Housing Finance in Ghana

Introduction

Ghana’s rapid urbanisation of 56.7 percent[1] has occurred at a time when there is a huge affordable housing deficit of 5.7 million rooms[2] in the country. The mortgage system in the country is at an elementary stage of development but appears promising as the government has pledged commitment to make housing financing available.

Ghana recorded a real GDP growth of 6.5 percent representing a 0.5 percentage point gain over 2018’s figure of 6.3 percent.[3] Ghana’s GDP growth positions the country as one of the Africa’s six economies leading the world’s 10 fastest growing economies. The service sector dominates the economy with a share of 47.2 percent followed by the Industry (34.2 percent) and Agriculture (18.5 percent) sectors.[4] The real estate sector witnessed appreciable gains as its contribution increased from 1.0 percent in 2013 to 2.7 percent in 2019.[5] This represents an annual growth rate of 0.25 percent from 2013 to 2019. Mortgage to GDP ratio has remained below 0.5 percent over the years with 0.8 percent of households financing their housing acquisition through mortgages.[6] Inflation in the country has remained in the single digits. The end of year inflation rate for 2019 was 7.9 percent for the consumer price index. Average lending rate witnessed a marginal decline from 23.9 percent in 2018 to 23.6 percent in 2019.

The policy direction for the economy has been to reposition it from tax dependent to production based. Consequently, the government is promoting its initiative of establishing an industry in each of the 260 districts. For 2020, the IMF predicts the economy to grow by 1.5 percent.[7] This contraction in growth is due to COVID-19’s impact

[1] World Bank (2020). Urban population (% of total population) – Ghana.  https://data.worldbank.org/indicator/SP.URB.TOTL.IN.ZS?locations=GH (Accessed 10 August 2020).

[2]Ministry of Water Resources, Works and Housing (2015). 2015 National Housing Policy. https://www.mwh.gov.gh/wp-content/uploads/2018/05/national_housing_policy_2015-1.pdf (Accessed 31 August 2020). Pg. 5

[3] Ministry of Finance (2020). 2020 Mid-year Review of the Budget Statement and Economic Policy and Supplementary Estimate. https://www.mofep.gov.gh/sites/default/files/budget-statements/2020-Mid-Year-Budget-Statement_v3/.pdf  (Accessed 31 August 2020). Pg.

[4] Ghana Statistical Services (2020) Rebased 2013-2019 Annual Gross Domestic Product. https://statsghana.gov.gh/gssmain/fileUpload/National%20Accounts/Annual_2013_2019_GDP.pdf (Accessed 31 August 2020) Pgs. 3-5

[5] Ibid. Pg. 5

[6] Gyamfi-Yeboah. F (2020). The mortgage industry landscape in Ghana. https://www.myjoyonline.com/opinion/dr-frank-gyamfi-yeboah-the-mortgage-industry-landscape-in-ghana/. 9 September 2020. Joy Online.  (Accessed 10 September 2020)

[7] International Monetary Fund (2020). Ghana at a Glance. https://www.imf.org/en/Countries/GHA#ataglance   (Accessed 31 August 2020)

Access to Finance

Ghana’s financial sector broadly comprises the banking and the non-banking systems with insurance and capital markets as the components of the non-banking system. Microfinance institutions operate under the non-banking system offering services classified as formal, semi-formal and informal which is available to all classes of households.[1] Currently, 23 banks operate as universal banks, a significant reduction from the 34 banks that operated before the implementation of the new minimum capital requirement.[2] FNB Bank, Republic Bank, Cal Bank, Stanbic Bank, Fidelity Bank, Société Générale Ghana and Omni Bank offer a range of mortgage products including home construction, home purchase, home improvement, refinancing, and land purchase. On average, mortgages in Ghana are granted for a term of 15 years with a maximum loan-to-value ratio of 85 percent. In 2017, total mortgages in Ghana amounted to GH¢114 million (US$19,789,042) which grew to GH¢216 million (US$37,495,028) in 2018 representing about 90 percent increment. On the contrary, the rate of non-performing loans in 2019 was 13.9 percent, depicting a significant decline of 4.3 percent from 2018.[3]

The pandemic’s impact on Ghana’s financial sector has led to the establishment of policy responses to counter the impact. These include the moratorium granted for microfinance loan repayments that are due for up to 30 days as well as the reduction of provisions for loans in the “Other Loans Especially Mentioned” (OLEM) from 10 to five percent for all banks and Special Deposit Institutions.[4] These measures are expected to lessen the financial sector’s losses from the pandemic.

The delays in operations owing to the temporary closure of some financial institutions and additional operational costs incurred in equipping staff to work remotely due to the pandemic pose a significant operational risk to revenue. Moreover, high levels of uncertainty, decline in value of many financial assets and higher foreign exchange rate potentially subjects the financial sector to increased market risk, possible increase in credit risk and increased liquidity tightening.[5] To further improve access to finance, the Government of Ghana intends to set up the National Development Bank which will provide periodic dedicated funds for intervention in key areas including the housing sector.[6]

[1] Bank of Ghana (2007). A Note on Microfinance in Ghana. https://www.bog.gov.gh/wp-content/uploads/2019/07/Microfinancing1.pdf  (Accessed 15 August 2020).

[2] PWC (2019). Banking reforms so far: topmost issues on the minds of bank CEOs. https://www.pwc.com/gh/en/assets/pdf/ghana-banking-survey-2019.pdf (Accessed 10 August 2020) Pg. 2

[3] Bank of Ghana (2019). Annual Report 2019. https://www.bog.gov.gh/wp-content/uploads/2020/06/AnnRep-2019.pdf  (Accessed 15 August 2020) Pg. 21

[4] PWC (2020). COVID-19 and its impact on the Ghanaian banking industry-Counting the cost. https://www.pwc.com/gh/en/assets/pdf/covid-19-and-its-impact-on-the-ghanaian-banking-industry.pdf  (Accessed 15 August 2020)

[5] Deloitte (2020). Financial risk implications of COVID-19 on banks. https://www2.deloitte.com/gh/en/pages/financial-services/articles/financial-risk-implications-of-COVID-19-on-banks.html?id=gh:2em:3cc:4dcom_share:5awa:6dcom:financial_services (Accessed 10 August 2020)

[6] Ministry of Finance (2019). The Budget Statement and Economic Policy of the Government of Ghana for the 2020 Financial Year. https://www.mofep.gov.gh/sites/default/files/budget-statements/2020-Budget-Statement-and-Economic-Policy_v3.pdf (Accessed 30 August 2020)

Affordability

Access to basic mortgage facilities is a challenge for majority of households in the low- and middle-income brackets who cannot access affordable housing. In September 2019, the Government announced an increment of 12 percent in base salaries for public sector workers and a further 40 percent increment in some categories of allowances.[1] The promised increment would yield a real increment of 4 percent, taking into account the projected inflation for 2019, the first time in 20 years a net positive increment had been granted. Unfortunately, the pandemic has eroded the targeted inflation. Admittedly, the public sector workers represent a small share of the total workforce of the country and given the historically low levels of wages, the announced increments were barely adequate to cover housing costs, and the corresponding increments. In Accra, it has been observed that land price appreciation of building lands ranged from 8 to 11.5 percent between 2018 and 2019.[2]

Exemplifying the challenge faced by most households, banks providing mortgage loans, set a debt to income ceiling not exceeding 45 percent of net income with 15 percent down payment by borrowers required upfront. A typical monthly mortgage instalment is estimated at 45 percent of household net income[3] which according to the IMF’s definition of housing affordability, outlines a relatively unaffordable housing to the average Ghanaian household.

Following the COVID-19 outbreak, Government’s engagements with investors in respect to the delivery of affordable housing have stalled. The lockdown measures instituted to repress the spread of the virus led to partial or complete loss of jobs and subsequently substantially reduced household incomes for both formally and informally employed. As part of the Government of Ghana’s policy response to the impact of the pandemic, it is expected that the significant reduction in key monetary requirements would contribute to increased money supply and eventually reduce cost of credit in the mid to long term period anticipating that the negative impact of the pandemic subsides.

Furthermore, the Government’s initiative to support approximately small and medium scale enterprises through the provision of loans estimated at GH¢ 580 million ( US$100,681,094) is one measure that has the potential to drive employment, enhance household income and consequently increase housing demand.

[1] Aklorbortu, P. (2019). Public sector workers to enjoy 40 percent increase in salaries, allowances from 2020. Yen. https://yen.com.gh/132590-public-sector-workers-enjoy-40-increase-salaries-allowances-2020.html .    (Accessed 31 August 2020)

[2] Meqasa (2020). Ghana’s Housing Story. 5 March 2020. Meqasa. https://blog.meqasa.com/ghanas-housing-story/ (Accessed 31 August 2020)

[3] CalBank (2020). Loan Products: CalBank Mortgage. https://calbank.net/for-me/loan-products/cal-mortgage/  (Accessed 31 August 2020)

Housing Supply

The annual housing growth rate of the decade before and including 2010 was 4.4 percent.[1] This resulted in a total housing stock of 3,392,745 in 2010 and an estimated figure of 5,218,626 in 2020, assuming a compounded annual rate. The average number of persons per house has since 1984 seen a decrease reflecting the increase in housing ownership due to improved economic conditions. In 2010, the average number of persons per house was 7.3. Based on the estimated 2020 housing stock, the average number of people per house is expected to drop further to 5.9. In 2010, more than half (57.7 percent) of the housing stock was located in rural areas.[2] However, in 2020 it is expected that the rapid urbanisation will increase the percentage share of urban areas’ total housing stock to a little more than half.

 

The rate of percentage stock of houses increased 60.1 percent surpassing the rate of population increase (30.4 percent) between the year 2000 and 2010. For that same period, the housing backlog was 1.7 million.[3] According to Ghana’s Housing Policy, 5.7 million rooms are required by end of 2020 at a preferred occupancy threshold of 2 persons per room to bridge the deficit and offer accommodation to new households. To address this, over 100,000 housing units are needed annually to meet the current demand.[4]

The housing market, segmented into the formal and informal, has a high share of informal activity made up of actors who acquire their own land and engage the services of tradesmen to build incrementally based on resource availability. This allows for affordable construction but may sometimes affect the quality. Formal developers have often focused on the middle to high income segment of the housing market, with only a few catering to the low income segment. Despite the presence of formal real estate developers catering to the lower income segment, the prices of houses are often beyond the means of low-income earners as the buildings are priced in foreign currency. For example, the price offered by Damax Construction for its lowest price house is at GH¢ 115,400 (US$20,000) However, national average annual income is GH¢ 33,937 (US$5,891) while expenditure is GH¢ 12,857 (US$2,231)  [5] hence assuming all savings were used to make the purchase, it will take 5.5 years before full payment is made.

 

The majority of households in Ghana (42.1 percent) own their dwelling unit while 29.7 percent are rent-free. Rent paying occupants account for 27.6 percent while perching and squatting account for a combined 0.5 percent.[6] Many Ghanaians prefer to build and own their houses incrementally which accounts for the widespread horizontal development that has led to urban sprawl. Compound houses (57.3 percent) account for the highest typology of house occupied, followed by separate houses (28 percent), semidetached houses (4.7 percent), huts (4.8 percent) and flat/apartments (3.3 percent). Flats and apartments have not seen a popular demand due to their relatively high cost and an entrenched socio-cultural preference for individualised spaces. However, recently there has been an emerging demand spurred by the expatriate community, and non-resident Ghanaians. They view these types of accommodation as more secure than the traditional approach of incremental construction on lands which are frequently subjected to multiple sales, ownership disputes and outright stealing. Often, the high interest charged on mortgages by the various mortgage and financial institutions deters workers from applying as they will rather prefer to use the equity of personal loans and other income sources.

 

In efforts to bridge the housing gap, the government is supporting the construction of affordable homes and enhancing access to housing credit through mortgages for government workers. Projects initiated since 2007 and abandoned for some time, have been resuscitated and completed, or at various stages of completion.[7] One of such projects is to be delivered by the United Nations Office for Project Services (UNOPS) which signed up to deliver 200,000 units in total with 6,500 anticipated to be completed in the first phase by December 2020.

The Government has also embarked on several private public partnerships (PPP). For example, in 2019 the government signed a PPP agreement with a Hungarian private company, Solin, to construct 10,000 affordable housing units across the country.[8]

[1] Ghana Statistical Service (2014). 2010 Population and Housing Census-Housing in Ghana. National Analytical Report. https://statsghana.gov.gh/gssmain/fileUpload/pressrelease/2010_PHC_National_Analytical_Report.pdf  (Accessed 31 August 2020) Pg.26.

[2]Ibid). Pg. 372

[3] Ministry of Water Resources, Works, and Housing (2015). 2015 National Housing Policy. https://www.mwh.gov.gh/wp-content/uploads/2018/05/national_housing_policy_2015-1.pdf (Accessed 31 August 2020). Pg. 5

[4] Amegayibor. S. (2020). Here’s how many homes gov’t needs to build to bridge housing deficit gap. 3 August 2020. GhanaWeb. https://www.ghanaweb.com/GhanaHomePage/business/Here-s-how-many-homes-gov-t-needs-to-build-to-bridge-housing-deficit-gap-1024477 (Accessed 30 August 2020)

[5] Ghana Statistical Services (2019). Ghana Living Standards Survey 7. https://statsghana.gov.gh/gssmain/fileUpload/pressrelease/GLSS7%20MAIN%20REPORT_FINAL.pdf  (Accessed 30 August 2020) Pg.136

[6] Ibid. Pg.136

[7] Meqasa (2020). List of Affordable Housing Projects in Ghana. 1 June 2020. Meqasa. https://meqasa.com/blog/list-of-affordable-housing-projects-in-ghana/. (Accessed 31 August 2020)

[8] Munen A. (2019). Ghana to construct 10,000 affordable housing units. https://constructionreviewonline.com/2019/02/ghana-to-construct-10000-affordable-housing-units/. 17 February 2019. Construction Review Online. (Accessed 30 August 2020)

Property Markets

Land ownership is generally recognised under the two categories of customary and public lands. Customary lands are owned by stools, skins, families, or clans with the respective group leaders holding the lands in trust for the benefit of the members. Public lands are acquired and vested in the President of Ghana for the common good of the country. However, private ownership of lands can be acquired through grants, sale, gift or marriage.[1]

Land tenure insecurity is prominent in both the urban and rural areas of Ghana evident in the forms of land encroachment, multiple land sales, unapproved development schemes, undetermined boundaries of customary lands, conflicting land uses between mining and agriculture sectors, and weak systems to manage such conflicts. As a result, the Ghanaian land market is dysfunctional with low levels of investment in land owing to high transaction cost and sustained rural and urban poverty.[2] Efforts to enhance transparency and efficiency of land administration led to plans to digitise the land registry in 2018. The Land Registration Division of the Lands Commission is responsible for registration of title, deed and other interests or instruments affecting land.

The service of estate agents is key to the property market, however, there is no formal recognition for the practice of estate agency in Ghana. An initiative is currently being pursued by the Ghana Real Estate Professionals Association and the Ghana Association of Real Estate Brokers for recognition as official licensing and training bodies.

As a result of the impact of the pandemic, estate developers currently operate at a maximum capacity of 30 percent with plans to shut down completely if conditions worsen and more than 50 percent of prospective mortgage deals being cancelled or put on hold with servicing of existing mortgages being distorted. Moreover, conventional sales and marketing approaches are vastly distorted. Open house, property viewings, housing fairs and mortgage clinics are likely to be cancelled for the rest of the year with great losses to marketers

[1] Ghana Statistical Service (2014). 2010 Population and Housing Census-Housing in Ghana. https://www2.statsghana.gov.gh/docfiles/2010phc/Mono/Housing%20in%20Ghana.pdf (Accessed 28 August 2020)

[2] UN-Habitat and Global Land Tool Network (2014). Land Tenure Security in Selected Countries: Synthesis Report. https://unhabitat.org/sites/default/files/download-manager-files/Land%20Tenure%20Security%20in%20Selected%20Countries_English_2014.pdf (Accessed 28 August 2020) Pg. 4.

Policy and Regulation

Since 2019, the Draft Rent Control law has undergone a number of iterations in review to enhance its robustness and responsiveness to the rental market across the country. Presently, the latest draft has been submitted to Cabinet for consideration and approval, following which it will be taken through the formal legislation processes to become law.[1]

Additionally, the Government has signalled its intent to regulate the real estate practice, including the conduct of property transactions, with the submission of the Draft Real Estate Agency bill to parliament for passage into law. The Condominium Bill, which will regulate the management of shared or public spaces in multi-family residential developments remains on the drawing board, awaiting some further work by the Ministry of Works and Housing. Among its provisions, the mandatory insurance cover imposed on the owners, a novelty in its application in the country, will stimulate further development of the sector.

Following the completion and passage of the Ghana Building Code to regulate the standards of all construction activities, including those in the residential sector, the government with support from the International Finance Corporation (IFC) is currently undertaking the revision of the national building regulations (LI 1830) that was last updated in 1986. These reforms are part of measures put in place to improve competitiveness of doing business in Ghana.

The government has set up the National Housing and Mortgage Fund (NHMF) in partnership with Ghana Commercial Bank, Republic Bank and Stanbic Bank to deepen access to mortgage and residential housing finance. Through the NHMF, 250 housing units are being constructed as phase one, expected to be complete by September 2020 with an additional 200 housing units in phase two to be completed at Tema Community 22.[2] Similarly, through the NHMF partnering with GCB Securities, an Affordable Housing Real Estate Investment Trust (REIT) was set up to provide rental homes for public sector workers. The scheme is based on a rent-to-own model where public sector workers can access decent and affordable homes for between 15 to 20 years and pay a residual value to own the property.[3] Lower interest rates (11.9 to 12.5 percent) are being offered as part of the scheme, compared with the nominal minimum rate of 24 percent for non-foreign currency or cedi-denominated mortgages.

The 2015 National Housing Policy continues to provide direction for housing development in the country, with emphasis on the private sector involvement in affordable housing finance and delivery. Local land use planning is also being streamlined through the implementation of the Land Use and Spatial Planning Act 925 (2016). The Act revises and consolidates the laws on land use and spatial planning. It stipulates the framework within which spatial planning at the national, regional and district level takes place. The Act elevated the Town and Country Department into the Land Use and Spatial Planning Authority with an objective to provide for the sustainable development of land and human settlements. The Land Use and Spatial Planning Act is also complemented by the recently passed Land Bill (2019). The new Land bill is expected to provide a comprehensive legal regime for the land sector and support decentralised land service delivery to bring about enhanced accessibility and secured tenure.

 

[1]GhanaWeb. (2020). Rent Bill before Cabinet for Approval. 24 June 2020. GhanaWeb. https://www.ghanaweb.com/GhanaHomePage/NewsArchive/Rent-bill-before-cabinet-for-approval-989308  (Accessed 31 August 2020)

[2] Ministry of Finance (2020). 2020 Mid-year Review and Supplementary Estimate. 23 July 2020. https://www.mofep.gov.gh/sites/default/files/budget-statements/2020-Mid-Year-Budget-Statement_v3.pdf (Accessed 31 August 2020)

[3] National Housing Mortgage Fund (2020). National Housing and Mortgage Fund Limited. https://nhmf.com.gh/about-us# (Accessed 31 August 2020).

Opportunities

With the increasing urban population, there is a huge opportunity for investors to engage in the production of quality construction materials and affordable housing for the urban areas using modern techniques that ensure timely and low-cost delivery of housing. Several innovative techniques have been piloted locally and globally such as expandable polystyrene products and use of recycled materials that allow efficient use of local resources to produce affordable buildings. The various research institutions such as the Building and Road Research Institute have been undertaking several researches into the use of locally sourced materials for construction that will require support to further fine tune the design processes for replicability and scalability.

 

The Government has indicated its readiness to partner the private sector and investors in promoting rapid housing technology. For example, the government partnered with the Hungarian Government to roll out an Affordable Housing project using Rapid Housing Technology that permitted the construction of a three-bedroom house model within 11 days.[1] The Government identifies such innovative technologies as a game changer in helping to bridge the housing deficit.

 

The housing sector is made up of several industries that are involved in the design, finance, construction, furnishing and technical support to the production of buildings. The roles of these industries who are mostly from the private sector are crucial not only to the real estate sector but to the economy through their contribution to GDP and job creation. The formal and informal sector would benefit from a higher participation of the private sector in both direct and indirect processes to leverage local resources and make more affordable housing available.

 

In 2019, Government announced measures to ensure a credible mortgage system where Ghanaians can access housing finance by using 30 percent of the incomes to own a house payable within a spate of 15-20years.[2] This alone will not be enough and will require the full participation of the private sector in housing finance especially that targeted to the down market. Nonetheless, Ghana’s enabling environment and growing population makes it a fertile place for potential investors to contribute meaningfully to addressing a national issue by investing in the housing sector. Through the country’s progressive macroeconomic policies, the government has instituted several waivers and incentives for investors in the affordable housing sector. For example, a five-year corporate income tax holiday is offered to real estate companies with prior approval from the Ministry of Works and Housing for the construction of affordable housing.[3] The strong rule of law and protection of individual liberties adds on to the country’s investment attractiveness.

Ghana’s vibrant labour market ensures a constant supply of needed labour force to execute project tasks which coupled with existing supporting institutions such as banks, telecommunications, ports and Ghana Investment Promotion Council, ensures that the needed assistance is always offered to investors. However, the scarcity of land in the core city areas requires investors to be diligent in land transactions and to always follow due official processes.

[1] Ministry of Works and Housing (2019), New Technology for Building a House in 11 Days. https://www.mwh.gov.gh/index.php/2019/02/new-technology-for-building-a-house-in-11-days/

(Accessed 30 August 2020)

[2] Ibid.

[3] Ghana Investment Promotion Centre (2020). The Immense Opportunities of Property Development in Ghana. https://www.gipcghana.com/press-and-media/617-the-immense-opportunities-of-property-development-in-ghana.html. (Accessed 30 August 2020)

COVID-19 response

A partial lockdown covering Kumasi and Greater Accra Metropolitan Areas was imposed for three weeks in April 2020. Though no moratoriums on evictions were put in place, the Minister for Works and Housing called for sympathy towards tenants. That notwithstanding, the government expressed preparedness to bailout people threatened with evictions due to inability to pay rent although a budgeted amount could not be stated.^[1]

The Central Bank of Ghana reduced the monetary policy rate by 150 basis points to 14.5 percent and increased liquidity in the banks by supporting key sectors of the economy by reducing the Primary Reserve Requirement from 10 percent to 8 percent. It also reduced the capital adequacy requirement from 13 percent to 11.5 percent, provided support to industries through the provision of a GH¢3.0 billion (US$ 520,764,281.49) syndication facility and by offering of six-month moratorium of principal repayments for selected businesses. Lastly interest rates based on the Ghana Reference Rate was reduced by 200 basis points.

To reduce the hardships brought about by the pandemic, the government absorbed utility bills on water for households and businesses. Water was mobilised for vulnerable communities who did not have constant supply. In addition, electricity bills for lifeline consumers of electricity who consume less than 50 kilowatt hours a month, were fully absorbed while all others had half of their electricity bill absorbed. This relief package was extended to last the whole year. During the lockdown, food items were distributed to the vulnerable and needy especially those in informal settlements.

Availability of data on housing finance

Data on housing is sparse and those available are often dated. The Ghana Statistical Service (GSS) collects and publishes data on housing after conducting the population and housing census which is undertaken every decade. Due to the pandemic the census which was to be conducted in 2020 has been postponed to 2021. The data covered by GSS includes housing and land access, demand and supply, housing finance and infrastructure and access to basic service. The Bank of Ghana’s data on housing finance is very limited and only focuses on mortgage rates. This information is publicly available online.

The main data gaps related to housing finance include yearly housing stock increase, number of mortgages outstanding, mortgage loan performance, average property values, loan to value ratios, and disaggregated data on mortgages by region among others.

Websites

Bank of Ghana-                                                                          https://www.bog.gov.gh/

Ghana News Agency                         –                                     https://www.gna.org.gh/home

Price Waterhouse Coopers (PwC) –                                       https://www.pwc.com/gh/en.html

Graphic Online                                                                           https://www.graphic.com.gh/

Ghana Investment Promotion Council (GIPC)                          www.gipcghana.com

Republic Bank                                                                            republicghana.com

GNA                                                                                            .https://www.gna.org.gh/home

National Housing and Mortgage Fund (NHMF)                                      nhmf.com.gh

Ministry of Works and Housing (MWH)                                      https://www.mwh.gov.gh/

MOFEP                                                                                                 www.mofep.gov.gh

Ghana Statistical Service                                                                      https://statsghana.gov.gh/

Meqasa                                                                                       meqasa.com/blog

Cal Bank                                                                                     https://calbank.net/