May. 22, 2018
Ghana's housing sector has attracted international attention because of its rapidly growing population, but new land use policies will be needed to ensure that its urban centers can develop efficiently
Ghana's real estate situation is similar to other fast-growing African nations in that what attracts international attention is not necessarily the development already in place but the promise of what is to come. Strong economic growth in recent years and a young population have created an environment where significant housing and commercial construction will be needed to keep pace with demand; already, Ghana Real Estate Development Association (GREDA) figures indicate that the country faces a housing deficit of more than 1.7 million. At the same time, significant public infrastructure is needed to alleviate urban congestion and ensure that communities have access to public utilities and transportation. All told, the potential is tremendous, and the Ghanaian government has begun to work more closely with international firms and agencies to help secure the funding to launch major projects.
Ghana's real estate market is being powered by the nation's population boom. Though the economy has slowed in recent years, the underlying demographic trends have kept retail and residential rents fairly stable. A rush of new development projects that began before the recent downturn has kept downward pressure on rents, but industry leaders expect demand to continue to push rents up in the medium term. Accra has remained a favored destination for foreign investment because of its relative stability and clear growth potential. The World Bank's 2018 Ease of Doing Business guide ranked Ghana 120th, but the nation was well above the average for Sub-Saharan Africa, and its performance in the sub-sectors of getting credit and protecting investors have made it an increasingly attractive location for new development.
Ghana's housing market has been marked by an ever more dramatic split between wealthy and poor. The country's urban population has more than tripled over the past three decades, a trend that has remained constant across all regions and cities. While allowing for increased economic output and greater quality of life in many ways, this trend has placed significant new pressures on the housing sector. While developers and investors have been eager to meet the needs of the growing upper class with high-end developments, there is a growing deficit of affordable housing to fit the needs of an expanding middle and working class. Flagship projects like the Alto Villaggio Vista, a 44-apartment complex that became Ghana's tallest building upon completion, have captured international attention, but smaller affordable housing projects will be just as important to the continued health of the country, as they will ultimately have a more direct impact on social stability, public health, and human capital. A 2015 World Bank report estimated that 90% of housing in urban areas is built without coordination with local authorities, and fewer than a quarter of urban residences are owned by their inhabitants. The tiered nature of the market makes much formal housing unaffordable for middle-and low-income families, and rising land prices have further compounded the issue.
In response, the Ghanaian government has begun a series of initiatives aimed at improving access to land and affordable housing. Several successive governments have started working on these issues, but the size, scope, and complex mix of factors involved have led past efforts to achieve only limited success and, in some cases, further deepen regulatory gridlock. International organizations have been encouraged that Ghana's reforms take on decentralization as one of their priorities in order to improve efficiency by creating more effective local development frameworks. 2016 saw Ghana take an important first step in this regard by passing the Land Use Bill, which established a comprehensive legal structure for land administration that gives local authorities more autonomy to make decisions within a larger regulatory framework. The bill turns the Town and Country Planning Department (TCPD), which was established in 1945 to manage development but had seen its mission muddied as conflicting legislation was passed over the years, into a regulatory oversight body charged with ensuring that local authorities remain in compliance with safety and zoning regulations. Local and international observers are optimistic that it is a first step to establishing a housing sector able to meet the needs of a rapidly growing population.
In the retail and office real estate sectors, developers have seen more immediate effects from the slowdown. Ghana's retail sector is largely informal, but formal retailers there have seen demand fall due to inflationary pressures and shifting personal consumption habits. International investors in the retail market are primarily concentrated in Accra, and real estate research firm JLL reports that the capital will likely see rents fall by up to a third in new retail developments. Even so, industry leaders anticipate continued growth in mall construction, with more than 30,000sqm in construction underway. In the office sector, Accra's importance has kept corporate presence high; the downturn has primarily been felt in the lack of new construction. Vacancy rates have not shifted significantly, but analysts expect this to rise slightly as some firms look to downsize.
Construction opportunities abound in Ghana, but regulatory friction has long been a major obstacle standing in the way of needed infrastructure improvements. The World Bank's Doing Business report named dealing with construction permits as one of Ghana's most difficult areas, ranking it 131st in the world in this regard. Much of the difficulty is in the sheer amount of time needed to obtain required permissions; the World Bank's survey put the average wait for permits at 170 days, more than five full months behind the world's best performer. Systemic inefficiencies have been further compounded by the country's economic difficulties over the past few years, which have further hampered access to energy and foreign exchange at the moment when the industry needs them most.
Still, the government is working to bring together coalitions of international aid to fund the needed infrastructure construction and repairs. A 2016 study indicated that Ghana needs more than USD7.3 billion to meet its infrastructure deficit, with electrical and transport networks two areas of particular concern. To meet these construction needs, the Ghanaian government has been shifting to a public-private partnership strategy that has shifted operations to experienced private-sector operators in order to improve efficiency and obtain short-term funding via concession. The move should offer benefits in both the short and long term: by shifting a portion of the costs to private operators, the government has alleviated some of the fiscal pressures of the current downturn while still retaining the option to take over operations at the end of the concession period. Major projects like a USD1.5-billion expansion of the Tema Port and the USD525-billion Ayitepa wind farm are just two of the government's flagship PPP projects, and over than a dozen more in the pipeline bode well for future construction activity.