Newly formed public-private partnerships (PPPs) are expected to help Ghana narrow its affordable housing deficit, in turn helping to build a stronger private asset basis in the economy.
In January Ghana’s government finalised an agreement with the UN Office for Project Services (UNOPS) to build 100,000 affordable residential units in partnership with local and international developers.
Under the scheme – which will run for between six and 10 years – UNOPS will provide $10m in direct funding and work with the government to attract a further $436m in private sector investment to construct the houses. The Ministry of Works and Housing (MWH) will provide the land for the developments at sites around the country.
The project represents a significant opportunity to improve access to sustainable housing while also boosting local economic activity.
“The knock-on effect means unlocking new opportunities and resources for local communities, which helps drive progress towards the Sustainable Development Goals,” Grete Faremo, executive director of UNOPS, said at the launch of the agreement.
According to the MWH, the country was short of more than 1.7m housing units as of December, with this shortage most acute in the affordable housing segment.
Since these affordable housing projects focus on low-cost developments, the end product will represent entry-level assets for buyers looking to join the property market.
Improved access to credit to boost housing development
One of the major obstacles to home ownership is access to credit, particularly among younger clients, with buyers under the age of 30 representing just 2% of the country’s mortgage market, according to GHL Bank.
In an effort to address the issue, the government established the Mortgage and Housing Finance Scheme in mid-2018, and has created a GHS40m ($7.6m) fund for the initial phase of the programme, which will see five of the country’s major banks offer cheaper mortgages and housing finance to prospective homeowners and real estate development companies.
Furthermore, the real estate market was given a boost in January when the Monetary Policy Committee of the Bank of Ghana (BoG) announced that it was reducing its policy rate by 100 basis points to 16%.
Technology transfer project to ease construction material costs
One problem faced by developers across all segments of the property market is the cost of materials. With many of the materials used in construction imported from abroad, the devaluation of the Ghanaian cedi led to an increase in input costs.
The cedi depreciated 8.4% against the US dollar in 2018, according to the BoG, adding to the 4.9% loss posted the year before.
Nevertheless, a newly announced low-cost housing project may show the way forward in addressing some of these issues.
In February the government announced it had signed an agreement with Hungarian renewable energy engineering firm SOLIN to build 10,000 affordable residential units, utilising low-cost polystyrene cement technology.
Under the project, which is being developed as a PPP, SOLIN will finance and build the housing units, while the state will then sell the homes on affordable terms.
Significantly, the Hungarian firm will establish a factory in Ghana to produce the polystyrene cement products needed for the construction project, thereby reducing import costs and facilitating technology transfer.
Similar deals with foreign contractors that develop domestic construction materials capacity or increase skilled labour could well reduce import costs and foster manufacturing sector growth in the future.
Higher-value housing segment experiencing oversupply
While there is an overall shortage of residential units in Ghana, particularly in low-cost brackets, there is an oversupply in some higher-income segments of the housing market, with the occupancy rate for such properties as low as 60% in the third quarter of 2018, according to the Ghana Real Estate Developers Association (GREDA).
These low occupancy rates have been attributed to prohibitively high costs, which have in turn priced many buyers out of the market, according to GREDA.
Nevertheless, improved access to credit, lower interest rates and efforts to develop domestic building materials capacity can all be expected to positively impact occupancy.
Furthermore, while the need to build affordable housing may be pressing, industry figures say the currently low rate of occupancy in higher-value dwellings should not dissuade investors from developing the segment, with sustained economic growth and rising incomes set to increase both demand and the capital necessary to buy such housing.
“The Ghanaian middle class is increasing and so is its influence,” Hussein Fakhry, principle architect of domestic project management firm Key Architectural Company, told OBG. “The future of Ghana and Africa is based on the middle class and how it will reshape the socio-economic landscape.”