Residential development and borrowing in Ghana: A challenge for banks and private estate developers

Abstract

Sub-Saharan African cities are faced with formidable housing problems, of which Accra, the capital of Ghana is no exception. The staple of these problems is the issue of finance, which has been uncovered to be of one the major factors affecting residential development in Ghana. Apart from these problems, hundreds of houses are produced by the private sector including private estate companies. Evidently, this requires a huge sum of capital to start such undertakings. Borrowing has been a very significant feature of residential development as a result of its high unit value (huge capital investment). Unfortunately, large traditional lending institutions particularly banks and other major lenders do not give acquisition, development and construction loans (ADC loans) to these private estate developers. In other words, major banks and other financial institutions are unwilling to offer credit facilities to estate developers. This study employed literature review, questionnaire inquiries, interview, purposive sampling technique and SWOT analysis to explore why banks or major lenders refuse to give ADC loans to private estate developers, and to offer recommendations, as to, how best to channel funds into residential development in Accra. The findings include the following; high risk for housing finance, insufficient funds and low income levels, information flow problems, poor macroeconomic policies, cultural aversion to own a house through mortgage finance, and immature housing finance industry. Hence, Government’s direct investment subsidies, credit guarantees to lenders, tax rebate for developers, interest cost subsidies, affordable housing policies, more real estate financial institutions and development of capital market for access for long-term funds at competitive rates are recommended.

A thesis submitted to the Institute of Distance Learning, Kwame Nkrumah University of Science and Technology in partial fulfillment of the requirements of the degree of

Commonwealth Executive Masters in Business Administration, 2011

KNUST