Since independence, the housing problem is one that has constantly drawn the attention of successive governments and policy makers. While information on the exact scale of the problem is scanty and on occasion disputed, the seriousness of the problem is universally acknowledged. In recent years, the problem has been recognized to be worsening. The rural-urban drift has increased the pressure on urban housing. Provision has scarcely moved in tandem with demand, leading to pockets of slums and communities that seem to consist entirely of kiosks, containers and little by way of plumbing or drainage. The facts, where available, are grim.
In 2001, the slum population was estimated at 4.9 million. As at year end 2010, this figure had shot up to 5.8 million, nearly a quarter of the national population. Where available, houses are generally crowded, with an estimated average of 8.7 people sharing a house . There is contention on what is the total amount of the housing deficit itself; with the popular view of about a million being disputed by some. The Bank of Ghana, according to its 2007 statement on housing estimated that some 665,920 units needed to have been built in order to catch up.
To a large extent, the governments has been keen to address the situation. From the construction of the Dansoman Estate by the Acheampong government, the SSNIT flats by the Rawlings administration, the affordable housing project of the Kufour led government to the efforts of the current administration, the various interventions by government show a recognition of the gravity of the situation. However, these efforts have not been able to fully solve the problem. Naturally, the private sector has sought to supplement the provision of housing via a nascent real estate construction industry. Real estate firms have been determinedly seeking to make up for the shortfall in the housing deficit as well as providing office blocks, shops, malls and other public buildings. Currently, the bulk of real estate provision is undertaken by the private sector. Relative to the deficit, however, the numbers are not encouraging. It is estimated that the private sector produces less than 10,000 units a year.
Industry insiders blame this on a number of reasons.
Erdinc Asar, Director of Acacia Build Ltd, a real estate company, says that the biggest problem is land. “Land is too expensive, especially in Accra. In the prime areas, one can expect to pay over a million dollars for an acre of land. This is a problem.” At the lower end of the market are newly developing areas like Oyarifa, beyond Adenta, where land can still be procured for around GHC 10,000. This, industry experts say, can be traced to a rush for land that accompanied the real estate boom between 2006 and 2008, largely fuelled by foreign players. In the scramble for prime land, buyers sought to outbid each other for the best lots leading landowners to expect these high prices. Although the market has slowed down somewhat, many owners are unwilling to take less for their properties.
Cost itself is only one of the many problems associated with land acquisition. Arguably, issues surrounding the procurement are a bigger headache for those wishing to buy. Ghana has a notoriously defective land tenure system. Ownership is often unclear, the processes are bogged down by bureaucracy and there are persistent reports of corruption whereby people are allowed to sell lands severally depriving the legitimate owners of their property. Insiders say, with a wry sense of humour, that one does not buy land in Ghana; one buys litigation.
In especially new areas of development, the lack of infrastructure and utilities also adds to the cost of business. Often, firms have to ensure the provision of these themselves. Naturally, these add to the cost of construction and eventually, the buildings. As with nearly all industries, the real estate industry also has problems with financing. Relatively high interest rates and lack of long term financing means that companies are often unable to invest in long term projects. With the sort of facilities they are able to access, returns must be quick and high to justify the investment.
This, Mr Asar says, explains why many companies prefer to concentrate on high end properties. “Low cost housing is very difficult for private firms that have to rely on the markets for their survival. With interest rates so high, along with other difficulties, it will be very difficult for one to produce units that are accessible to the lower end of the market. That is also why many of us sell rather than rent. With rent, it takes time to get your money and your bankers probably don’t want to wait that long.” Bertha Nkrumah of Belveridge Properties confirms this. “Many of the properties that come on the market are high end. We get some clients looking for lower end prices but we are unable to find some for them readily. It’s rare for properties to come on the market for anything less than fifty to sixty thousand dollars. And when it comes to rent, we get properties going for as much as six thousand dollars a month!”
But that’s one side of the story.
Ms. Nkrumah says that the high expectations of builders are not always justified by the performance of the market and this leads to many developments having less than optimum occupancy. “Right now, the market isn’t very brisk so some properties that were built in the boom are now unoccupied. There isn’t a lot of money around so people cannot afford them at the rates at which they are available.” One way to ensure that buyers can afford to acquire the available properties is through the development of a mortgage market. A mortgage allows an individual to purchase property without having to raise the full funds upfront. A mortgage firm provides most of the funds and the individual is given a period of time to pay back to the firm upfront.
Since the Home Finance Company about two decades ago, the mortgage industry has also seen some progress. Now, a few banks including Fidelity, UBA and Barclays have mortgage divisions while companies such as Ghana Home Loans cater specifically to this need. The obvious upshot is that builders can get their money quickly, enabling them to go on to expand and grow while buyers are able to acquire properties without raising all the cash at a go, something that many say is a near insurmountable problem. But the mortgage industry offers even more to the economy.
Industry experts say that a vibrant mortgage market could have far reaching and positive effects on the economy by releasing pent up equity that could be channeled into investments in other areas of the economy. The real estate industry would be the most obvious beneficiary. With ready access to cash via mortgage-facilitated sales, they would be able to re-invest and grow. However, the industry itself is reliant on other ancillary activities that would also experience a bounce. The furniture industry, home décor companies and realtors would all be positively affected by a rise in sales facilitated by mortgages.
Michael Obeng at Ghana Home Loans agrees. Should more people be able to access mortgage financing, home sales would go up and the real estate industry would be able to play a more significant role in economic development. He however thinks that there is a cultural barrier that is only gradually unraveling. “Most people still want to make money, buy a piece of land and build a house themselves. That is still the conventional Ghanaian view.” For these people, the option of mortgage financing is often not explored. The lack of security and transparency in land title registration also affects the mortgage industry. This means that the land market cannot operate effectively to either enable the development of a formal market for mortgage or to act as security for mortgage finance.
Again, Mr Obeng says, “high income –payment ratios put off some possible buyers. Many are nervous about the amount of their income that they will be forgoing, fearing that this will leave them vulnerable when unexpected events occur. For many people, it is not even feasible and sometimes we have to turn them away.” For all these challenges, industry players are optimistic about the mortgage industry. Mr. Obeng is confident that as more players enter the market, credit will become more normal in financial transactions and regulatory frameworks will take shapeand thus, both the real estate and mortgage industry will be greatly improved.
Mr. Assar echoes this, “It’s important that the growth of the mortgage industry is supported . This way we can increase supply and hopefully be able to meet the huge deficit we have, especially at the mid to lower ends of the market.”