The Ghanaian economy is characterised by a stable political climate, outstanding growth performance and effective macroeconomic policies. Following dramatic GDP growth of 14.4% in 2011, GDP growth slowed to a still strong 7.1% in 2012 and to 6.7% in the first quarter of 2013, as oil production plateaued. This slowdown is expected to affect other sectors of the economy. Still, business and consumer confidence improved in the year. Ghana’s annual inflation rate peaked at 9.4% in July 2012, and eased to 8.8% in December 2012 as a result of lower food price increases and tight monetary policy measures. The Central Bank predicted that inflation would remain broadly stable between 7% and 11% by the end of 2013, and in February 2013 kept the Policy Rate at 15%. At the end of 2012, Ghana faced a higher budget deficit than anticipated, largely as a result of an increased public sector wage bill and an increase in fuel subsidies. Ghana’s construction industry continues to grow steadily. The industry comprised 9.2% of GDP in 2011, ahead even of mining. Finance, real estate and
The Ghanaian economy is characterised by a stable political climate, outstanding growth performance and effective macroeconomic policies. Following dramatic GDP growth of 14.4% in 2011, GDP growth slowed to a still strong 7.1% in 2012 and to 6.7% in the first quarter of 2013, as oil production plateaued. This slowdown is expected to affect other sectors of the economy. Still, business and consumer confidence improved in the year. Ghana’s annual inflation rate peaked at 9.4% in July 2012, and eased to 8.8% in December 2012 as a result of lower food price increases and tight monetary policy measures. The Central Bank predicted that inflation would remain broadly stable between 7% and 11% by the end of 2013, and in February 2013 kept the Policy Rate at 15%. At the end of 2012, Ghana faced a higher budget deficit than anticipated, largely as a result of an increased public sector wage bill and an increase in fuel subsidies. Ghana’s construction industry continues to grow steadily. The industry comprised 9.2% of GDP in 2011, ahead even of mining. Finance, real estate and business services comprised 9.1% of GDP in 2011.
Access to finance
Over the past years, Ghana’s financial system has undergone intensive regulatory reform and restructuring, which has resulted in an increase in credit offered by commercial banks. The financial sector has 24 banks, seven of which are listed on the Ghana Stock Exchange. In 2012, the top five banks accounted for 45.5% of market share. Banking assets represented 39% of GDP in both 2011 and 2012, and total credit provided by the banking sector represented 19% of GDP in 2012, an increase of 3% on the previous year. According to the World Bank’s 2013 Doing Business Report, in the ‘ease of getting credit’ category, Ghana was ranked 23rd out of 185 countries in 2013, an improvement from its 38th position in 2012. In 2011 Ghana strengthened access to credit by establishing a centralised collateral registry. Loan performance has improved: in 2012, 13.2% of loans were non-performing, an improvement from the 14.1% non-performing loan ratio of 2011. According to the International Monetary Fund’s Financial Access Survey, there are 5.46 commercial bank branches per 100 000 adults and 2.72 ATMs per 1 000 km2. HFC Bank estimates that four out of five Ghanaians operate entirely outside of the formal financial sector.
In 2012, Ecobank Ghana merged with The Trust Bank, becoming the largest bank in the country with 12.8% of banking sector assets. State-owned Ghana Commercial Bank follows with 11.3% of total banking assets. The country has an efficient stock market, with 36 companies listed in 2013. Banks have used the stock exchange to raise funds for mortgage lending. For example, HFC Bank has issued and listed six corporate bonds since 1996. Also, recent regulation has allowed foreign investors to invest in securities listed on the stock exchange without exchange control regulations. Ghana’s pension industry is small with only 9% of the labour force contributing.
In December 2012, the Bank of Ghana increased the minimum capital that all financial institutions have to hold on their balance sheets. As a result the entire banking sector had to increase stated capital: commercial banks to GH¢60 million, or US$28 million (from GH¢20 million, or US$9.36 million in 2010), and savings and loans institutions to GH¢7 million, or US$3.275 million (from GH¢3 million, or US$1.4 million in 2010). Rural banks’ required minimum capital remained unchanged at GH¢150 000, or US$70 000. Following this, the industry’s average capital adequacy ratio improved to 18.6% from 17.4% in the previous year.
Ghana has some way to go to create the necessary systems to support mortgage lending, although it is registering some progress. There are five major players within the Ghanaian mortgage market: HFC Bank, Ghana Home Loans (GHL), Fidelity Bank, CalBank (CalMortgage) and Stanbic Bank. These banks offer a variety of mortgage products, including mortgages for home purchase, improvement or completion, as well as home equity mortgages. In 2012, HFC Bank increased its home loan portfolio by 33% to GH¢ 93 million (US$43.5 million). Total disbursements for the year amounted to GH¢ 14.9 million (US$6.97 million) to 217 customers. This was up from GH¢ 8.8 million (US4.1 million) in 2011. Of its total mortgage disbursements in 2012, 69% were in foreign currency loans. The average loan size was US$63 990 (GH¢136 777) for foreign currency loans, and GH¢ 34 295 (US$16 044) for local currency loans. For the portfolio outstanding, the average loan amount was GH¢ 59 937 (US$.28 040). HFC Bank has a special scheme targeted at public sector employees. Although interest rates are capped at 15%, the volumes have been growing slowly: 56 loans were disbursed in 2012 and 39 in the previous year. The portfolio outstanding for this product stood at GH¢ 8.8 million (US$4.1 million) for a total of 325 clients.
Growth in the housing sector has put pressure on mortgage lenders who have struggled to raise the funding to meet the demand. Ghana’s first mortgage backed security was approved by the Securities and Exchange Commission (SEC) in 2013. Ghana Home Loans has developed the bond, and the first issue is expected to be made in the first quarter of 2014 and raise US$20 million (GH¢42.75 million) with an estimated yield of 7% per annum. A minimum investment of US$500 000 (GH¢1.068 million) will be required to participate in the issue. In 2011, GHL disbursed US$20 million in new mortgage loans. With a portfolio of about US$65 million (GH¢138.9 million), GHL has about 1 000 mortgages. In January 2012, Shelter Afrique signed a US$5 million (GH¢10.687 million) facility with GHL to provide mortgages for at least 200 individuals in the middle income bracket.
Mortgage debt to GDP remains small, however. Recorded at 0.37% in 2007, it fell to 0.32% in 2008, 0.3% in 2009, and 0.25% in 2010. In part, this was due to the global financial crisis and the prevalence of borrowers from the diaspora in Ghana’s mortgage book. The two key constraints to mortgage market growth are high interest rates and limited affordable housing supply.
In 2012, Ghana Union Assurance launched the first collateral policy to provide cover to finance houses on construction. The collateral replacement indemnity (CRI) targets borrowers in the lower to middle income mortgage market (with incomes below GH¢4 400, or US$2 058) 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. Working with the support of Home Finance Guarantors Africa Reinsurance Limited, the CRI enables borrowers to access a 100% loan.
Ghana has a dynamic and well developed microlending sector, with 79 microfinance institutions reporting to the Mix Market (an online source of microfinance performance data and analysis) in 2013. With an estimated 301 338 borrowers, the gross loan portfolio is US$225.1 million. The largest MFI is ProCredit with a gross loan portfolio of US$34 million (GH¢72.675 million), followed closely by OISL, Sinapi Aba Trust, Ezi Savings and Loan, and Unicredit S&L. Among these lenders, housing microfinance is offered, although the scale has decreased in the past year. HFC Bank offers housing loans in collaboration with the Cooperative Housing Foundation International (CHF) through Boafo Microfinance Services. Boafo has scaled back considerably, however. ProCredit launched a housing improvement loan in 2006, but has recently changed its strategy and shifted its focus to the SME sector. The reasons given for discontinuing its housing finance products were poor collections and funds being diverted to other sources. With the end of USAID funding, Habitat for Humanity Ghana and the Sinapi Aba Trust have also scaled back on a project in Kumasi. Like commercial banking, microfinance suffers from the lack of long-term funding – funding lines of three to five years are too short for housing microfinance, which would do better on seven to 10 year terms.
In late 2012, the MasterCard Foundation and Habitat for Humanity International jointly launched a five-year pilot project in Ghana to promote the growth of the housing microfinance and incremental housing construction sectors. The US$2.2 million initiative is engaging with three microfinance companies in Ghana, providing technical support in the development of housing microloan products, which should lead to the disbursement of over 20 000 housing microloans to low income earners, mostly in rural areas.
As indicated earlier, the World Bank’s 2013 Doing Business report placed Ghana 23rd out of 185 countries against the ‘ease of access to credit’ indicator, an improvement by by 15 places over the previous year. Although the private credit bureau registry covers only 5.7% of the adult population, this is almost double its coverage for the previous year. Ghana’s first credit bureau started operating in 2010, with data collection beginning in earnest in 2011. Rapid growth is expected in future years. Three credit bureau licences have been granted, to XDS Data, Hudson Price, and Dunn and Bradstreet. A national identification exercise is also under way. In preparation for the 2012 elections, the Electoral Commission launched a voter registration process using biometrics; this is expected to serve as the basis for a future national identification document (ID) system. The database will be accessible to the financial sector in 2013, using biometric ID, which could improve risk management. These measures will facilitate lending by banks and non-bank financial institutions.
In 2012, the World Bank launched the Global Financial Inclusion Database (Global Findex) to explore levels of financial inclusion around the world. According to 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. 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. However, the majority of these loans were from family or friends. Only 7.5% of adults had a loan from a financial institution and only 3.8% had a loan from a private lender. Very few Ghanaians have an outstanding loan to purchase a home: 1.9% of the top 60% of income earners and 3.1% of the bottom 40% of income earners. Loans for home construction are more prevalent: 8.9% of the top 60% of income earners had one, and 5.2% of the bottom 40% of income earners.
The cost of borrowing has come down in Ghana, though this is dependent on the denomination of the loan. Local currency loans are among the most expensive in Africa, and suffer from the insecure macroeconomic and inflation environment. HFC Bank offers US dollar-denominated mortgages at 13.5%, while mortgages in Ghanaian Cedi are offered at a high 28%. Only about 3% of households can afford the cheapest formal sector dwelling on the market. Loan to values (LTVs) vary but none of them are exceptional; HFC Bank lends with an LTV of 80%, while GHL requires a 75% LTV. There are some short terms for loans, as little as six months to two years, although 20-year loans are available.
Most formal housing units are beyond the affordability level of the majority of the population and even of the middle class. Blue Rose Limited is a wholly owned Ghanaian company and is known as the most affordable developer in Africa, having won an award from the African Real Estate and Housing Finance (AREHF) Academy, a leading resource centre for the development of real estate and housing finance in the African region. However, a 66m2 house on a 167m2 plot of land costs about US$25 000 (GH¢53 473), which is still too expensive for even the formally employed in Ghana. The monthly mortgage payment will be about US$250 (GH¢534), and requires that the prospective mortgagor be earning about US$750 (GH¢1 603) a month to qualify. Of those formally employed, salaries range from US$200 (GH¢428) to U$2 000 (GH¢4 275) a month, with the average salary at about US$485 (GH¢1 036) a month, which is still well below the US$750 required to purchase an entry-level house. In Greater Accra, in 2010, the average annual household income (for all households, not only those employed) was GH¢1 402 (US$655) a month. A recent report by the World Bank suggests that Accra is the 75th most expensive city in the world, comparable to Houston, Texas, but with a population that lacks the income to afford living there.
In urban areas, renting is the most common form of accommodation. However, constraints in supply have led to exploitative practices, and it is common for tenants to have to pay two to three years of rental in advance. As a result, households who cannot afford these high upfront payments end up overcrowding: according to the census, almost one third of Ghanaians do not own a dwelling or pay rent of any kind.
A recent study by UN-Habitat reports that Ghana’s housing need is expected to hit 5.7 million rooms by 2020. The analysis highlights that housing in the country has never been a significant component of national economic planning, but has been seen rather as part of its welfare sector. As much as 90% of Ghana’s housing stock has been produced through self-build, and in the cities, overcrowding has become intolerable and many end up sleeping outside. An estimated 53% of households in Accra occupy a single room. A CHF study undertaken in Accra in 2010 found over 3 000 people sleeping outside in an area less than one fifth of a square kilometre. A parliamentary debate in July 2013 estimated the current housing deficit in Ghana to be 1.6 million houses. The annual housing demand of about 100 000 units is not being met, with only about 40 000 housing units currently being delivered per annum.
According to the Ghana Real Estate Developers Association, the slow pace of residential property construction is now changing, though only at the top end of the market. Since 2005, completions and new building plan approvals have increased. Permit approvals for registered real estate developers and parastatal real estate developers have more than doubled. In 2012, activity declined somewhat as cement production slowed due to a temporary shutdown of the West African Cement production plant following a lightning storm. The price of a standard 50kg bag of cement increased by 85%, from GH¢14 (US$6.55) to GH¢25 (US$11.70) in 2012, and more recently by 35%. This has negatively affected the entire construction industry.
There is some delivery of housing by the government. Players include the Social Security and National Insurance Trust and the State Housing Company (SHC). Housing developments driven by the state which primarily target the public service, have, however, been unable to make any significant dent in the demand. Over the 10-year period 1991 to 2000, state housing institutions produced less than 40 000 mortgageable units. In 2012, the SHC won the ‘Developer of the Year’ (Community & Social Housing) award as an acknowledgement of its housing construction and urban regeneration work, and its efforts to establish and manage a National Housing Register. Homebuyers can buy housing from SHC in cash or with an instalment sale scheme managed by the company, or with a mortgage from HFC Bank, GHL or First Ghana Building Society.
Despite the enormous demand for housing, a recent debate in parliament noted that unfinished developments are visibly evident in urban areas. In 2012, a high profile development being driven by Korean construction firm STX, and which promised the delivery of 200 000 units, fell through due to difficulties in contracting arrangements. Other initiatives targeted at the affordable housing market also ran into difficulties, including capital constraints. More recently, a Brazilian firm announced the intention to construct 5 000 affordable houses. The Housing Minister estimates that about US$117.5 million is needed to complete the existing affordable housing projects across Ghana. Development in the upper income market remains vibrant, as developers scale up on the need for high end expatriate accommodation. Companies such as Taysec and Clifton Homes offer housing in the US$100 000 to US$600 000 and above price range – this covers two-bedroom apartments to four- to five-bedroom homes.
Shack/Slum Dwellers International (SDI) has partnered with the Ghana Homeless People’s Federation to find solutions towards improving human settlements and shelter conditions. The federation has two programmes under way: the Amui Dzor Housing project and the Citywide slum upgrading project. The Amui Dzor Housing project is a collaboration with UN-Habitat’s Slum Upgrading Facility, while the Citywide slum upgrading project is a collaboration with SDI and the municipality. Working with People’s Dialogue on Human Settlements, the first project will develop houses and shops, and ultimately an entire integrated development for the slum dwellers involved. By marking land both for residential and commercial purposes, the project addresses to some extent the competing land uses that often undermine the poor’s access to well located land. The Tema Ashaiman Municipal Slum Upgrading Fund provides useful lessons for slum upgrading and integrated development for the poor. Funded in part by UN-Habitat, the project is driven by the Ministry of Local Government in Ghana, and two municipalities. UN-Habitat provided a grant of US$400 000 as a capital enhancement, and a further $100 000 for administration and development. A further US$400 000 capital enhancement grant is expected.
Homeless International has been working in Ghana since 2003, and has partnered with the Peoples’ Dialogue on Human Settlements to support Ghana’s urban poor to advocate for their rights to adequate housing, safe settlements, secure tenure and affordable infrastructure.
With the growth of the oil and gas industry in Ghana, private sector development of upmarket homes is rampant and almost all selling off-plan; their prices range from between 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.
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 Ghana, 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, valuer 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. In 2013, GHL initiated a mortgage road show to stimulate demand for mortgage lending. This was part of a wider marketing effort that includes weekly mortgage clinics, annual housing fairs, a video on mortgage borrower education, the establishment of real estate clubs on university campuses and a short message service (SMS) subscription facility.
Policy and regulation
Ghana’s housing policy has been in draft form for the past seven years – an issue raised in a recent parliamentary debate on the state of housing in the country. The Housing Minister has committed himself to finalising the policy.
According to the World Bank’s 2013 Doing Business report, registering property in Ghana requires five procedures, takes 34 days and costs 1.2% of the property value. Ghana was ranked 45th of 185 countries for this indicator in 2013, a significant decline from the previous year’s 37th place. The capacity to register a property remains limited to major centres – Accra, Kumasi and a few smaller towns – and the process through the Lands Commission remains quite manual and is fraught with administrative limitations. Most of the country’s land is held in either local custom hands (‘stools’) or by government, and the land administration framework is characterised by the coexistence of overlapping systems – traditional, state and private. It is not uncommon for land claims to clash, and land is often the subject of litigation. This and unreliable title documents intensify the risk of mortgage lending, which explains why banks in Ghana often shy away from lending, or do so at a premium. At the same time, buyers too feel that the formal title registration system is cumbersome and unhelpful. Reforms to the land administration system have been ongoing although their results are yet to be felt.
In 2012, the Ghana Housing Finance Association announced that it was working with stakeholders to draft a Condominium Property Bill to enable the development of units for ownership, constructed in buildings rather than free standing on plots. Similar to sectional title legislation in other countries, the regulations would set out the requirements for management of common areas and the title definitions for ownership in this context.
The housing sector prospects in Ghana look positive, although special focus on improved access for the majority of low income earners who cannot afford privately delivered housing is needed. A growing, relatively stable, well managed economy provides prospects in terms of the growing demand for housing in the middle and upper income segments. Although Ghana’s overall Doing Business score deteriorated by one point in 2013, access to credit improved by 15 places, showing significant transformation in the financial sector. Entry into the mortgage space by new and specialised mortgage financiers such as Ghana Home Loans, which has since 2006 increased its lending activities, shows that the housing finance sector still provides opportunities. With greater awareness and acceptance of mortgage products in the country and finalisation of reforms to the land administration system, the mortgage industry has room for more players. The already established microfinance industry that has branched into housing provides an additional area of housing finance opportunity, one that has the potential to cater for many more Ghanaians.
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Bezoni, S. (2013) Crowded House: Accra tries to Make Room for a Population Boom. http://nextcity.org, accessed on 15 July 2013.
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