All families need their castle, and Ghana is no exception to the rule. But even the official estimates of a housing shortfall of nearly 1.5m units for a population of 25 million Ghanaians mean that the pent-up demand is huge.
“The rental market is very brisk,” says Peter Tsikata, chief executive of Millennium Properties Ghana, “but the real problem is finance.” This is partly because of the price of land.
An acre in a prime zone in Accra such as the Airport Residential Area costs up to $2m. “Developers have to build high-rise flats, which are often sold out before construction is even complete,” says Tsikata.
For most individuals who want to build their own home, the normal route is to come up with the bulk of the money in one fell swoop or begin accumulating cement, tin sheeting and other housing components in order to start working in spurts as the cash arrives.
Ghana Home Loans (GHL), a company created in 2007 by a group of Ghanaian businessmen, is trying to change that.
Initially, the backers believed they would have to target Ghana’s wealthy diaspora with their mortgage offerings. But as a stronger middle class emerges, so too does the opportunity for offering mortgages.
“We found that 80% of our clients were local, not diaspora”, says Kojo Addo-Kufuor, the chief operating officer at GHL. Out of the $100m raised from various sources including banks in the US, GHL has already deployed $70m into mortgages.
GHL’s typical customers are young couples, middle managers and self-employed telecoms professionals – anyone with an income of at least 600 cedi ($300) per month. The average graduate who takes a job in a large company in a major city today can hope to earn around 800 cedi per month.
“Our maximum loans are around 300,000 cedi, the minimum around 10,000 cedi and our average around 80,000 cedi,” explains Addo-Kufuor. “Every year, 100,000 Ghanaians are leaving universities. In four to five years, these are our customers.”
Changing the timeline for payment away from the ‘money-up-front’ model has been key. Prospective clients now can put up 20-25% of the cost, and GHL pays the rest of the money to the builder on completion of the house.
Clients pay back the loans over a period of 15 years.
This caused initial problems from the house builders, who were not used to this system of payment on delivery. “We had to educate developers and explain that the market is getting broadened, even if they are sharing some of the financing costs,” says Addo-Kufuor.
Ghanaian banks are now providing some mezzanine finance for mortgages.
For now, GHL is just a drop in the ocean. It has issued its first 1,000 mortgages, which is tiny when measured against the demand for houses. In particular, there is a pressing need for homes that are not aimed at the upper end of the income bracket in Ghana.
The market could develop faster, according to Tsikata, “if loans could be securitised and sold on the stock exchange in order to raise money that could then be ploughed back into the mortgage sector”.
This would require government intervention, such as the United States’ New Dealera Federal National Mortgage Association.
Fannie Mae, as it is called, is latterly known for its role in the subprime mortgage disaster, but it originally created a liquid secondary market, allowing banks to issue more housing loans●
This article was first published in the September, 2012Special Finance Edition of The Africa Report, on sale at newsstands, via our print subscription or our digital edition.
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