Residential mortgage finance; A solution to housing deficit Challenge in Ghana
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Date
July 2015
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Abstract
Demand for housing in developing countries outstrips what is actually supplied. In Ghana the
deficit is more than 1.5 million housing units and increasing by 150,000 units annually (UN
habitat 2011).This increasing demand is largely by the low income earners who are priced out of
the market. Private real estate developers provide only 10% of the new housing supply in the
country, the remaining 90% being delivered by the householders themselves (Bank of Ghana
2007). Few Ghanaians can afford to acquire their own homes and most of them lack access to
home loan facilities. Most banks neglect the home loan market and focus instead on short term
lending with higher expected yields. This means that unless pragmatic and focused strategy is
adopted to address the residential homes deficit in the country, the situation can only move from
bad to worse.
Aside creating employment and providing related infrastructure leading to improved cities and
broader economic development, the real estate market serves as the system for wealth creation
and business development. Improved housing markets provide positive spillover effects
(forward/backward linkages), enhances labor mobility (geographically) and productivity. It also
impact on the health and productivity of a nation and enhances government revenue through
property taxes and others alternative investment whiles providing a hedge against inflation. The
sector can also foster credit access, collateralization, and growth of the financial sector by loan
origination and securitization. For the average Ghanaian acquiring a decent and affordable
accommodation is but a relish dream, nonetheless with the appropriate strategy, this dream can
indeed become a reality. Financing homes is documented as the number one obstacle to home
acquisition in Ghana. The current housing market in the country is underdeveloped, rudimentary
and engulfed with divers challenges including the scarcity of long term finance for the middle to low income earners to access these facilities and the excessive cost of the few available formal
housing sources. The middle to low income earners who comprise the majority of home seekers
are thus priced out of the market and have had to find alternative means to secure housing. The
search for the most reliable, efficient and pragmatic means of home finance, lead straight to the
mortgages market, which allow applicants to purchase homes of their choice and make
installment payments. This housing system is indeed commended as the most capable and
superior financier to housing (Bank of Ghana 2007). In most advanced economies home
ownership is identical to mortgage home ownership. This means that it is the most readily
available and accessible form of finance in the acquisition of homes in the advanced countries. A
well functioning mortgage market will primarily increase funding for housing at competitive cost
and pricing to consumers and thereby enable more consumers to afford this scarce but essential
commodity. This research would be undertaken by a review of both primary and secondary data
on mortgages in Ghana and USA, the Bank of Ghana Report on Housing (2007), previous
research work and publications on mortgages by learned authors. Also the regulatory framework
for the mortgage market in the country is examined.
Description
A thesis submitted to the Department of Finance, Kwame Nkrumah University of Science and
Technology in partial fulfillment of the requirement for the degree of Masters Of Business Administration (Finance Option