Residential mortgage finance; A solution to housing deficit Challenge in Ghana

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July 2015
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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.
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