Strategies for financing real estate development in Ghana

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Financial strategies have become an efficient instrument for providing real estate developers with the necessary financial proficiency to enhance their operations. Financial affairs of firms play an obvious momentous role in their routine business activities. Real estate developers are confronted with challenges which require allocation of scarce resources (land, cash, lines of credit, and the like) to various land uses in different time periods so that the value of the developers’ benefit flow is optimized. Paradoxically, finance and access to finance for real estate development in developed countries has attracted a great deal of attention from researchers. Nonetheless, diminutive empirical research has been conducted to investigate the financial practices of real estate developers in developing countries like Ghana. The research extends current knowledge and understanding of financial practices of real estate firms in Ghana. The government of Ghana has shifted from a direct provider of residential properties to a facilitator by creating the necessary enabling environment. This has resulted in the establishment of several real estate companies, under the umbrella of Ghana Real Estate Developers Association (GREDA). This research draws theoretical explanations from real estate and finance literature to identify the gaps in knowledge. These gaps directed the setting of aim and objectives for the study. In an attempt to investigate the financial constraints confronting the developers, the research adopted a questionnaire survey approach as its methodology. A total of 48 real estate firms were involved in the study. The data collected were then analysed using both descriptive statistics and multivariate analyses which reduce the number of variables and detected the structure of relationships between them. The empirical evidence of the research revealed that the number of constructed residential properties for outright sale by real estate firms have a positive relation with the age of firm, mean annual expenditure and firm size (number of employees). The study established the major financial sources of real estate finance in Ghana to be retained profits and advance deposits with former as the main finance acquisition pattern. Financial difficulties in the form of medium and long-term were also discovered to be prevalent in the financial lending system. The inability of real estate firms to provide acceptable collateral and transaction cost were identified as some of the key constraints confronting developers on the difficulties in obtaining finance. This research has provided several policy directions to be formulated by stakeholders in terms of establishment of more mortgage lending institutions, establishing manufacturing and supply companies to enhance trade credit and high purchase facilities to real estate firms and establishment of real estate investment trust.
A Thesis submitted to the Department of Building Technology, Kwame Nkrumah University of Science and Technology in partial fulfilment of the requirements for the degree of Master of Philosophy, June-2012
Financial Strategy, Real Estate, Factor Analysis