5% VAT to widen housing deficit – GREDA

The Ghana Real Estate Developers Association (GREDA) says the imposition of five (5) percent Value Added Tax (VAT) on all housing units sold on and after October 1, 2015, will ultimately increase the country’s present housing deficit.

Samuel Amegayibor, Executive Secretary of GREDA said: “Among the many troubles the VAT will bring is that it will push the retail prices of houses upward; disqualifying many people from accessing mortgages and ultimately threatening the survival of companies operating in the housing sector.

“It will also further widen the national housing deficit, which is currently an albatross on the neck of government,” he said.

The Ghana Revenue Authority (GRA) last month wrote to the Chief Executive Officer of the GREDA to commence charging and accounting for the 5 percent VAT on housing units sold.

However, given the present housing deficit -- estimated to be more than 1.8million units and growing -- GREDA believes the imposition of 5 percent VAT on the sale of housing units will push most of the working class out of the income band required to own a standard home in the country.

Tyron Adu-Mfum, Marketing Manager, Devtraco Limited -- a real estate company -- said: “We don’t necessarily disagree with the 5 percent VAT, but what we are talking about is the timing. The implementation is in October, but we have been asked that any contract we entered into, regardless of when, will have to pay VAT on money they owe. But we don’t have any agreement of that sort with such clients, so how do we deal with this?

“The company cannot carry this entire burden. A lot of factors are already collapsing our business and so we do not want this in addition. What this will bring about is clients may pull out of contracts if we try to force it on them, and that will bring about a big loss of revenue to us,” he said.

Their comments follow a similar call by Baffour Akoto Osei, the Chief Executive of GHS Housing Limited. He said: “Already it very difficult for clients to buy. We serve the middle income market. Most of our clients are between 25 and 35, while the others are those around 55 years preparing for retirement.

“Incomes haven’t gone up so much, but prices have escalated very much. At the current 32 percent interest rate from the banks, most of the working class don’t qualify for mortgages.

“Private individuals and public servants who were buying houses in 2010 and 2011 have declined to zero. All those that are now able to buy houses are those drawing mortgages from their companies; and even then you have to give them a payment plan to make up the small difference -- they don’t even qualify. This VAT will only increase house prices, limit the number of people who qualify for mortgages, and put developers out of a job. The GRA should suspend it for broader consultation,” he said.

The GREDA estimates that about 50% of Ghanaians live in sub-standard housing and various unsuitable structures.

Indeed, rising cost of raw materials due primarily to the depreciation of the cedi, cost of constructing drains, and lack of long-term funds are some of the issues bedevilling the sector and holding back any attempt by private individuals to reduce the housing deficit.

The cedi has depreciated about 40 percent over the past 17 months. In July, the local currency gained some ground when the cedi was trading at GH¢3.236 on the interbank market and leaving the year-to-date at 1.1 percent.

The cedi now trades against the dollar at GH¢3.7178 as at close of trading on Friday.

Given that most of the construction materials are imported, house prices reflect the behaviour of the dollar.

Limited long-term funding for developers has also bridled any attempt to address the shortfall in housing. Unit and mutual trust fund managers are restricted to investing just 10 percent of their funds in the real-estate sector.

The SEC last year said it was reviewing the said regulation to encourage fund managers of pooled investor schemes to commit more resources into the housing sector, as the country struggles to address its widening housing deficit.

Banks have also been described as risk-averse and seeking to play safe for assured regular returns by investing in government Treasury bills.