The residential construction industry in Ghana is a market with huge potential for growth. The population increases by around 565,000 people every year, bringing a corresponding need for more housing. The UN Human Settlement Programme estimates that two million new housing units will be required by the beginning of 2020. However this demand is not being met; there continues to be an annual gap of around 70,000 units. The opportunity for investment in the sector is impressive.
Growing numbers of white collar workers and a stream of immigration from Europe and North America provide increased opportunities for developers in the higher end of the property market. The lack of competition means that returns for developers can be extremely lucrative; Dream Realty suggests that profits for larger real estate projects can exceed 40%.
The lower end of the property market is even less developed. The Saglemi Housing Project in Accra is one of the first major developments to target lower income families, and the first phase is now nearing completion. This area of the market has traditionally been viewed as a risky place to invest, due to uncertain demand from lower income families. Many Ghanaians are unable to obtain a mortgage; high interest rates and low disposable incomes has meant that many families instead chose to build their own homes in stages as cash became available.
However, the government has been taking steps to address these issues; last year the National Housing Policy was released, aiming to encourage investment in housing for lower income families. It proposes the creation of a guarantee scheme which will provide a $1.5 billion guarantee to firms willing to develop 200,000 or more homes, and a National Housing Fund, which would provide affordable mortgages. If implemented, these changes could truly open up the lower end of the market as a viable area for significant investment.
Developers have also typically faced problems in securing capital, as most are dependent on bank financing. Conservative lending policies and the high interest rates have created a barrier to borrowing. However, this now appears set to change; in July 2016 the Ghanaian Parliament approved the Securities Industry Bill, which will allow the creation of Real Estate Investment Funds. This will allow foreign banks and individual investors to enter the market, reducing reliance on the risk-adverse and expensive local loans.
For a more comprehensive insight into key considerations for real estate developments please see our Guide to sponsoring real estate development in sub-Saharan Africa.
The Inside Africa team would like to thank Sabrina English, Trainee, for her contribution to this blog post.