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Providing accommodation has been a challenge for most governments around the world and Ghana is no exception. The growing demand for houses and lodging has left many middle-class workers struggling to stand up on the property ladder.
High land prices have been fueled by an influx of non-resident Ghanaians and foreigners who have outpaced Ghanaian off-market prices, and the housing shortage has reached new record levels.
Even the rent is becoming unsustainable. With a shortage of several million homes in Ghana to accommodate our growing population, landlords flaunt the Rent Act of 1966, which prohibits their now routine demands for advance payment of more than a year in advance of payment.
Today, many residential areas of the capital that boast so many “luxury and business” areas have not been spared the rapidly growing slum settlements, mostly occupied by the products of urbanization.
That is why the Daily Graphic welcomes the new National Home and Mortgage Financing Initiative, which is being tested by the government to effectively lower interest rates on mortgages in Ghana by more than two-thirds.
The new scheme offers mortgages at 10 percent per year, below the offered market rate of about 28 percent on average.
Add to that the dramatically lower cost of the homes available under the scheme, and the fact that home buyers can live in them from the start with no deposit and their rent counts as payment against their purchase.
The new scheme has the potential to totally transform the home ownership market in Ghana. For the first time, even middle earners like civil servants will now be able to buy decent two-bedroom homes with affordable mortgages.
The new offering is possible thanks to an innovative blended financing model through which a participating bank covers half the cost of a mortgage at commercial interest rates, set at three percent above the rate of Treasury bills. to 91 days, which is currently just under 14 percent per year, and the other half is funded by the government with taxpayer money at just two percent per year, which is used to cover the administrative costs of running the plan .
At current interest rates, this means that half of the mortgage is financed between 17 and 18 percent, while the other half is financed at two percent, creating an effective mortgage rate derived from the simple average of the two components from 9.5 to 10.0 percent. penny.
For us, the availability of mortgage financing means that real estate development companies that adhere to the scheme are guaranteed the immediate sale of their housing units upon completion.
This is expected to reduce construction financing costs, allowing them to sell the houses significantly cheaper than similar houses sold on the open market.
The concern for us is how to get banks to sign up to provide counterpart funding for the plan.
This is because yields of around 17 percent currently on mortgages of up to 15 years are not competitive with short-term investments that are even more secure.
For example, government medium- and long-term cedi-denominated treasury bonds offer higher yields than can be obtained with mortgages under the government scheme.
The novel approach of using blended financing to reduce mortgage costs is already a big step forward.
What is required next is for the government to secure the necessary amount of financing, available at two percent, and sufficient matching funds at commercially attractive rates for the mortgage scheme to function fully.
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