Title: The Real Estate Market in Ghana – An Emerging Market in Sub-Saharan Africa
Author: Dr. Wilfred K. Anim-Odame, FGhIS, MRICS
Reviewer: Dr. Maxwell Opoku-Afari, First Deputy Governor, Bank of Ghana
The Global Financial Crisis of 2007-8 was the result of inadequate regulation of both the real estate and financial markets. In particular, real estate bubbles were allowed to inflate, while mortgage lending was inadequately supervised. Financial markets, on the other hand, developed complex financial instruments that few understood, and credit risk and liquidity risk were inappropriately modelled.
Investors failed to properly understand the instruments they were buying and consumers also failed to evaluate the risks they were undertaking in buying inflated property with innovative mortgages. The rest, they say, is history but lessons learnt have informed the writing of this book.
The Book is undoubtedly an excellent piece of writing on the real estate market in Ghana, a subject so important to most of us, yet so little written on it. As a former Director of the Land Valuation Division and a former Chief Executive Officer of the Ghana Lands Commission, the author’s over 30 years’ in-depth knowledge and wide experience have been brought to bear on the book.
Against the background of the scanty literature on existing work on Africa, the author takes pains to delve into the details of the real estate market dynamics, investment potentials in the real estate market and the competitiveness of real estate investments compared with other asset classes. He does so by first outlining the importance of land, the backbone of real estate investments.
He walks us through the land administration systems in Ghana, the National Land Reform Policy, and other reforms and interventions in land administration since 1999. Policy recommendations on land administration, such as the need for expanding the Continuous Operating Reference Stations (CORS), and deploying the Ghana Enterprise Land Information System nationwide, developing the human resource capabilities; providing them with competitive remuneration; and building a sustainable capital base for land administration in Ghana are made in Chapter 2.
Chapter 3 touches on the legal aspects of land ownership, such as securing interest in land; dealing with defective land title, and the detailed process for land title registration and deeds registration in Ghana. Chapter 4 discusses the residential market where demand far outstrips supply, with a cumulative deficit of about 1.7 million.
The role of Government in providing an enabling environment with key infrastructure such as electricity and pipe-borne water; and encouraging the private sector to champion house delivery is very well articulated. The author also ably discusses the residential sub-markets in Accra – with the Gated Market, Emerging Market and Working Class sandwiched between the Upmarket and Lower-end markets, while highlighting the office, retail and industrial markets briefly.
Of particular interest to me as a Deputy-Governor of the Central Bank is the mortgage market where the author traces the mortgage financing market in Ghana to the establishment of the First Ghana Building Society (FGBS) in 1956, and the challenges it subsequently faced. The Bank for Housing and Construction (BHC), established in 1982 for the real estate sector had its own challenges and limitations in promoting the mortgage market.
Indeed, the maturity mismatches in its funding sources and loan book contributed to its collapse in 2000. The Home Finance Company (HFC) also started operations as a mortgage financing institution, and although HFC subsequently became a universal bank, it maintained its mortgage financing business, even under its currently rebranded name, Republic Bank. The Ghana Homes Loans (GHL), also a mortgage financing institution since its establishment in 2006, also became a universal bank, and although acquired by First National Bank, has maintained its home mortgage financing role.
Chapter 5 focuses on the real estate investments potential, which like all other investments, has risk vs. return dynamics. The establishment of a real estate performance measurement system must be seen as a foundation to generate credible database to aid investors in their investments decisions.
The construction of the first-ever residential price and rent indices for the aggregate and disaggregate markets from hedonic models for 1992 – 2007 to generate other performance indicators such as real and nominal yields help provide us with a basis for assessing the real estate market in Ghana. For the Central Bank, such data is also relevant in the array of data we collect in tracking the performance of the economy and inflation dynamics.
In Chapter 6, a comparison is made among alternative investment vehicles, and the analysis shows that the data corroborates investment theory. In this regard, residential real estate, with a blend of fixed rental incomes determined by leases, and variable incomes on review and lettings determined by rental growth, showed both returns and risks between Treasury bills and equities. While Treasury bills had the lowest return of the three, understandingly by its lowest risk, equities recorded the highest returns.
Thus, against other asset classes in Ghana, residential real estate offered a competitive return, commensurate with its risks. Interestingly, the book shows that in a cross-country comparison in sub-Saharan Africa (SSA), 5 countries: Kenya, Ghana, Nigeria, Zambia and Mauritius – ranked in the global top 10 improvers in 2014. Thus, these countries are now targets for international corporate business in real estate investment.
These results are not surprising as these 5 countries are the high performers in SSA. Ghana’s enhanced overall transparency index was due to its improved turnaround time in land registration, enforcing contracts and providing access to credit – all critical ingredients for real estate development.
The last chapter reviews the important role of valuation and compensation in the real estate market, and the quality of structures that support valuation activities in an economy. The book distinguishes between rental valuation and capital valuation, and discusses how the comparative method of valuation can be used for rental valuations.
Of course, adjustments are made bearing in mind that no two properties are the same. The comparative method is also used for capital valuation; together with other techniques such as the profits, income capitalization or investment, cost or contractor’s and the residual methods. Valuation guidelines and standards, the role of computer-aided valuation systems, real estate research and development are also discussed, and how compulsory acquisition and compensation are also dealt with.
In summary, the author has done a very great job in giving us a comprehensive book on the real estate market in Ghana. I agree with him that Ghana’s mortgage market remains under-developed, with challenges such as a weak regulatory regime, high capital cost, limited access to long-term funds, difficulty in recovering properties from defaulting customers due to delays in securing foreclosures in the courts.
In the case of SSA, the establishment of a credible database; funding from institutional investors to support quantitative research; governments’ commitment to make real estate markets play a relevant role in national development; strong partnerships between academia and industry; and the application of financial models in real estate market analysis will positively impact the real estate market development in SSA.
There are just a few gaps or questions that I believe future editions and revisions can look at including or addressing:
- An update of the investment assessments using more recent data, that is, post-2007. This will provide a much better-informed assessment of the current performance of real estate investments.
- Why do all the real estate financing institutions end up as universal banks, knowing the challenges of banks in financing such long-term housing projects? Are universal banks able to maintain the mortgage financing market?
- What are the role for real estate agencies (intermediaries) as pertains in the UK and other advanced countries?
- Related to the above are investment in training, qualification, and continuous professional skill development for all parties involved in the real estate supply chain.
Let me express my thanks to the author, Dr. Wilfred K. Anim-Odame, for leaving us with a very useful reference book that will help shape the real estate market not only in Ghana but across sub-Saharan Africa.
Copies of the book are available at the Christ The King Parish Bookshop, Switchback Road near Jubilee House; Ghana School of Law, Makola-Accra; and Kingdom Bookshops at KNUST, University of Ghana, Legon, and UCC, Cape Coast.