Ghana

Excerpt from Africa Housing Finance Yearbook 2016

Overview

While Ghana has experienced strong and inclusive growth over the past two decades, the economy has been under strain over the last few years. The country outperformed regional peers in reducing poverty, while a stable political landscape attracted high volumes of direct foreign investments (DFI). However, increasing public debt (GHC 97.2 billion, or US$ 25.2 billion, as of December 2015), slowing economic growth (from a high of 14 percent in 2011 to four percent in 2014), increasing inflation (18.9 percent in May 2016), high interest rates (in February 2016, the average lending rate for credit markets increased to 28.57 percent) and a depreciating currency (Ghanaian Cedi, GHc, has lost over sixty percent of its value against the US Dollar over the past five years) have affected housing supply, as well as the country’s housing finance sector.

The depreciation of the local currency increased prices for imported building materials, such as steel, aluminium and iron rods, sheets for roofing and frames. Even though Ghana’s cement industry is sufficiently large to meet local demand, procurement of

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Excerpt from Africa Housing Finance Yearbook 2016

Overview

While Ghana has experienced strong and inclusive growth over the past two decades, the economy has been under strain over the last few years. The country outperformed regional peers in reducing poverty, while a stable political landscape attracted high volumes of direct foreign investments (DFI). However, increasing public debt (GHC 97.2 billion, or US$ 25.2 billion, as of December 2015), slowing economic growth (from a high of 14 percent in 2011 to four percent in 2014), increasing inflation (18.9 percent in May 2016), high interest rates (in February 2016, the average lending rate for credit markets increased to 28.57 percent) and a depreciating currency (Ghanaian Cedi, GHc, has lost over sixty percent of its value against the US Dollar over the past five years) have affected housing supply, as well as the country’s housing finance sector.

The depreciation of the local currency increased prices for imported building materials, such as steel, aluminium and iron rods, sheets for roofing and frames. Even though Ghana’s cement industry is sufficiently large to meet local demand, procurement of input factors on international markets led to an increase in consumer prices for cement. Beyond housing, consumer prices for the basket of housing, water, electricity, gas and other fuels increased by 45.5 percent between January 2015 and January 2016[1]. The general economic slowdown was worsened by a continuing energy crisis, with the country’s electricity supply constrained.

Despite the weak Ghanaian Cedi and inflationary pressures, the county’s economic outlook reflected in GDP growth rates is positive, with 3.4 percent for 2015 and 5.2 percent for 2016[2].

Access to Finance

The financial sector has 31 commercial banks, 138 rural community banks, 60 non-bank financial institutions (NBFI), 503 microfinance institutions (of which 166 are licensed by the Bank of Ghana) and three credit bureaus (XDS Data, Hudson Price and Dun and Bradstreet). Out of the 31 commercial banks, only seven are listed on the Ghana Stock Exchange[3].

According to the Doing Business 2016, Ghana’s rank in the ‘ease of getting credit’ category has dropped from the 36th to the 42nd out of a total of 189 countries in the past year. Despite the existence of three credit bureaus, the Ghanaian score for credit registry coverage of adults was zero[4]. The Global Findex survey of 2014, a financial inclusion database of World Bank, reports 36.4 percent of Ghanaian adults to have borrowed money in the past year. The survey recorded that 13.3 percent of the richest 60 percentage of respondents had an outstanding mortgage, compared to 10.2 percent of the bottom  40 percent of respondents.

Only nine of Ghana’s 31 banks officially offer mortgage loans as a product (Access Bank Ghana, Bank of Baroda, Ecobank Ghana, HFC Bank Ghana, Fidelity Bank, CAL Bank, Stanbic Bank Ghana, First National Bank Ghana and United Bank for Africa Ghana). These banks offer conventional mortgage services, home improvement and home completion loans, as well as water sanitation and hygiene (WASH) credit facilities. Home finance in form of conventional mortgages and home improvement loans is also offered by Ghana Home Loans (GHL), the country’s only residential mortgage lender. GHL is a non-bank financial institution and mainly sources capital from development finance institutions, such as DEG, a German project financier. In July 2016, a provisional banking license was issued to the mortgage lender. Additionally, two savings and loans finance houses (Global Access Savings & Loans and Sinapi Aba Savings & Loans), as well as one microfinance institution (HFC Boafo, subsidiary of HFC Bank), offer housing microfinance for incremental building projects.

Rather than mortgage lending, most financial institutions focus on short-term lending, risk-free investments in form of government bonds and trade finance that offer higher returns, smaller risks and are less capital intensive. The country-wide mortgage portfolio is approximately US$ 200 million, with 6 000 active borrowers. Ghana’s mortgage sector was an equivalent of   0.4 percent of GDP in 2013 with a growing trend.

Though some of the commercial banks have sufficient capital for mortgage lending, they refrain from financing mortgages and home loans due to the long tenor to recoup their investment. Breaking with this hesitation, HFC Bank’s mortgage portfolio increased by 48 percent from 2013 to 2014. Mortgage loans make up 25.3 percent of the total loan portfolio of the HFC Bank,  with consumer loans constituting nearly 50 percent of the portfolio. HFC Bank has utilised corporate bonds listed on the Ghana stock exchange to raise capital for mortgage lending since 1996. Other banks rely on equity, deposits and debt-financing to fund home loan portfolios. In July, 2016, GHL received approval from the Securities and Exchange Commission (SEC) to issue mortgage backed notes on the Ghana Alternative Market in order to access debt financing.

Each of the nine banks, and GHL, offers various mortgage loan products, which can be categorised into four main types. The first is the home purchase mortgage, which is used for purchasing new houses. The borrower is expected to make a minimum 20 percent down payment, while the bank provides a loan of 80 percent to cover the purchase price of the property. The loan term is commonly  20 years, and the interest rates for the cedi-denominated mortgage loans range from 27 percent to 32 percent. US dollar-denominated mortgage loans carry fixed interest rates between 1 2.5 percent and 14 percent. The second product is the home improvement mortgage, which is for renovation of an already acquired property. These types of mortgage usually carry a term of five to fifteen years. The third product is the home completion mortgage, which is used to complete a house under construction. It is a two tier product with a total term of 21 years. The last product is the home equity mortgage, which is used for realising equity locked up in a property. The home purchase mortgage dominates the market. In order to down-scale their mortgage portfolio, HFC Bank has introduced a home finance product, tailored to the self-building practices in Ghana. The loan finances both the land acquisition and the building and is capped at between US$ 15 000 and US$ 35 000 respectively.

Microfinance institutions continue to attempt to serve the lower income segments. While a mortgage loan from HFC Bank is currently priced at 29 percent per annum for a term of 20 years, savings and loans finance houses, providing finance for incremental self-building projects, offer unsecured loans for 36 – 60 percent per annum for terms of no more than three years.[5]

Sinapi Aba Savings and Loans launched “Housing Finance and Land Title for Ghana’s Poor” project in 2010, in partnership with USAID, with Habitat for Humanity Ghana providing technical assistance until 2014. The centrepiece of this project was the development of the “property folio”, a non-financial service bundled with the loan to support clients in registering their property and obtaining land titles. The project appears to have struggled to reach economic viability and sustainability.[6] Sinapi Aba was also part of the “Building Assets, Unlocking Access” programme, a project between Habitat for Humanity International and the MasterCard Foundation in 2012. The programme promoted the scalability and viability of HMF loans. This programme was terminated at an early stage in Ghana, as macroeconomic conditions made an introduction of a new, scalable HMF loan infeasible.[7]

A key challenge housing finance providers are faced with is the excess demand for adequate properties. This is often based on limited acquisition, development and construction financing made available for real estate developers by financial institutions. Mortgage lenders, such as GHL, recorded high demand for home loans and a strong commitment of borrowers to meet their loan obligations. For the middle-income and higher-income segments, mortgage lenders appear to have difficulty in raising sufficient capital to meet the clients’ demands. In April 2016, GHL received approval from the Securities and Exchange Commission (SEC) to establish a domestic medium term note programme for an amount of GHS 380 million (US$ 100 million). GHL now issues mortgage-backed notes denominated in either USD or GHS and lists them on the Ghana Alternative Market (GAX) to raise capital for mortgages. A lack of reliable data affects the use of houses as collateral for mortgages. Customary tenure is the common form of land ownership, accounting for an estimated 80 percent of all land in Ghana. Traditional authorities use customary approaches to land governance, which are often unwritten.Affordability

Most formally developed housing units are not affordable for the majority of the population. The National Housing Policy, adopted in 2015, states that affordable housing requires a household to spend no more than 30 percent of its gross annual income on the rental or purchase of housing. Currently, both rural and urban average household incomes are insufficient to purchase the cheapest newly built house, constructed by a formal developer within this policy limit.[8] With most real estate companies targeting primarily middle to high income households, the lower income segment has no option but to self-build houses or to rent rooms.[9]

ASN Properties offers one of the cheapest houses on the market, a two-bedroom house, that costs GHC 80 000 (US$ 20 223) in 2016. For a house of this size, the monthly mortgage payment is about GHC 1 939 (US$ 491). In order for the mortgage to qualify as affordable (as defined above), the borrower has to earn a minimum amount of GHC 6 463(US$ 1633) a month. With an average income of GHC 495 (US$ 125) for salaried employees, the mortgage rate is not affordable, even for households with three working adults. Then there is the minimum required down payment, which, across all mortgage providers, is 20 percent of the purchase price of the property. Because of this, real estate developers, such as Devtraco, Regimanuel Gray, Comet Properties,  often have ready built, vacant houses in their portfolios.

In urban areas, renting is the most common form of tenure. However, a lack of affordable rental units, in some instances, has led to exploitative practices by landlords, who demand two to three years of rental payments in advance. Households who cannot afford high upfront payments move into informal wooden structures, or occupy rooms in shared housing. According to the National Housing Policy, 20.8 percent of Ghanaians do not own a dwelling or pay rent of any kind. A Global Communities study undertaken in Accra in 2010 found over 3 000 people sleeping outside in an area less than one fifth of a km2.

In addition, land and construction materials are expensive, as much as 80 percent of building materials are imported, such as iron, steel and aluminium rods and sheets, cement and building stone. The deteriorating value of the cedi thus contributes to increasing building costs. In 2016, a standard 50 kilogram bag of cement cost GHC 33 – GHC 35 (US$ 8.44 – US$ 8.95), while a standard sheet of corrugated iron for roofing costs GHC 20 (US$ 5) (1.117×2.438, width – 0.4 mm).

ghana

Housing supply

The Ministry of Water Resources Works and Housing (MWRWH) estimated the housing deficit in Ghana at about 1.8 million houses in 2016.[10] The annual housing demand of approximately 100 000 units is not being met, with only about 40 000 housing units currently being delivered by real estate companies. As much as 90 percent of Ghana’s housing stock is built by small scale contractors. Completion times for self-build houses are estimated between five and 15 years.[11]

GREDA, the real estate developer industry association currently delivers housing mostly in the three urban areas: Greater Accra, Kumasi and Takoradi. The organisation has about 140 active members delivering quality houses in the range of GHC 80 000 (US$ 20 223) to GHC 1 170 000 (US$ 295 770). The facilitation of access to electricity, water and sanitation adds substantially to the cost of property.

In June 2016, the first phase of the Saglemi Housing Project was declared as successful partnership project between a Brazilian construction firm, Construtora OAS Ghana, and the Ghanian government. A total of 1 502 housing units were built on 300 acres of land in order to provide affordable housing and curb the housing deficit. Forty percent of the houses will be subsidised by the government and sold at discounted rates.[12] The project also promotes the use of locally sourced building materials, in line with the objectives of the National Housing Policy.

The Department of Rural Housing signed a partnership agreement with Ghana Home Loans, in 2015, to collaborate on an affordable housing scheme for middle income and lower income land owners.  In February 2014, the Moroccan construction company, the Addoha group, committed to constructing 10 000 affordable housing units in Ghana. In May 2016, an article was published in a Ghanaian construction magazine announcing that the MWRWH, in cooperation with the Kwame Nkrumah University of Science and Technology (KNUST) and the support of an unspecified social investor, plans to build 10 000 housing units for low income earners within a period of two to five years. The university’s role is to offer support and technical assistance through research and data analysis, as well as supervise the construction of the units.[13]

The Ghana Land, Services and Citizenship (LSC) programme is a partnership initiative undertaken by the government and non-profit organisations, such as the Ghana Federation of the Urban Poor, People’s Dialogue, as well as the KNUST, with the support of international development agencies. The three-year project consists of a range of activities aiming at improving living conditions of low income households, such as the mobilisation of savings groups, improvement of community infrastructure and the profiling, mapping and organisation of city wide forums. Under the first phase of LSC, 18 slum settlements have been mapped and profiled. UN-Habitat provided a grant of US$ 400 000 as a capital enhancement, and a further US$ 100 000 for administration and development.  An additional US$ 400 000 capital enhancement grant is expected to undertake the second and third phase of the project.[14]

Property markets

Most Ghanaians purchase land to build a family home or to build income generating assets, such as rental accommodations or shop fronts, if it is not used for agricultural purposes. The land security system in Ghana is complex, due to the parallel existence of customary and statutory law. Traditional authorities are said to own up to 80 per cent of the land and acquisition processes can be lengthy, as agreement among various families may be required for a land deal to be consummated.

The Ghana Lands Commission (GLC) is responsible for the registration of title deeds and immovable property. Land registration can take up to a year, as the sourcing of required documents to apply for a land title involves multiple processes. The actual process of registering property, once all documents are sourced,  requires five procedures, takes 46 days and costs 1.1 percent of the property value.[15]

No electronic database for title deeds exists, which prohibits effective land administration. The Geographic Coverage Index scores Ghana zero out of eight total points, as only a very limited share of privately held land is mapped or formally registered. Further, there is no proper address system—introduction of street naming and property numbering address system commenced in the last quarter of 2014—making it difficult to hedge against the risk of litigation or land disputes. Customary proof of land ownership is often not accepted by financial institutions, as bills of sale or indentures can be duplicated and multiple sales of the same plot are not uncommon.

In 2010, a collateral registry both for movable and immovable assets became operational, as outlined in the Borrowers and Lenders Act of 2008. The system is online-based and therefore accessible for all financial institutions. In 2012, Ghana Union Assurance Company launched the first collateral policy to provide cover to finance houses. The Collateral Replacement Indemnity (CRI) targets borrowers in the lower to middle income mortgage market (with incomes below GHC 4 400, or US$ 1 112) who do not have the deposit required by mortgage lenders, but who have the capacity to pay if the debt is spread over a period of time. A draft lands bill has been published this year to form the policy framework for a revised administration and management system, as part of the current Second Land Administration Project.[16]

The growth of the oil and gas industry resulted in some developers entering the market that specialise in high end residential in the city centres. Most of these companies sell off-plan, with prices ranging from US$ 300 000 to more than US$ 1 million. Property rentals in the middle to upper sector range between US$ 2 500 and US$ 8 000 a month. The real growth of the property market is in the low to middle income bracket where the price of properties range from GHC 97 500 (US$ 24 640) to GHC 585 000 (US$ 147 885).

Both HFC Bank and GHL have established subsidiaries to capitalise upon and facilitate the growing residential property market. HFC Realty is wholly owned by HFC Bank, and began operations in 2006, with a mission to hold, develop and manage real estate in the country. It operates as a developer, property manager and real estate broker in the industry. GHL established the online Ghana Home Loans Online Realty, an online database of properties available in the Ghanaian market.

Policy and regulation

In 2015, the National Housing Policy was published by the MWRWH. The policy defines affordable housing, and introduced strategies to improve resilience and sustainability of buildings (for example, the use of local building materials and innovation). A key strategy to increase low cost housing supply and improve living conditions in slum areas stipulated in the policy is the promotion of private sector engagement. The National Housing Policy seems to be the guiding document for public private partnerships between developers and government bodies focused on delivering affordable housing  initiated in 2016.

The New Draft Land Bill of 2016, might lead to a more effective administration and management of land in Ghana. Against the backdrop of the introduction of the draft bill, the MWRWH has established 57 customary land secretariats across the country to improve the management and administration of lands held by customary authorities, families and clans at the local level. One consequence of an improved land registration system in Ghana would be the reduction of costs of home loans, especially unsecured housing microfinance, as well as a considerable reduction of cost of properties.

Opportunities

Foreign direct investment has positively contributed to the real estate market development in Ghana. These developments predominantly cater to the high end of the market. Expanding private sector engagement to the supply of housing for the lower income market through subsidised developments could be an efficient approach to reducing the current housing deficit.

There is a pronounced need for the financial sector to provide long-term acquisition, construction and development finance to support real estate development for low to middle income households. Development a real estate investment trusts (REITs) market could contribute to cheaper financing of mortgages. As long as macroeconomic determinants restrict financial institutions in sourcing affordable long-term finance, there might be a need to provide capital to savings and loans finance houses and microfinance institutions to use for housing microfinance. The establishment of a national housing fund, as proposed in the new Draft Land Bill, could facilitate easier access to capital and savings schemes.

At the same time, costs of housing finance could be reduced by improving the land title system, to alleviate the risk of multiple sales of land or on-selling during the tenure of the construction loan. In order to increase the affordability of mortgages, the 20 percent deposit requirement could be bypassed by policies such as the collateral replacement indemnity. Other schemes such as using national social security contributions as collateral for mortgages might further promote their uptake.

The promotion of local building materials and innovative techniques can reduce costs of building and protect developers, construction companies and SME contractors from increasing costs for imported materials, due to the depreciation of the cedi. The success of the initiatives of the MWRWH depend on the acceptance of the new materials and broad-based capacity building among artisans and construction companies.

With the cooperation of MWRWH and the Kwame Nkrumah University of Science and Technology (KNUST), the data and information on the current housing situation and developments will offer better insights into best practices and offer a centralised collection point for information and data.[17] A number of the shortcomings in the land tenure system in Ghana are currently being addressed by the Land Administration Project, which aims to reform the institutional context in Ghana. Additionally, the Ascertainment of Customary Laws Project (ACLP) promotes the coding of customary rules and practices to reduce abuse of power and to enhance transparency and accountability of customary land ownership.[18]

Sources:

Bank of Ghana Annual Report 2014, January 2015

Bankable Frontier Associates (2011), Mid-term Evaluation of the Housing Finance and Land Title for Ghana’s Poor Project (HFLTP), Habitat for Humanity, Opportunity International, 2011.

Doing Business Report, World Bank 2016

Graphic Business (2013). Is GREDA living up to the task? 20th August 2013 by Maxwell Adombilla Akalaare.

Habitat for Humanity (2016), Impact of Ghana’s economic slowdown on Habitat’s Building Assets, Unlocking Access project, Center for Innovation in Shelter and Finance, Habitat for Humanity and MasterCard, 2016.

Habitat for Humanity (2015), The state of Housing Microfinance: A snapshot of housing microfinance practices around the globe, Center for Innovation in Shelter and Finance.

Habitat for Humanity (2013), Housing Microfinance, Lessons from 11 Partnerships of Habitat for Humanity, Article 1: Opportunities and Constraints for Housing Microfinance, Center for Innovation in Shelter and Finance,.

HFC Bank Annual Report, 2014

Kwofie, T. E., Adinyira, E. and Botchway, E. (2011) Historical Overview of Housing Provision in Pre and Post Independent(ce) Ghana. In: Laryea, S., Leringer, R. and Hughes, W. (Eds.) Procs West Africa. Built Environment Research (WABER) Conference, 19-21 July 2011, Accra, Ghana, 541-557.

National Housing Policy, Ministry of Water Resources, Works and Housing, 2015

Statistical Services Ghana, Statistical Bulletin, 2015 and 2016

World Development Indicators, World Bank, 2015

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