6 November 2012

Ghana: Democratising the Housing Market


Most people who cannot afford a mortgage usually use their savings to buy construction materials to build a home themselves - and are then caught in a lengthy construction period.

It is no secret that the Ghanaian economy is booming. The Ghana Statistical Service puts GDP growth for 2011 at 14.4 per cent - a fact largely attributable to the advent of oil production in commercial quantities. With the increase in oil revenues, Ghana is also experiencing favourable levels of infrastructure development, which in turn will contribute towards a better environment for housing finance investment.

The prospects for the sector are good. The reality today however is that the Ghanaian residential real estate market caters to a nation of 25 million people, many of whom are not yet able to realise the dream of home-ownership. Unfortunately Ghana continues to have one of the highest bank lending interest rates in Africa and access to finance remains limited across various industry sectors. Official estimates of the housing demand shortfall sits at almost 1m units.

There are a number of factors restricting the rapid development of the residential real estate sector. Lack of affordability is a key - and obvious - one. House prices typically start from approximately $25,000 and rise to $500,000 and above. At the lower end, corresponding mortgage repayments on a loan to buy a $25,000 property would be approximately $250. To qualify for this mortgage, the applicant would have to demonstrate verifiable income of about $686.

While this qualification hurdle is attainable to a good portion of professionals, it remains a challenge to a large section of lower income earners in a nation where the daily wage translates to less than $100 a month.

Most people who cannot afford a mortgage usually use their savings to buy construction materials to build a home themselves - and are then caught in a lengthy construction period (of anything up to 20 years) as money must be raised to finance each stage of construction.

Additionally, supply of mortgage lending in Ghana is relatively low - despite some new lenders coming into the market, including international banks, all of which tend to lend mainly to salaried borrowers in the formal economy. Ghana Home Loans (GHL) remains one of only two major general lenders to the Ghanaian market, the other being HFC Bank.

To specifically address the issue of lack of affordability and access to finance, Ghana Home Loans has introduced new and tailored financing programmes to the market. An example is the home completion programme which allows customers to borrow on a short term basis to complete the building of their homes, and to convert that debt to a long term loan structure on completion, in order to spread repayments over a maximum 20 year period.

Another innovation is the Deposit Guarantee Scheme, which removes the previously required 20 percent deposit. The agreements governing this insurance product in the development of low income mortgages were signed in Accra in early 2012, making Ghana the second African country able to provide it. The product was previously only available in South Africa.

As Ghana is very much in the house construction phase as a nation, a large part of the mortgage providers' role is in encouraging the use of alternative building materials such as steel frames, pre-fabricated panels and bricks. Developers continue to explore more efficient and affordable solutions to home construction and mortgage providers have played a key role in bringing these ideas to the market.

Finding solutions to the listed barriers to expansion, along with promoting financial education (via a mortgage borrower education video, 'mortgage clinics', and roadshows) and policy negotiations, all contribute to a growing, well managed housing finance sector.

Dominic Adu is co-founder and CEO of Ghana Home Loans

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