Ghana’s economy is expected to expand by 4.6% in 2021 and by another 6.1% in 2022, as global economic conditions gradually improve, according to the international monetary fund (IMF).
“The economic outlook is good in the short to medium term, contingent on an increase in demand for Ghana’s exports, improved business confidence, and successful implementation of the Ghana COVID–19 Alleviation and Revitalization of Enterprise Support program,” said the African Development Bank (AfDB).
These predicted indicators present some sort of good news to Ghanaian businesses, including those in the real estate sector.
Despite the construction boom in the city center of Accra, there is an estimated housing deficit of 300,000 housing units in Accra. This mismatch is mainly due to the concentration of estate developers on high-end buildings in the centre of Accra which are beyond the reach of the ordinary Ghanaian. The land cost in the center of Accra is exorbitant with a plot of land (70ft by 70ft) in areas like cantonments costing not less than USD500k.
This explains why the prices of properties in these areas are outside the purchasing power of the Ghanaian middle class, who earn on an average USD2k per month and qualify for an average mortgage of around USD120k.
The solution to the problem of empty properties in a city that needs 300,000 housing units is to develop housing units that meet the budget of the middle class who are in search of decent accommodation not too distant from their workplaces.
In the formal real estate industry, there is an emerging narrative that affordable housing deficits in African cities represent a vast untapped market. In Accra, the government and few estate developers such as Rehoboth, Adom City Estates have made the effort to tap into this market by building large-scale “affordable” housing units on relatively cheap lands in peri-urban areas such as Kpone, Dwawenya, etc in the Greater Accra region.
This shift in focus though has been relatively successful has not achieved its full potential due to the long traveling time from these developments to the Accra city center where most of these middle-class commute on daily basis for work.
The rental market in Accra is relatively large, with 38% of all households renting. A 75sq apartment in the city of Accra would rent for about US$1,700 per month. Outside the Accra city center, rent for a two-bedroom house is in the region of around US$500. Again the income levels of the majority of the working class cannot support this rent. Coupled with this, is the demand for one-year rental advances from landlords. The current NPP government recognized this challenge faced by tenants and proposed in their manifesto a scheme to help tenants meet these rents, but this scheme is yet to be rolled out. There has also been an effort to introduce the rent-to-own concept, but much is yet to be seen from this scheme.
Accra is now seen as the new “Ibiza”, now becoming a popular holiday destination for party lovers and also those looking for some sort of serenity to relax. The homecoming event in 2019 dubbed “the year of return” opened Ghana up to the diaspora and also the government policy to issue Ghanaian passports to African Americans in the diaspora has attracted many foreign nationals to Ghana. A typical example is the American Comedian Michael Blankson recent acquisition of a house in Accra.
Airbnb Statistics show that Accra is one of the eight fastest-growing markets globally. Accra is now seen as the weekend getaway for the affluent in the sub-region who flies in with their private jet for their weekends. This partly explains why places such as Peduase Valley Resort in Aburi and Aqua Safari in Ada with an average nightly rate of around US$250 are fully booked on weekends.
The trooping in of foreigners together with the increase of local wealthy individuals presents an opportunity in the areas of luxurious vacation and retirement homes.
Based on this market background, the developer can blend affordability with location by investing in where I call “tier 2 areas” with approximately a peak hour travelling time of an hour or below to and from the center of Accra. Land costs in these tier 2 areas though expensive compared to other areas in Accra are well below land costs in the tier 1 areas. A plot of land (70ft by 70ft) costs an average US$100k in these areas. With proper optimization of these lands, the land cost can be spread over several units, thereby reducing the final build cost. This will meet the affordability as well as the accessibility criteria of the working class, who are the majority of house hunters.
Developers should also consider the possibility of offering affordable payment terms to their prospective buyers instead of the buyers going for a mortgage, for example spreading part of their profit over several years at a smaller interest rate compared to the current high street bank’s mortgage interest which currently hovers around 16%.
The UK concept of Shared ownership can also be explored, whereby buyers who cannot afford to purchase the entire property buy a portion of the property and rent the remaining portion with the opportunity to staircase at their own convenience. Housing Associations, which are currently non-existent in Ghana are also a good avenue for investors to explore to meet the huge rental demand of those in the lower-income bracket.
Foreigners and the affluent in the society are looking for something different other than the usual mansions in Cantonments, Airport Residential, etc.
This presents opportunities to developers to develop well-secured beachfront houses or houses on hills with good views. This market although small remains untapped and presents a great return on investment.
With the number of constructions particularly residential springing up in Accra, one will be tempted to conclude that the market is overly saturated, but that is far from the reality. Behind the scene is a fragmented industry awaiting potential investors with creativity, effective pricing, empathy and unique marketing strategies to take it to a different level.
Written by Emmanuel Appiah-Kubi (FCCA, MSc)