Interview: Emmanuel Botchwey
How volatile are construction input costs in Ghana?
EMMANUEL BOTCHWEY: Changes are significant and can range from 15-32% of the final cost of building. A house selling for $65,000 two years ago now goes for $75,000 because of higher input costs. The government expects developers to take a cut on their profit margins to build.
Furthermore, there are too many fees and taxes pressuring developers. When we build access roads, for example, we are charged a development fee, even if we are doing the government’s job. If these fees were eliminated, this would help the lower-end housing segment. We are charged many fees while simultaneously being told to sell houses at a lower cost. We buy the land, pay the development fees, pay for the infrastructure and borrow money at commercial rates. There is no magic here; it is just the bottom line.
What can be done to increase new homebuyers’ access to mortgages?
BOTCHWEY: With more people wanting to buy a house, it is ideal to ensure that they have access to mortgages to cover the cost of the purchase. Mortgages also provide greater stability in the market, since the house would be registered in the name of the company giving the mortgage, and if the buyers stop paying, the company can evict them and simply rent out the house.
If mortgage companies can increase their lending, then access and demand will grow, allowing more houses to be built, and the housing shortage will shrink. However, mortgage companies are asking for large deposits, which people do not have, and houses are not being built. People complain that there is a shortage of houses, but if the fundamental problem of accessible financing is addressed, the problem will be addressed.
How effective are incentives in encouraging the private sector to develop low-income housing?
BOTCHWEY: This is all relative, but I have not seen these incentives working anywhere. The cheapest house I can build is upwards of $60,000. The incomes of the people who want to buy these houses are less than $1000 per month, and they are being asked by the mortgage companies to pay $40,000. Since they cannot afford the price, they end up renting, which is still difficult. Mortgages will help, but the system is not conducive to the development of low-income housing. Finance institutions can buy bulk houses from developers and create incentives to sell them to first-time homebuyers, but is not happening at this time.
To what extent is there a risk of a glut in the luxury real estate segment?
BOTCHWEY: Yes, there is a risk and it’s one that developers must take consciously. We are not at the brink, but there is an increased interest in building high-end housing. I estimate we have four to five years before we reach oversupply in terms of luxury housing.
If you obtain outside financing, you must understand the market and be confident that what you build will sell. The risk in building for the higher-end is greater than for lower-end segments, and developers that build without planning will suffer. However, renting can be a solution. Even if I cannot sell a house, I can rent it. The value of the property rises and the rent balances my books. So there is risk, but it is a calculated one.
How does the overall lack of transparency in land ownership affect property development?
BOTCHWEY: The lack of transparency has hindered development a great deal because one spends half of his or her time going to court. For every land parcel in Ghana there are three owners. These are the historical owner, the theoretical owner and the practical owner. The registration history is unclear, which causes even more problems. There are plots here that we bought from three or four owners, and we are still in court over them. To fix this, the government should overhaul the registration process and centralise titles so that developers will not have to deal with the legal matters. This is the only way Ghana can develop without hindrance.
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