Ghana’s strong economic growth forecast

Ghana is considered one of Africa’s leading lights due to its wealth of natural resources, democratic political system and dynamic economy. Successive peaceful political transitions over decades have helped Ghana gain the world’s confidence, expediting its growth in foreign direct investment in recent years. Against a backdrop of significant economic growth on the African continent (six out of ten of the world’s fastest growing economies are in Africa with World Bank forecasts projecting a 3.5% rise in Africa’s economy in 2019), Ghana was top of the list of the fastest growing economies in Africa, with its benchmark stock index achieving the world’s highest rate of growth according to Bloomberg. This has attracted the attention of international businesses who have been investing in various sectors of the economy.

Housing deficit and the opportunity for foreign direct investment

Despite the remarkable progress in its economic development, Ghana is experiencing a housing deficit, which has long been a problem faced by the West African country. Since 2010, Ghana has been reported as having a housing deficit of 1.7 million units, although industry players believe the deficit could be more as the country’s population has increased since then. Key contributing factors to this deficit include:

• Lack of mortgage banks: As at 2016, Ghana is reported to have had 33 licensed banks, 564 licensed microfinance institutions, 64 nonbank financial institutions and one mortgage house. 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. According to a report recently released by the Bank of Ghana, interest rates on home loans stand at 31.5% on average, a disincentive for many who wish to access credit in order to purchase a home.
• Housing Affordability:Lack of affordable housing means that many low-income earners live in informal, sub-standard housing that is overcrowded and lacks basic infrastructure of quality, such as water, electricity and waste management. The Ghana Real Estate Developer Association (GREDA) has reported that the least expensive house, available on the periphery of Accra, Ghana’s capital city 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.
• Population growth and urbanisation: Increased population growth and urbanization over the past few decades have been complemented by a relatively slow rate of increase in housing in many parts of the country.
• Access to Finance: Private sector housing finance entities face constraints on access to corporate finance as a result of limited sources of debt and equity financing such as venture capital or private equity.

The government is making strides to help address the multifaceted challenges facing the country’s housing sector. Legislation has been introduced such as the National Housing Policy seeking to create  “an enabling environment for housing delivery “targeting low income markets. The government has been successful in enabling the creation of Credit Referencing Bureaus (CRBs) 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. The government has been vocal about the fact that it cannot address the issues in the housing sector alone. It is encouraging foreign direct investment and taking steps to partner with private sector developers to bolster residential construction and housing finance throughout the country. For international investors and real estate development companies looking to explore the housing sector in Africa, Ghana’s housing deficit presents an opportunity for investment at a pivotal time in the economic growth of one of the world’s fastest growing economies.