Ghana has a growing housing finance sector. As the mortgage market does not yet meet the breadth of the population who might afford a mortgage, most households still finance their housing independently, with savings or non-mortgage credit.
The lowest recorded interest rate on a mortgage in Ghana is 29 percent, as of September 2016, and requires at least a 20 percent down payment. The cheapest newly built house by a developer recorded by CAHF is US$ 20 223, which is for a 50 square metre unit. Cement prices are slightly lower than the continental average, at US$ 8.44 for a 50-kilogram bag.
With an urbanisation rate of 3.51 percent, demand for affordable housing will remain strong, both for rental and purchase. Housing microfinance will play an important role in increasing the supply of housing, and efforts to increase access should be undertaken. Yet Ghana Home Loans and HFC Bank (Ghana), a member of the African Union for Housing Finance, are leading mortgage market development, providing a sound foundation when the Ghanaian economy rebounds. With a good macroeconomic environment, sound policy, better data and increased access to affordable credit, an enabled housing market can increasingly provide housing that the average household in Ghana can afford.
Find out more information on the housing finance sector of Ghana, including key stakeholders, important policies and housing affordability:
- Access to Finance
- Housing Affordability
- Housing Supply and the Property Market
- Housing Policy and Regulations
- Housing Sector Opportunities
Each year, CAHF publishes its Housing Finance in Africa Yearbook. The profile above is from the 2016 edition, which has up-to-date profiles for 51 African countries.Download yearbook
Despite Ghana’s remarkable progress in its financial development, macroeconomic and financial sector issues combined with market inefficiencies persist. Since the country’s independence in 1957, the Ghanaian financial sector has developed substantially from two banking institutions. As of 2016, the West African country has 33 licensed banks, 564 licensed microfinance institutions (MFIs), 64 nonbank financial institutions (NBFIs), and one mortgage house.
Ghana’s inflation rate is expected to decrease from 12.10 percent in June 2017 to 11.2 percent by December 2017—buoyed by a three-year assistance programme from the IMF. As of March 2017, public debt stood at GHS 127 billion (US$ 28.84 billion) with the average lending rate for credit markets decreasing to 26.6 percent in May 2017 from 28.57 percent in February 2016. Ghana is economically dependent on exports and as such its economic stability is affected by the fluctuating prices of commodities. Interest rates continue to hover near the five-year high. Additionally, the banking sector has experienced management inefficiencies accentuated by a substantial amount of non-performing loans (NPLs), at 8.4 percent in 2016, as well as a recent slowdown in deposit mobilisation.
Mortgage finance has also experienced several difficulties. There continues to be approximately 6,000 mortgages in the country, despite there being more than 5.5 million Ghanaian households. Limited mortgages have been attributed to inadequate capital allocated to long-term financing, persistent gaps in borrower credit appraisals and difficult macroeconomic conditions resulting in high interest rates. Similarly, housing microfinance has also encountered challenges in its consolidation, perhaps to a greater extent than mortgagees. Comparatively, 14 of 31 banks offer mortgage financing whereas around five MFIs offer counterpart shelter credit products. Notwithstanding these challenges, there are opportunities towards improving residential housing supply and strengthening inclusive housing finance development in Ghana.
Access to Finance
Housing finance whether public, corporate or end-user has various levels of accessibility to Ghanaians. The government, in national, regional and local forms, has sought to strengthen domestic revenue mobilisation to sustain infrastructure investments, including those for housing. Beyond this supply-driven residential development initiative, the government, through the Ministry for Water Resources, Works and Housing (MWRWH), actively seeks to expand affordable housing finance through civil servant loan schemes and rent control.
Real estate is a critical source of public funding for the Ghanaian government. Local governments levy property taxes, typically 0.5 percent to 3 percent of property worth, to bolster their financial resources. Aside from income and corporate taxes, the national government also charges a 5 percent value added tax (VAT) on property transactions. Even with these sources of financing available to government housing programs, few mass housing projects have been delivered to reduce the staggering housing deficit, estimated to be 1.7 million housing units in 2017.
Private sector housing finance entities have largely relied upon accessing external sources of financing for their business development. Similar to other geographic regions in the developing world, corporate finance has been identified as either a primary or secondary impediment to firms or their growth in Sub-Saharan Africa. For Ghana, access to corporate finance has been explicitly referred to as a “particularly severe constraint” to firms in the West African country.
Businesses, particularly small and medium enterprises, often rely upon self-financed capital investments. Self-financing is commonplace due to limited sources of debt and equity financing, such as those from venture capital or private equity firms. The consequence has been the reliance of housing finance products on deposits at Ghana’s banks. For several housing finance entities, like the NBFI Ghana Home Loans (GHL) or MFIs, the international donor community has been a source of substantial funding.
End-users are significantly restricted in accessing finance in Ghana whether in urban or rural areas. In rural parts of the country, the housing needs of farmers and ranchers are less severe as they are able to collectively harness agricultural and forestry materials for their communities’ shelter needs. Yet, pastoralists confront liquidity challenges in accessing financing acutely for farm production credit. Without access to credit, the basic needs of rural households can become financially subservient to their agricultural operations and be inadequately met. The country’s central bank, the Bank of Ghana (BoG), has long promoted rural banks to expand access to finance in the Ghanaian countryside. In 2017, the BoG classified 141 rural and community banks.
Urban dwellers, especially the 61.5 percent of those employed informally in the private sector throughout cities, confront a host of challenges in accessing finance. The many households earning irregular wages resort to friends, family and moneylenders to obtain credit. Rather than taking loans for investment in education or housing, borrowers typically use credit to support their everyday livelihood needs, especially during emergencies when economic opportunities diminish. Outside of those from friends and family, loans from moneylenders are often exorbitant if not predatory. For housing, mortgage finance is only available to the select few of Ghana’s urban society. Alternative microfinancing does exist, yet the expensive terms deter many households from participating, including for the few MFIs offering housing finance products.
Affordable formal housing is out of reach for many in Ghana. The Ghana Real Estate Developer Association (GREDA) has cited that the least expensive house, available on the periphery of Accra, costs between US$55,211 and US$67,633. Such housing is unaffordable to Ghanaians as mortgagees estimate the median Ghanaian household can afford much less, around US$14,000. Throughout urban areas, many Ghanaians live in informal, sub-standard housing that is overcrowded and lacks basic infrastructure of quality, such as water, electricity and waste management. The lack of affordable formal housing is attributed to rising land values, poor building regulations, a lack of housing finance as well as a reliance on foreign imports for the manufacturing of certain building materials, such as aluminium ingots and rolls for roofing sheet production, and clinker for cement manufacturing.
Mortgage financing has profoundly expanded in the last decade in Ghana. In 2006, the commercial finance institution Home Finance Company Bank (HFC Bank) was the only mortgage provider in the country. Today, over 40 percent of commercial banks offer mortgage products. Mortgagees typically offer their home purchase credit products for terms up to 20 years. Furthermore, the aforementioned mortgage house, GHL, is a NBFI as well as a prominent mortgage market provider in the country. In 2015, GHL accounted for half of all mortgages, worth an estimated US$180 million in Ghana. GHL has the opportunity to increase its lead further as the NBFI originates 75 percent of housing loans in the national market.
At present, there is a bifurcation in Ghana’s mortgage market that is illustrative of constrained affordable housing finance in the country. The preference of the financial sector for residential borrowers with foreign currency over those in GHS indicates the narrow homebuyer base and inhibited affordability in the mortgage finance market. The structural currency preference in the Ghanaian mortgage market is predominantly for loans denominated in US$ versus GHS. For example, HFC Bank reported US$ mortgages and had an interest rate between 12 percent and 14 percent in 2015. Contrastingly, GHS mortgages had interest rates between 28 percent and 31 percent for the same period. While there is less risk for lenders with these foreign banknotes, those Ghanaians paid with domestic currency are excluded, if not at a significant disadvantage, from accessing affordable residential credit.
Conversely, MFIs may provide a viable solution to the future development of affordable housing finance. Although at present there are 2,234 MFIs in the country, as categorized by the Bank of Ghana, few lend explicitly with housing microloans. In fact, there are likely five housing MFIs in the country, primarily operating in the south of Ghana. For those MFIs providing shelter loans, the interest rates exceed those of GHS denominated mortgages by as much as 15 percent for two to three-year durations. Much remains to be done to strengthen endogenous and thorough development of sustainable incremental housing finance products that MFIs and community credit unions can ideally provide. Ghana stands to benefit from innovative approaches to diversify and strengthen its housing finance sector in a more accessible and efficient manner.
Housing Supply and the Property Market
Housing deficits have been a continuous issue since Ghana’s independence. The problem has worsened as the housing deficit grew from 52,536 units in 1960 to an estimated 1.7 million units in 2017. The staggering deficit has contributed to rising home prices for purchase and rent. The result has been overcrowding, particularly in urban areas. For example, in the Ghana’s Accra Region 61 percent of households occupy a single-room house with a family size of 3.8 persons.
The factors contributing to inhibit housing unit delivery are multidimensional. Urbanisation has forced households unable to afford formal housing to resort to informal shelter, contributing to the proliferation of slums. Ineffective government institutions and programmes further constrict housing supply. Despite a widening home deficit, parastatal agencies such as the Tema Development Corporation and the State Housing Corporation, were only able to deliver 24,000 units between 1957 and 1990. If housing supply continues in such a constricted manner, the housing deficit is projected to increase to two million units by 2018.
In addition to direct government residential delivery efforts, private sector developers have sought to make affordable formal housing supply a reality in Ghana. However, the annual output of GREDA’s members is a modest 4,500 housing units. As such a two-fold approach is necessary that serves to increase wages and reduce housing costs.
Housing developers have been recently attracted to the removal of real estate taxes as a means to deliver more affordable housing supply. Specifically, developers have expected the administration of President Nana Akufo-Addo to lift: the 5 percent VAT on real estate transactions, the 8 percent rent tax for housing as well as the VAT on imported raw materials for residential construction inputs. Without such taxes related to housing development, the developers foresee the ability to reduce the residential supply costs passed along to consumers.
The cost of land is another principal factor in contributing to unaffordable housing. Land acquisition continues to be subjected to challenges in social, political and economic terms. Amplified competition among Ghanaians has resulted in land disputes in a majority of cases. The lack of expedient land titling and registration processes further hinder the property market. Currently, it takes one to three years to receive land title registration. The Ministry of Lands and Natural Resources seeks to streamline land administration. Further, as part of the New Patriotic Party (NPP) manifesto, the new Minister of Lands and Natural Resources has reiterated the government’s commitment to reduce registration processes to 30 days maximum. Disputes have concurrently hindered property development, especially for residential units. Common multiple ownership claims on land plots often cause formal builders and housing finance institutions to withdraw their participation from such projects.
Housing Policy and Regulations
The Government of Ghana has sought to address the multifaceted challenges facing the country’s housing sector. Through the 2015 National Housing Policy, the government has endeavoured to remedy issues by creating “an enabling environment for housing delivery” targeting low income markets. The policy follows longstanding legislative and institutional efforts in developing public private partnerships to bolster residential construction and housing finance throughout the country.
The Akufo-Addo administration, inaugurated in January 2017, has proposed the development of a Housing Fund. Discussions for this Fund have ascribed two purposes for its functions: subsidising the cost of housing for the low income market and restructuring mortgages to make monthly payment obligations more affordable. The latter echoes the formation of Ghana’s former Bank for Housing and Construction (BHC) established in 1974 as a government owned entity. The BHC was forced to close in early 2000, as beneficiaries refused to repay their loan obligations, and the BHC had no legal means to recuperate losses from delinquent borrowers without lengthy adjudication by the courts per the Mortgage Decree of 1973. In 2008, the Home Mortgage Finance Act attempted to resolve bottlenecks and improve creditor rights protection.
The government has been successful in enabling the creation of Credit Referencing Bureaus (CRBs). The 2007 Credit Reporting Act, permitted CRBs to be developed for the purpose of determining borrower credit risks through a data-rating tool for financial and non-financial institutions. Today, millions of Ghana’s adult population have credit scores due to the screening efforts of the three CRBs: XDS Data Credit Referencing Bureau, Hudson Price Credit Bureau and Dun and Bradstreet Credit Bureau Limited. The provision of credit screening has further incentivised borrowers to meet loan obligations due to the threat of lender denial based on past delinquencies or defaults. Even though there are tangible results from the CRBs, much remains to be done on credit screening as the trio or ratings institutions cover only an estimated 10 percent of Ghana’s adults.
Another regulatory innovation in promoting the housing finance sector development has been through Non-Banking Financial Institutions Law. In 1993, NBFIs, such as building societies, were placed under the supervision of the central bank through this law. The NBFI business model has been critical to the success GHL has achieved as a market leader in mortgage financing supported by external investment. Formerly, GHL was the prominent NBFI in mortgage finance, by some estimates accounting for 50 percent to 60 percent of the national mortgage market. However, GHL’s NBFI business model will likely change in the near future; in June 2016, the BoG granted licensing for GHL to operate as a deposit-based banking institution.
Housing Sector Opportunities
The progress Ghana’s housing and financial sectors have achieved can result in further development of opportunities and sector growth for residential financing. There are a variety of options for investors, developers, policymakers and advocates to promote affordable housing and consolidate inclusive housing finance development in a collaborative manner. It is evident there are financial and policy-based opportunities to reduce risks and minimise high mortgage and microloan rates to promote inclusive access to housing finance.
The profound increase in land prices, driven in part by urbanisation, has led to increased multifamily development throughout Ghana’s cities. Condominium units are prime for growth as they can be more accessible to those without the income requisite for detached, standalone housing units. The largest pension fund in Ghana, the Social Security and National Insurance Trust (SSNIT), has invested in the development of residential flats across urban areas. The resulting 7,168 flats produced can be an informative approach for institutional investors, developers and public sector actors seeking to address housing needs in an affordable and accessible manner for lower income Ghanaian households.
While homeowners are commonplace throughout Ghana, an estimated 47.2 percent of citizens in 2010, the majority of households are engaged in rental tenure arrangements, particularly in urban areas. Financial institutions have started to experiment with tenancy purchase arrangements to provide loan instruments for renters aspiring to become homeowners. With the high costs of home purchase and the proclivity of Ghanaians to rent, such housing finance products can have potentially strong appeal.
The need for capital allocated towards supporting longer-term mortgage instruments underscores the maturity mismatch deposit-taking institutions confront in terms of housing finance. Fortunately, Ghana has longer maturity assets available through its life insurance and pension industries. Regionally, the Ghanaian life insurance industry is a leader in West Africa. However, in 2014, this financial sector lagged at 3.07 percent behind South Africa and Kenya with 13.39 percent and 3.17 percent market penetration respectively. Strengthening the life insurance sector can in turn stimulate longer-term asset allocation better suited for investment in housing finance.
Pension funds are another area of potential long-term capital allocation. SSNIT covers one-tenth of the country’s labour force with its hybrid Tier-1 benefits. It is also the largest institutional investor in the Ghana Stock Exchange. Aside from its real estate investments and developments, SSNIT invests in HFC mortgage bonds. The channelling of capital into mortgage debt securities underscores the critical maturity relationship the pension capital has that is well suited to mortgage investment.
In addition to improving capital allocation for longer-term housing instruments, Ghana’s pensions can be used to assist workers towards achieving homeownership before retirement. SSNIT’s Tier-2 mandatory contributions have been identified as a means to mobilise savings for housing finance, enabling more Ghanaians to access mortgage financing. Notably, there is potential for SSNIT’s Tier-3 to provide a means for workers in the informal sector to access housing finance as well.
Other than the aforementioned affordable housing supply and mortgage opportunities, there is potential for micro lenders and community credit unions to thrive with incremental land and housing products. With the right terms, these alternative financial modalities can flourish, especially as an overwhelming majority of Ghanaians prefer to build their homes in a piecemeal manner as they accumulate their savings and grow their families. Furthermore as borrowers complete repayment obligations on other microloans, lower and irregular income beneficiaries can have the means of attaining a credit rating aligned with the industry standards of the CRBs. This can lead to greater opportunities in providing those with moderate and variable incomes a feasible means to eventually use shelter-financing products that serve the housing needs of the many throughout Ghana.