We are all very familiar with the narrative, aren’t we? Finding decent, affordable residential accommodation, especially in the major urban centres in Ghana, is a huge challenge. As fundamental a need as housing is, we should ideally have in place some effective systems and structures to make access to home rental and ownership less onerous. Unfortunately, ‘effective’ does not describe whatever systems and structures there might be.
The affordable housing debacle continues to be a major concern, as income levels generally do not match house prices. Key factors identified as influencing the shortage of affordable housing in Ghana include difficulties with land acquisition, high cost of building materials and inadequate mortgage and construction financing. The 2021 Population and Housing Census data on structures and housing conditions puts the deficit at 1.8 million houses. In urban areas, data from the Ghana Statistical Services indicates that 37.6% of houses are owner-occupied compared with 65.1% in rural areas. Thus, the dream of home ownership appears permanently remote for most urban dwellers.
Uncomfortable Status Quo
Decent, affordable rental accommodation has long remained an elusive dream for large numbers of urban dwellers both during employment and after retirement. The possibility of actually owning a house is an even more remote dream for many, particularly public sector employees.
Beside the much-touted deficit of affordable units, the housing market in Ghana is plagued by systemic challenges including, poor designs and unsatisfactory conditions, excessive rent levels and unreasonable demand by landlords for multi-year advance rent payments.
Coupled with the challenges above is the sad fact that for many people, there is a near-inescapable trap of a lifetime of rent payment, with little or no prospect of owning their own homes. This generally plays out in two main scenarios described below.
Scenario 1: You pay rent all your life and retire with no owned home, continuing to pay rent post-retirement, or having to move into family houses or moving in with other relatives, with all the discomfort and sometimes resentment it occasions.
Scenario 2: You pay rent all your working life and only commence construction of your own home close to retirement, when the stress of putting up a house is not among the things you need at that time. In many instances, people are simply not able to complete such projects in time before retirement and thus have to continue financing the construction from their meagre pensions. Retirement is to be enjoyed. It is definitely not the period to be burdened by the stress of building our homes! And the reality of life is that, at that time, we have little time to complete and enjoy such fruit of our toil before we make our exit. In some instances, such projects end up abandoned altogether, with good money locked up in brick and mortar.
Would it not be great, in both instances, if we could end up owning the houses we pay so much rent for, over so many years?
Shifting the Paradigm
To help address the challenges highlighted above, the National Homeownership Fund (NHF), under the aegis of the Ministry of Finance’s Financial Sector Division, is spearheading a National Homeownership Financing Scheme aimed at developing a mortgage market as well as rent-to-own schemes in partnership with interested financial institutions.
Enter GCB Real Estate Investment Trust PLC (GCB REIT). This entity was incorporated in August 2019 by GCB Capital Ltd in partnership with the NHF to operationalise the rent-to-own component of the Scheme. A number of local and international banks, on the other hand, partnered the NHF to operationalise the construction finance and mortgage component of the Scheme with highly subsidized mortgages at around 12.0% to 13.0% interest rate.
A real estate investment trust (REIT) is an incorporated public company under the Companies Act with the dedicated purpose of investing in real estate, and generates recurrent income (rental and interest) from operating, owning or financing income-producing real estate and real estate-related investments.
GCB REIT is an investment vehicle designed to mobilize funds from institutional investors for the acquisition of residential real estate for rental and rent-to-own schemes, as well as for outright sale. GCB REIT is focused on facilitating ownership access to affordable, decent rental accommodation, primarily for, but not limited to public sector workers. Considering that even at subsidised interest rates, access to mortgages remain beyond the reach of many prospective homeowners, GCB REIT’s rent-to-own scheme is designed to provide low-to-middle income earners an alternative route to homeownership.
The REIT’s operations involve acquiring housing units built to quality standards and specifications approved by the National Housing Committee and letting out the units at reasonable monthly rental charges, thus eliminating the illegal and onerous burden of “rent advance”. Ultimately, tenants can also achieve ownership of the houses under a Rent-to-Own scheme.
GCB REIT is providing home seekers opportunities to rent decent, quality residential properties at affordable rates, with the possibility of eventual ownership after a number of years. This is a strategic initiative to address long-standing challenges in the housing market including:
- Housing deficit: inadequate supply of affordable houses (deficit famously estimated at 2 million houses)
- Poor quality: unsatisfactory designs and unsound conditions of some residential facilities
- Excessive rent: unconscionably high rent amounts for the kind of low-quality houses available
- Advance payments: unreasonable demand by landlords for 2 or 3 years’ advance rent payment.
GCB REIT is tackling these problems directly by prioritising acquisition of low-cost houses to translate into lower rent charges paid monthly without requirement for advance payment. The REIT also ensures that houses acquired meet quality standards and specifications approved by the National Housing Committee and are professionally managed and maintained by a Property Manager supervised by GCB Capital Ltd.
GCB REIT is, therefore, not just another investment vehicle; it is a direct investment into solving a critical socio-economic need and helping to realise the dreams of a large section of the populace.
Beyond the Talk, Delivering Results
Since its inception, GCB REIT has invested in three separate developments in Tema Community 22, Community 25 and Community 26, providing residential accommodation for over 220 families.
The REIT has developed a brand-new gated community of 204 bungalows at Tema Community 22 with special funding from the NHF, almost all of which have been sold successfully, with GCB Bank underwriting the mortgages. The properties in Community 25 are semi-detached houses designated for both mortgage sales and rent-to-own business, whilst the Community 26 properties are apartment blocks comprising two-bedroom flats.
Beyond the delivery of housing solutions, the REIT is an investment vehicle and investors naturally require satisfactory returns on investments. Conscious of this, GCB REIT has two categories of investors, Class A (all investors except NHF) and Class B (NHF only), and per the Scheme Particulars, the Class B holder cedes 80% of its earnings from the REIT to Class A shareholders, to enhance the returns of the latter.
The REIT’s anchor investors since inception in August 2019 have GCB Capital Ltd and the NHF. The REIT is open to other investors subject to compliance with licensing and regulatory requirements of the Securities and Exchanges Commission. The REIT is required to pay 80% of its distributable profits to shareholders every year, and will list on the Ghana Stock Exchange in the fullness of time.
We posit that it is a particularly attractive investment vehicle for the pension and provident funds of public sector employees, as its business primarily prioritises the provision of housing units for potential homeowners working in the public sector, albeit not exclusively.
Scale catalyses impact. Therefore, GCB REIT aims to leverage its experience to expand its reach to other urban centres beyond Accra-Tema, and avail the benefits of its operations to a wider client base. An ever-increasing urban population creates explosive demand for the GCB REIT solution across Ghana. The REIT will also roll-out a new rent-to-own model soon to transition interested clients from regular tenancy onto the ownership path.
Additionally, to address a false perception as an exclusive GCB Group product and facilitate wider collaboration with other financial institutions, the REIT may adopt a perceptively more neutral brand identity to provide greater comfort to other institutions invest in it, further to required regulatory clearances. This will avail to target institutional investors an opportunity to diversify their portfolios, enhance returns, meet asset allocation requirements and contribute to social impact via a safe, professionally-managed and regulated alternative investment asset.
Three ideas sum up the silent revolution that GCB REIT is unfolding the housing market: provision of decent, affordable residential accommodation for the populace, challenging the culture of arduous multi-year advance rent payment, and provision of an alternative investment asset for investors. It can only get better from here.
Kofi K. El-Awuku is the Managing Director of GCB Capital Ltd., managers of GCB REIT PLC.