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Business News of Wednesday, 20 May 2015


Factors affecting prices of houses in Ghana

Housing is seen as a major investment tool in Ghana. The importance of housing cannot be overemphasized. With socio-economic benefits attributed to individuals and a country as a whole, housing has become an integral component for many developed economies.

A study by Keith Wardrip, Laura Williams and Suzanne Hague shows that housing has profound effects on stimulating an economy. In Ghana, a high percentage of individuals fall on other means of accommodation in comparison with home ownership. This is due to a number of reasons, including the price of a home. Property expert Lamudi Ghana highlights six factors that influence the price of a home in Ghana.

1. Demand is one of the leading price determinants of a home. Demand adds or subtracts from the value of a property. A fall in demand as was characterized in the United States’ (US) housing market during the housing crisis of 2006 leads to a fall in prices. Conversely a rise in demand increases the likelihood of a price hike. In Ghana, there is a huge disparity between the rate of housing construction and population growth. This puts pressure on the existing resources, inevitably leading to a home price increase.

2. Land availability is one of the most pressing issues in Ghana.

land availability has the propensity to affect the price of a home. With Ghana’s cumbersome land tenure system, access to lands has been made all the more difficult. Actors in the real estate industry have been calling on the government to grant them land banks in order to make homes more affordable. A land bank is the aggregate parcels of land for future sale or redevelopment. One of the key benefits derived is the clearance of land titles, making it easier for real estate developers to gain access.

3. Cost of building materials

Building materials also affect the price of a home. In Ghana, the most widely used material is cement. The positive aspect is that Ghana has a cement manufacturer, Ghacem. The drawback is that most of the components used in the making of cement are imported. The high cost of construction becomes even more apparent in the face of importing an estimated 70 percent of building materials. These imported materials are linked to foreign currencies and a depreciation of the national currency means higher cost of materials. A reliance on local materials however will lead to a positive effect on prices.

4. Foreign exchange volatility

For developing countries like Ghana, foreign exchange is a crucial factor that affects the price of commodities. This is because the country’s imports outstrip its exports, thereby leading to an over reliance of foreign currencies such as the US Dollar. The instability of the Ghana Cedi has led many property owners to fall on the US Dollar as a way of hedging against value depreciation. This means home prices move up when the Cedi depreciates and conversely drops when the local currency outperforms the US Dollar.

5. Interest rates

Most estate developers and individuals resort to bank loans to construct properties. These loans carry interests and invariably affect the price of a property. The high interest rates in Ghana raise the cost of construction and this ultimately passed down to a prospective home owner. Conversely, lower interest rates would mean a stability in housing price. A more stable Cedi culminated with low interest rates is likely to lead to lower housing prices.

6. Location

Location is another key factor that affects the price of a home. The nation’s capital, Accra has been demarcated into zones, indicating their respective valuations. In reference to location, the proximity to major landmarks such as the Kotoka International Airport is an important valuation component. Social amenities like roads, electricity and water access are also important valuation tools. Prices indicated on Lamudi support this view, with a three-bedroom house at Kutunse valued at GH¢240,000 while a similar one at East Legon is on sale for over GH¢1 million. This is because Kutunse is regarded as a peri-urban area while East Legon is noted as a prime location in the city.

According to Emmanuel Gyane, a construction expert and Chief Executive Officer (CEO) of Altheo Ventures, location even determines whether an estate developer furnishes a home or not. “A developer is likely to provide furnishing for a home in a prime location than in a peri-urban area because a house hunter searching for a home in East Legon would want that added convenience whereas an individual house hunting in a peri-urban area is most likely looking at affordability,” he said.