How The High Cost Of Living In Ghana Affects The Real Estate Industry

How The High Cost Of Living In Ghana Affects The Real Estate Industry

  • Ghana is experiencing cedi depreciation and inflation at unprecedented rates, which is making life unbearable for the average Ghanaian
  • The high cost of living in the country spills over into every industry, including the real estate industry
  • If serious measures are not taken to mitigate the economic crisis in Ghana, it will become increasingly difficult for people to buy or rent homes

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Ghana is experiencing severe inflation, and the cedi continually depreciates against the dollar. Many have called for drastic measures to be taken, but it seems the Ghanaian authorities are at their wits' end. In a country with a housing deficit of 2 million units, a high cost of living affecting the real estate industry should be the last thing to happen.

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Ghana's real estate sector is impacted by the high cost of living
The high cost of living impacts Ghana's real estate sector. Photo credit: Artem Kniaz and Bloomberg Creative
Source: Getty Images

A lot of changes are brought about by inflation in the real estate industry, including increased mortgage rates, higher housing prices, a devaluation of long-term debt, an increase in building costs, and more. explains them below.

Cost Of Houses Will Rise

Firstly, Ghana's high cost of living means that real estate developers and property owners will shoot up the prices of their properties, especially when they import building materials. The steady decline of the cedi against the dollar means that home builders will now have to spend more money to buy the same quantity of building materials, which will, in turn, affect the price of the homes when they are finished.

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In addition, most house sales in Ghana are priced in dollars to citizens who earn in cedis. It means a time is coming when the average Ghanaian will not be able to afford a decent home.

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It Affects Real Estate Investment

Because the nation depends so heavily on imports, as we just mentioned, any changes in the exchange rate will affect the real estate market. First, one must understand that currency rates mostly impact international investors in the real estate market. Foreign investors in the nation are impacted by an unstable currency rate, which is then passed on to homeowners.

Foreign investors are part and parcel of the local real estate market. Thus, if the local currency is weak compared to a foreign currency, such as the dollar, the foreign currency will increase relative to the local currency, providing foreign investors with more purchasing power.

For instance, in Accra, where housing values are expressed in dollars, the ordinary person who wants to buy a house will need to carry more cedis to acquire the same residential property he had initially planned to buy. Real estate investors aware of this won't take a chance with local currency listings since it depreciates quickly.

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Also, travel is typically easily removed from the budget when times are tough. Real estate investments such as retirement homes, touristic areas, and vacation rentals could not perform as well when there is a high inflation rate.

It Affects Mortgage Rates

A high inflation rate weakens local currency, raising mortgage rates. Banks will impose higher interest rates and limit the number of loans they provide to prevent the bank from being shorted. As a result, homes become more expensive and unaffordable due to the high cost of borrowing.

There is a low demand for mortgages in Ghana because homeowners struggle with debt repayments. Unquestionably, a strong currency lowers home interest rates and suppresses inflation.

What The Government Can Do

Real estate legislation can significantly influence the demand for property. Some ways the government can help the real estate industry amidst the high cost of living is to offer tax deductions, tax credits, and subsidies. These are a few ways the government might temporarily increase real estate demand. Understanding current government incentives will enable one to spot potentially misleading patterns and gauge changes in supply and demand.

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For instance, to stimulate house sales in a slowing economy, the U.S. government issued a first-time homebuyer's tax credit to homeowners in 2009 (only those who purchased homes between 2008-2010 were eligible). The U.S. Government Accountability Office reported that 2.3 million persons utilized the tax incentive.

Even though it was only temporary, this was a considerable rise, and if you hadn't known that the tax incentive was the cause, you could have assumed that the increase in housing demand was due to other causes.

Why Landlords In Ghana Charge 1 Or 2 Years' Rent Advance Instead Of Charging Monthly Rent

In an earlier story, wrote about why landlords in Ghana charge 1 or 2 years' rent advance. Ghanaian landlords insist on longer lease terms, often requiring one or two years' payment upfront, whereas other nations only pay a monthly fee.

Although Ghanaians have complained about the expense of paying for one or two years' worth of rent, landlords are adamant about changing their behaviour. Additionally, the government has not put rigorous laws into effect to guarantee that the rental market is more favourable to Ghanaians.

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