Real Estate Finance, Real Estate Investment Trust, Arbitrage Potential

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THE HOUSING MARKET IN GHANA
PREPARED BY
RESEARCH DEPARTMENT
BANK OF GHANA
NOVEMBER 2007
The Sector Study reports are prepared by the Research Department of Bank of Ghana for the deliberations of the Bank’s Board of Directors. The reports are subsequently made available as public information. Further information may be obtained from:

The Head
Research Department
Bank of Ghana
P. O. Box GP 2674
Accra, Ghana.
Tel: 233-21-666902-8
ISBN: 0855-658X
Table of Contents
1. INTRODUCTION 1
2. REVIEW OF LITERATURE 5
2.1 Macroeconomics and Housing 5
3. THE STATE OF THE HOUSING MARKET 10
3.1 Housing Characteristics 10
3.2 Population Distribution and Housing Stock 11
3.3 Mortgage or Build 17
4. A MODEL MORTGAGE MARKET 22
4.1 Mortgage Market Development in Ghana 23
4.2 Mortgage Financing in Ghana 25
4.3 Factors affecting the Development of a
Vibrant Mortgage Market 29
5. SURVEY OF HOUSE PROVIDERS AND
MORTGAGE PROVIDERS 32
5.1 The Operational Background of Respondents 32
5.2 The Price Structure of Housing Units 34
5.3 Effects of External Macroeconomic Factors
on Housing Market 36
5.4 Challenges Facing the Real Estate Market 38
5.4.1 Source of Financing 38
5.4.2 Structural Rigidities and Prices of Inputs 39
5.5 Some Key Recommendations by Real Estate
Developers and Mortgage Financiers on the
Challenges facing the Housing Sector. 40
6. CONCLUSION AND POLICY RECOMMENDATIONS 41
THE HOUSING MARKET IN GHANA
1. Introduction
Contrary to the apparent neglect in mainstream macroeconomic analyses in the past, the housing market has become important and strategic to policy makers in recent times due to its impact on output fluctuations and inflation. Generally, activities in the housing industry may affect the well being of a people in terms of size and composition of household wealth, accessibility to credit, labour productivity, employment and other macroeconomic variables.

When house prices rise, the expectation of further appreciation builds into market sentiments, and this expectation boosts
demand for homes, which in turn stimulates new construction and aggregate demand1. Also, higher prices of residential housing tend to increase the wealth of households who provide these facilities, thus stimulating consumer spending which is a component of

aggregate demand.
Thus, house prices influence aggregate demand and resource
utilization, and hence monetary policy must respond to innovations in house prices since the role of the central bank is to manage total demand in the economy so as to produce desirable outcomes for inflation and employment. The issue of house prices and its impact on the economy has therefore attracted a lot of attention among central bankers in particular, as the debate rages on the appropriate policy response to asset price bubbles that might be detrimental to the economy. Indeed the recent developments in the subprime mortgage market in the United States is ample

evidence of the role of the housing sector in overall macroeconomic stability.
1 But the sustained rise in prices can simultaneously sow the seeds of a market correction by making houses progressively less affordable relative to income, thereby limiting the demand for them and restraining additional construction. The net effect would also depend on the strength of liquidity constraint.

THE HOUSING MARKET IN GHANA
Although this phenomenon of asset price bubbles and its effects on output and inflation is mainly observed in developed economies, recent trends in Ghana and other developing countries suggest that their housing industries may be susceptible to asset price bubbles with its economic consequences as well.

Compared with other advanced countries, Ghana’s housing
industry is at a rudimentary stage. High property prices
particularly in the urban centers such as Accra, Tema, Kumasi and Takoradi fueled by a rapidly growing middle-class, as well as rapid and uncontrollable urbanization have turned the housing industry...
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