Ghana Real Estate Price Bubble: Will It Burst?

With the American housing market just beginning to rebound from inflated property values and a subsequent crash, the question on many people’s mind is, “will the rapidly increasing Ghana real estate prices experience a similar burst in the near future?” To answer this question, we must look at some of the economic factors that influence real estate prices.

Microeconomic Factors

The personal income level of Ghanaians has risen enough recently that the country’s socioeconomic status has been upgraded from low-income to lower middle-income. Many residents who couldn’t afford a home of their own in the past now can. The demand for existing homes is high; but the supply is low. The 2000 Population and Housing Census estimates 2.3 million new homes will be built by 2025 to keep up with the demand.

Macroeconomic Factors

The construction of new homes helped to boost the GDP of Ghana by 14.4 percent in 2011. By comparison, the Bureau of Economic Analysis reports that the United States GDP slowed in 2011, increasing by only 1.8 percent.

Other factors that influence housing prices include:

• Demographic trends
• Urbanization
• Increases in credit
• International interest rates
• International demand

The rapid urbanization of metropolises such as Accra, Tema and Kumasi are driving housing prices up in those areas, yet increases in credit are enabling Ghanaians to keep up with the purchase prices. One of the key differences between the increase of credit in Ghana and that of America experienced just before the real estate bubble burst is the lending standards are stricter. In most cases, you must have a down payment of at least 20 percent to qualify for a mortgage in Ghana; Americans were buying homes with little to no money down prior to the bust.

Improved access to low-interest mortgages has also made real estate in Ghana a desirable to foreign investors. Even if large global economies such as America were to experience another recession, Ghana’s economy is not dependent solely on foreign investments, tourism or other income from those countries.

Outlook

The real estate market in Ghana is expected to remain healthy for years to come. The country has shown exemplary signs of economic growth and political stability over the past 25 years. The demand for housing stems from the country’s own flourishing economy and rising income levels, not international demand. That, in combination with increases in credit, makes the market strong and favorable.

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