Competition in the housing sector is keen with estate developers jostling to out-compete one another while the average Ghanaian worker races to acquire a home for a lifetime.
Home finance experts say a fundamental disparity exists between the properties many Ghanaians are trying to build or buy, and those they can actually afford.
Managing Director of Home Direct, Mr Sammy Amegayibor, said in an interview with the Graphic Business that home applicants needed not to find themselves priced out of the property market if they were prepared to start young with low-priced starter homes.
“This is the surest way, they can acquire a home and have a future guarantee when they retire than go in for a dream house that many years of savings cannot erect and later abandoned for lack of funds”.
If people are building or buying a home, many want it to be their “dream” house from the start, “but often their salary just doesn’t support their plans,” says Mr Amegayibor, who doubles as the Executive Secretary of the Ghana Real Estate Developers Association (GREDA).
The rising cost of mortgage is fuelled by an influx of non-resident Ghanaians and foreigners, who mostly out-compete middle class Ghanaians who struggle to get their first foot on the property ladder.
“Buying a decent house with a mortgage of GH¢ 150,000.00 when you are 30 or 35, you should be earning a monthly income between GH¢6,000.00 to GH¢6,500.00”, he said.
Barrier to mortgage
A reluctance to take a mortgage or loan is another barrier for many would-be home owners: what the Ghanaian market has not yet learned to do is to see property itself as a financial asset and a means of saving.
Mortgage re-payments may seem expensive, but if taken out against a house within your range, they can be an effective way of saving up valuable property equity for the future.
“Studies have shown that the typical Ghanaian will have a substantial salary increase every two years, and a change in status (such as a new job or a promotion) every five years,” says Mr Amegayibor.
Based on this premise, customers are able to increase their mortgage re-payments as their income increases; and make only a minimum payment in years when income is stagnant.
HFC Bank, the former Home Finance Company Ltd which has been providing mortgages in Ghana since 1991, has even developed a plan to reach out to more mortgage seekers called, “mortgage at your doorstep’ specifically for the home market rather than for non-resident Ghanaians.
Interest rates at HFC Bank and Ghana Home Loans – Ghana’s two leading mortgage providers – are at an average of 30 per cent as the currency remains stable.
“There is a lot of potential for mortgage schemes, as there is a fair amount of annual demand for housing in the country,” said Mr Robert Le Hunt, Managing Director of HFC told the Graphic Business.
“But the emergence of a real mortgage market can only be accomplished with a lowering of interest rates.”
Long term funding
Commercial banks themselves lack the long-term funding to make mortgages viable, while high borrowing costs deter customers.
“The biggest challenges are the current bank deposit structure, which is mostly short-term, and historically high interest rates, which put monthly payments on long-term loans out of reach for most people,” said Robert Le Hunt.
In the past, the fact that HFC was the only institution allowed to foreclose on properties, with recourse to lengthy court cases, discouraged other institutions from getting involved in the segment.
Without a mortgage, it is standard for property developers in Ghana to charge at least 40 per cent of the cost of the house up-front, with the rest due in instalments before the keys to the property are handed over.
For example, Home Direct Limited is one of a number of property developers in Ghana now stretching into the low to mid-range housing sphere.
Customers must pay 40 per cent before allocation of a property – new houses are only built once an order has been placed – then 40 per cent payment when the housing is at roofing level, and the final 20 per cent before closing.
But why are Ghanaians not borrowing money? Although the number of companies offering mortgages are still not many in Ghana, it is not lack of available loans that is the problem, Mr Le Hunt of HFC questioned.
“In some ways, accessibility to mortgage facilities is largely concentrated in the capital Accra, which has made it difficult for people in other regional capitals to access the mortgage facility.
“We are not taught about borrowing in schools; we do not value housing as equity. Ghanaians would rather save their money and then pay for a house when they can afford it; when they could have been saving and paying for their accommodation at the same time.”
Mortgage companies can also offer equity release on houses, as customers take out long term loans using their property as collateral.
With the acquisition of a universal banking licence, Ghana Home loans is expected to issue mortgage-backed notes denominated in either dollars or cedis and subsequently list the company on the Ghana Alternative Market.
The company as at 2012 had provided financing to over 1,500 households totalling $90m for the acquisition, construction and improvement of homes across Ghana.