developers.

 

FUTURE PROJECTIONS

The real estate sector in Ghana has come to stay. It is going to be the backbone of the economy in the next few years. The sector is going to keep expanding alongside the growing population of the country as well as the booming oil sector. This, in turn, would bring about an increase in the economic growth of the country. On one hand, the increase in Ghana’s population would increase the individual’s demand in the real estate market, which would eventually boost the economic growth of the country. On the other hand, the economy will grow as the oil sector grows which increases the income level of some individuals who in turn affects the real estate market. This shows the strong correlation between the real estate sector and the economic growth of the country Also, there is an increasing level of foreign investors coming into the country. This would increase the demand in the sector, hence the growth in the economy of the country.

The real estate sector has a lot to offer individual Ghanaian citizens, foreigners, multinational organizations and travelers alike. In relation to this, we expect that investors, both domestic and foreign would continue to show greater interest in the real estate market alongside the increasing demand in the market.

 

Author: Belinda Frimpong-Wiafe, Economist 

REFERENCES

 “The idea of owning a land by Robert Gilman”. Retrieved August 15, 2019

Central Intelligence Agency (CIA) (2019). Ghana Economy. World Factbook. https://www.cia.gov/library/publications/resources/the-world-factbook/geos/gh.html

Ghana Investment Promotion Authority (2019). The Immense Opportunities of Property Development in Ghana. https://www.gipcghana.com/press-and-media/617-the-immense-opportunities-of-property-development-in-ghana.html

Oxford Business Group (2019). New Market Opportunities in Ghana.  https://oxfordbusinessgroup.com/overview/property-potential-market-creating-new-opportunities

Oxford Research Group (2019). Increased activity expected in Ghana’s property market as oil prices rebound. https://oxfordbusinessgroup.com/overview/steady-she-goes-increased-activity-expected-oil-prices-begin-rebound

World Bank (2019). Ghana Overview. https://www.worldbank.org/en/country/ghana/overview

ChinaGoAbroad (2012). Investing in Ghana’s Property Development Sector. http://mobile.chinagoabroad.com

Ghana faces housing glut – Despite deficit

In an ironic twist of facts, Ghana is currently experiencing a housing glut, but many citizens cannot afford decent housing.

Since 2010, Ghana has been tagged as experiencing a housing deficit of 1.7 million units, but industry players believe the deficit could be more as the country’s population has increased since then.

However, present trends show that the probable increase in deficit may not be because of an increase in population but due to the inability of citizens to afford houses.

Although the constant cry of the lack of housing has attracted many investors to the housing sector, the construction of several flats, apartments, estates, detached and semi-detached buildings has not been matched with an equal rate of occupancy, the Ghana Real Estate Developers Association (GREDA) has stated.

“Currently, there is just 60 per cent occupancy of upper tenants,” the Executive Secretary of GREDA, Mr Samuel David Kofi Amegayibor, told the Daily Graphic recently.

Affirming that there was a glut in housing, he said some people were buying housing properties because they saw them as worth investing in, but sales had slowed down because “you wouldn’t want to buy properties people don’t want to occupy due to their high cost.”

SHC

His assertion was echoed by some staff of the State Housing Company (SHC), who were exhibiting at a Sanitation, Water and Construction conference and fair held in Accra on, June 14, 2018.

They said although the SHC had projects in all the 10 regions in the country, the rate of occupancy was just about 60 per cent, meaning that not all of its flats, detached and semi-detached dwellings were being occupied.

Currently, the company’s two-bedroom Rowi flats are going for GH¢253,000, while three-bedroom apartments on the same flats cost GH¢310,000.

The SHC, which was established in 1956 to develop affordable housing units for Ghana’s population, currently has a total of 94 housing estates, with about 32,000 dwelling houses across the nation and being managed by the company through an operational structure which groups Ghana’s 10 regions into five zones – Greater Accra, Ashanti, Northern, Western and Eastern.

The Greater Accra and Western zones boast 27 estates each – the largest, followed by Eastern with 14 estates in Koforidua and Ho, while the Northern zone made up of Tamale, Bolgatanga and Wa, as well as Ashanti made up of Kumasi and Sunyani, have a total of 13 estates apiece.

The reason for the low to moderate rate of occupancy is the high rent and cost of most of the buildings put up by both the SHC and private estate developers, investigations by the Daily Graphic have unearthed.

Cost of apartments

While it does not require a trained eye to notice the springing up of new estates, flats and beautifully designed buildings in Accra and other major cities in the country, it is their prices that have scared prospective house owners.

Current prices of apartments, mostly quoted in dollars in view of the unstable exchange rate, are between $30,000 and $600,000 for a single bedroom apartment to a five-bedroom fully furnished house.

According to Mr Amegayibor, developers belonging to GREDA were putting up two-bedroom semi-detached houses occupying about 60 to 80 square metres that cost $30,000 (about GH¢150,000) as the lowest priced, but which brought out the question of how many people could afford it.

He, however, said “the reality on the ground is that that is the best the developers can do.”

He added that prices could go as high as $200,000 for the same house size for the upper market in prime areas, while a single bedroom house could cost $120,000.
They could cost about $85,000 in places on the outskirts of the city which are now being developed, he said.

The Managing Director of pioneering estate developer in Ghana, Regimanuel Grey Limited, Mr Ibrahim Bah, told the Daily Graphic that a two-bedroom semi-detached apartment with kitchen, garage, and veranda ranged from $65,000 and could go right up to $600,000.

The company also puts up four-bedroom apartments, bungalows, flats, two-storey buildings. He showed a master plan of 17,000 homes being built at Katamanso near Accra on which is a combination of bungalows, one-storey buildings and apartments, which start from $65,000 and scale up to $250,000.

There are also high end apartments selling for between $500,000 and $600,000 with high aesthetics and fully furnished with all home appliances at Sakumono (Community 13).

At one of its new developments, Balloon Gate Estate at Kwabenya in Accra, two-bedroom flats sell for US$90,000.

Reason for glut

Building high end dwellings is not a misplaced priority, Mr Amegayibor surmises, but believes “it is a bit unfortunate or disturbing to note that while there is a huge demand for housing and the developers have also tried to put some houses on the market they are unable to sell. That tells you that there is a bit of mismatch as to what is required and what is supplied.”

He says the reason for the mismatch is the challenge faced by developers.

“It is the challenge that the developer is facing that makes it so because he is producing something and he is producing at a cost and the prospective home owner’s budget or affordability is a complete mismatch, meaning the developers are not able to match the kind of housing they are looking for and that is why there is this big disparity.”

He urged that “as a nation we have to look at the issues that are bringing this up and look for solutions to them; if not we will continue to suffer, especially affordable housing – we will only talk about it but on the ground it is almost difficult to achieve it.”

Low patronage

Mr Amegayibor said GREDA’s members, especially those putting up houses for the upper market, were complaining of the lack of patronage.

“There used to be good market for it some time back but today you see that a lot more development is ongoing; several houses are coming up in the prime areas and you realise that one small land that originally was occupied by one family has been demolished and converted into several floors of apartments. It means several units have been created there and so that has been on the market but sale is not going as it used to be.

“In the past a lot of people were keen to own them and they were not as expensive as now. Most people, mostly Ghanaians, bought them for investment purposes, not for them to live there themselves but to rent them out to expatriates and foreign business people who are in town. Now there are so many of them coming up and it looks like it is getting a bit saturated and so for several of the new ones that are coming up, the sales are not going as they used to go and if you look at the trend it is also as if it is almost the same buyers who are re-buying.

“Because they put them in investments, maybe they made so much from rentals and those who used mortgage to buy were able to pay back but now the trend is changing a bit. Most of the houses that people bought some time back, they claim they have not been rented for sometimes a year or so – they have bought those houses and they are still empty and so the investment option is also becoming difficult,” he added.

He said if the buyer used a loan facility to buy the apartment it meant he or she would be paying interest while the house or apartment remained empty.

Deficit

The building of apartments, since the 1.7 million units deficit was declared in 2010, has contributed very little to reduce the shortage of housing in Ghana. According to Mr Amegayibor, a unit spans between one and three-bedroom apartments and the 1.7 million deficit from 2010 is just the average which was supposed to house a population of about 5.4 million if the survey conducted by the Ghana Statistical Service around the same year is factored in.

“When the 1.7 million was reached, it was also established that we needed around 130 to 140 units a year over the next 10 years to try and lower it.

“If we add on you realise that we should be hitting around two million housing deficit,” he stated.

 

Credit: Edmund Smith-Asante

The Immense Opportunities of Property Development in Ghana

Ghana’s real estate sector has seen significant growth in the past few years. This has been spurred by growth in demand for both residential and industrial property.

There exists unmet demand leading to growth opportunities in the areas of construction and real estate development and management. Ghana’s property market is dominated by residential and commercial developments.

The residential market is the most active, registering an estimated 85 000 transactions per annum over the past decade. Commercial property is the second-largest segment in the market and includes office accommodation and retail space.

The industrial segment is significantly smaller in size than the commercial market, while recreational and civic or cultural property development is virtually non-existent. The housing deficit in Ghana is estimated to be in excess of one million homes. To address this deficit, there is a need to deliver approximately 150 000 housing units per annum for the next 20 years.

To make this possible, the government is embarking on a housing programme to build over 300,000 housing units over the next five years, with the strong participation of the private sector through public-private partnerships.

Real estate companies with approval from the Ministry of Works and Housing are eligible for a five-year corporate income tax holiday in relation to the construction of low-cost/affordable housing.

New developments in the housing market are currently being driven by new apartment block complexes. These complexes are being funded by foreign investors from territories such as Turkey, South Africa and the Middle East, catering for increased demand that has resulted from new oil discoveries.

For example, Sekondi-Takoradi, the Western regional capital, is benefitting from the effects of recent oil discoveries in the form of increased demand for residential property. Demand is driven by both foreign and local employees directly connected with oil exploration, together with members of the local economy providing goods and services to this new market.

Increased residential demand has been met with high-end apartment developments funded by foreign investment.

The Accra Mall for example is dominating the retail landscape in the country. The mall attracts nearly four million visitors per year and further retail developments have been built to meet this high demand. These include the West Hills Mall, the Osu Mall, the A & C Mall, and the Junction Mall.

The West Hills Mall development is a joint project between Delico Property Developments, owned by South Africa’s Atterbury Africa, and Ghana’s pension fund. The success of A&C Square in East Legon also confirms the need for neighborhood retail centres in Accra. Melcom Ltd and Maxmart Ltd, both local general merchant retail stores, have capitalized on this emerging demand by opening stores in almost all the major areas of Ghana.

On a regional level, Kumasi and Takoradi, the next two most populous cities in Ghana, have limited formal retail centres; Kumasi recently saw the establishment of a mall with a retail floor area of 18,000 square metres. Opportunities exist for further regional developments. According to Broll Ghana, developers will more than double the amount of retail space available in the country’s capital in the coming years.

Prime office space in Ghana may be of interest to real estate investors. Office space rental values are up to US$35 to US$40/m2 per month, with a prime yield of around 10%. High demand for offices are emanating from activities such as the banking, telecommunication, professional and diplomatic or aid sectors and other service activities.

New office space in Accra is delivered to a ‘shell and core’ finish, although tenants may now demand fit-out as part of lease negotiation as more office developments are released to the market and competition for new tenants’ increases.

Ghana has a less restrictive business environment and progressive macroeconomic policies. Strong protection of civil liberties improves Ghana’s investment attractiveness, as does the country’s developed legal and regulatory framework.

Ghana’s labor market is efficient and the country’s laws make it relatively easy to appoint or retrench employees.

The outlook for the real estate or property development sector remains positive as the Ghanaian economy general shows great signs of resilience with an impressive growth rate of 8% in 2017 and a downward trajectory of inflation. It is expected that investors will continue to show great interest in the sector in order to diversify their investment portfolios in the economy.

Credit:

Real Estate, Building the future of Africa. The Oxford Business Group “The Report, Ghana 2017”

Rental Housing Market – Ghana’s untapped potential

According to Bank of Ghana 2007 Housing Market Report – “the housing market has become important and strategic to policy makers in recent times due to its impact on output fluctuations and inflation. Generally, activities in the housing industry may affect the wellbeing of a people in terms of size and composition of household wealth, accessibility to credit, labour productivity, employment and other macroeconomic variables.”

Despite this, one wonders why our political leaders and policy makers have still not prioritise housing development. The lack of attention and investment in housing is troubling. This is impacting children’s development and young adults’, the chance to develop business ideas or exploit their full potentials.

There are many factors to be considered when planning the housing needs of a city or country. One of such factors is the housing mix. The Housing Mix is the mixture of the types of housing structures required. This could include apartments, detached or semi-detached family homes, bungalows and block of flats.

The housing needs is also influenced by the size of households and income levels or income profiles of the populace inhabiting the area. Smaller households may need one or two bedroom apartments whilst large families may require more bedrooms.

As stated in the 14 February 2019 publication, Ghana’s real estate developers mainly build to sell. This approach to housing supply has alienated or prevented a lot of people from acquiring decent accommodation or owning a home. This article discusses the untapped rental housing market which is dominated by private landlords who consistently exploit their tenants.

Though some of these houses or structures are not fit for human habitation, Ghana’s increased rural-urban migration is making the situation worse. Ghana Statistical Service living standards survey 2014 report estimate the number of households as 6.6million. The household size for rural areas was (4.5) and urban (3.6). This suggest three to four bedroom houses would be the most sort after accommodation in both communities. With the current population just over 30million it can be assumed the number of households have increased to 7million or more.

With such significant increase in population it is obvious more houses are needed. The Government figures suggest the housing deficit is 1.7million. Even if a thousand residential properties are built in a year it will take us more than a millennial to clear the deficit. The present build to sell strategy is also not helping the situation.

What developers have largely ignored is the rental housing market. Considering the number of households in the country any developer who focus on build to rent is bound to maximise its return on investment. Build to rent offers two benefits – consistent cashflow from the monthly rental income and capital gains from appreciated assets value over a period.

The table below offers us some indicative figures of the estimated market value of the rental housing sector. These are computed based on the following assumptions:

  • Estimated households requiring rental accommodation – 1 to 2 million
  • Monthly rent is between ¢400 to ¢600
  • Exchange Rate (Feb-19) – US$1.00 = GHS5.00

 

Though the above figures are based on over a million properties. The above suggest at ¢500 cedis per month and with 10% share of the market value a landlord could earn US$8million per month and US$96million per annum. If developers will build to the highest standards, the first 3years maintenance cost would be minimal to zero. However, for renting to be profitable, developers would have to establish an effective and efficient housing management organisation to run the operations.

The would-be investor of the rental sector should also have 5 to 10 years development plan and ambition to exceed the breakeven point of their housing stock during that period. This lack of understanding and knowledge of housing services management or operation is why many have literally ignored the build to rent market.

The rental housing market offers great opportunity for business growth and rapid housing development. According to the Ghana Housing Profile 2011 report there are over 2million government workers who could benefit from a rental housing scheme. This is besides those in self-employment or in the private sector. Just paying 500cedis per month to secure a decent accommodation would offer significant benefit to the investor and tenant.

We can only truly say we are offering affordable accommodation when rents are less than 50% of tenant’s monthly income. Ghana has a substantial and significantly untapped rental housing market that requires some financial investment. However, those who seek to pursue this as an investment opportunity must have a long-term strategic plan and engage Housing Management professionals with the skills to deliver the services that can guarantee the return on investment.

Profile: Kwadwo Owusu-Darko is an architect and specialises in Housing. He has over 20yrs experience in real estate development, regeneration and housing management in the UK. He was a Director and Chairman of two Housing Associations. Currently working towards setting up a think tank to support Housing development in Ghana.

Credit: https://www.myjoyonline.com/realestate/2019/february-21st/rental-housing-market-ghanas-untapped-potential.php

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