Homeownership in Ghana Seriously Threatened

....by High Prices, High Taxes and Outrageous Interest Rates!

Never in the history of this country have three economic forces combined concurrently to seriously threaten the ability of Ghanaians to own a home. The situation has gotten so bad, it is better to start this article with a very basic example to hammer home the issues we want to discuss here.

If you were to buy a home in Ghana six months ago priced in US Dollars at $100,000, you would have paid the Ghana Cedi equivalent of GHC200,000. Today, as I write this article, you would be paying GHC300,000 for the same house because of the drastic fall in the value of the Cedi compared to the Dollar: a 50% jump in price of the same house, because of the drastic fall in the value of the Cedi.

On top of this artificial rise in price, the government of Ghana imposes a whopping 17.5% Value Added Tax (VAT) on home sales. The developer definitely passes on this tax to the buyer. So your house price, including tax, is now GHC352,500.

Assume you were to take a mortgage in Ghana to buy this house and the bank asked for a 20% down payment, you would be financing 80% of the GHC352,500 price as your mortgage loan. Cedi mortgage rates in Ghana today are an eye-popping 30% per annum, and the longest term on mortgage loans in Ghana is 20 years. So you will be financing GHC282,000 at 30% interest rate for 20 years. Do you have any idea what your mortgage payments will be monthly? Are you ready? An eye-popping GHC7069! HOW MANY SALARIED GHANAIAN WORKERS CAN AFFORD SUCH HUGE MORTGAGE PAYMENTS FROM THEIR PAYCHECKS?

Let's compare this same scenario to a buyer in Los Angeles, California, where current home mortgage interest rates are about 5% per annum on a 30-year mortgage. On the same $100,000 purchase price, this buyer will be financing an 80% loan of $80,000 and the mortgage payment based on the 30-year loan at 5% interest rate should be $429 per month. Together with California's 1.25% property tax, (Ghana is 17.5%!)the total monthly payment should be $534. How does that compare with the buyer in Ghana's GHC7069 payment we calculated above for the same house in a less developed economy where incomes are far, far lower? At today's Dollar/Cedi exchange rates of 3 Cedis to the Dollar, the Ghanaian buyer pays the Cedi equivalent of $2356 and the American buyer pays $534 monthly for the same $100,000 house! Oh Ghana, how can we be doing this to ourselves?

The first question I would like to ask the policy hawks who have the job of managing the economy of this country is this: is the government of Ghana really serious about making homes AFFORDABLE for Ghanaians at all? If yes, then why would the same government impose a whopping 17.5% sales tax on home purchases after the developers have already paid sales tax on all the building materials they purchase in building these houses in the first place? Again, why should banks get away with 30% interest rates on mortgages when Bank of Ghana Treasury rates are about 18%? Do we have usury laws in Ghana to put a limit on high mortgage interest rates at all?

Currently, it is estimated that compared to other countries, the percentage of the Ghanaian population who own their own homes is about 47%. In the USA, that figure is 68%, Spain 65%, Norway 77%,UK 69%, Canada 67%, Israel 71%. Is the Ghana government seriously interested in raising the percentage homeownership in our country in the wake of the vibrant real estate market existing in Ghana today?

Unlike the high end market where the buyers are mostly cash buyers, home builders in the lower segment of the real estate marketplace in Ghana today truly have a Herculean task to surmount. Not only do they have to deal with the monumental problems of land acquisition and registration, they also have to deal with high prices of building materials locally as a result of the falling value of the Cedi and the 17.5% Value Added Tax imposed by government. It is in this very market segment that the high 30% mortgage interest rates bite the most. Buyers in this market segment can't afford to buy homes using mortgages, as we have seen from the numbers above. So it is not surprising most of them remain renters for a very long time. And it is not surprising to see most of the people in this segment attempting to build their own homes piecemeal, even if it takes them an average of 10 years to complete. No wonder you see so many uncompleted houses all over the place when you drive around neighborhoods in Accra.

With a1.7 million units of housing deficit in Ghana as announced recently by President Mahama, is the government ever going to solve the housing problem? Your guess is as good as mine.

Peter Atsu Tsikata CEO, Millennium Properties Ltd, a real estate brokerage and property management company. Direct: +233-26-655-7066 Email: ptsikata@gmail.com