by sixjays homes
Property development is a crucial driver of economic growth and urban transformation, playing a pivotal role in shaping the physical and social fabric of a nation. In Ghana, like in many developing countries, property development is essential for accommodating a growing population, attracting investments, and fostering sustainable urbanization. However, property developers in Ghana face an array of challenges that often impede progress and hinder the realization of their projects. This article explores the multifaceted challenges that property developers encounter in Ghana, focusing on issues related to Inflation, land acquisition, permitting, financing, and construction processes.
1. Currency Depreciation & Inflation:
A weak local currency may cause interest rates to rise and inflation to accelerate. Higher mortgage payments will result from this, affecting the affordability of properties as being induced by high-interest rates. This lowers the demand for loans and houses as a result. A strong currency, on the other hand, lowers interest rates and stifles inflation. This is how exchange rates indirectly affect the mortgage interest you pay on real estate transactions but not just that it also makes it difficult for developers to sell their houses in the local currency, because the largely import dependent construction material market trades in a reserve currency, ultimately the U.S. dollar so after construction if your project is priced in the weak local currency then due to inflation, your project capital begins to deplete immediately after project completion until it’s sold out, if you don’t sell out as quickly before a year, the exchange rate depreciation and inflation could deplete almost half of your project capital due to cost overrun. Let me clarify this well, the persistent increase in prices of building materials affects project evaluation made at the commencement of the project.
The resultant effect is that developers are unable to meet their construction budget and thus have to seek for additional funding. Also, between the period for commencement and completion of a project plus an additional waiting period whiles marketing to sell, the project capital can lose almost half of its value or purchasing power. This is why even the State Housing Company, the Government’s own housing provider, is price hedging in dollars. The exchange rate has been the biggest challenge towards Ghana’s property development market.
2. Land Acquisition:
Land acquisition is one of the foremost challenges faced by property developers in Ghana. With the rapidly increasing population and the demand for urban living spaces, acquiring suitable land for development becomes a complex and competitive endeavor. Land ownership disputes, unclear land titles, and informal land markets contribute to uncertainty and legal conflicts. Developers must navigate through a tangle of land tenure systems and customary practices that often lead to protracted legal battles, delays, and increased project costs.
Recently on a developers round table discussion on Ghana’s property market, here is what Mr. Aziz Faisal, one of the panels said on the issues from the lens of a developer, “Land is a critical factor in housing production. Unfortunately, there is a lot of indiscipline in the land market and this affects real estate delivery. My developers’ opinion on the land problems: disputed titles, lack of credible database, escalating prices and difficulty in title registration” As a Realtor, I feel concerned, and I wish developers didn’t have this much to contend with.
3. Permitting Process:
Navigating the permitting process is another significant hurdle for property developers. The bureaucratic and often convoluted nature of obtaining necessary permits and approvals can be time-consuming and frustrating. Inefficiencies in the regulatory framework, lack of transparency, and overlapping responsibilities among different government agencies can lead to delays and corruption. Without stressing on the mention of bribery and corruption (I don’t want to go there) developers may as much find themselves caught in a web of red tape, impacting project timelines and budgets.
4. Financing Challenges:
Securing financing for property development projects is a critical factor that often determines the success or failure of a venture. While access to financing has improved over the years, challenges still persist. High interest rates, limited access to long-term funding, and stringent collateral requirements make it difficult for developers, especially small and medium-sized, to access the capital needed to initiate and complete projects. This can lead to stalled developments and missed opportunities for economic growth.
5. Construction Processes:
Construction-related challenges further compound the difficulties faced by developers. Inconsistent quality of construction materials, a shortage of skilled labor, and delays in material deliveries can lead to project delays and cost overruns. Additionally, inadequate infrastructure such as reliable power supply, transportation networks, and water systems can hinder construction progress and increase operational costs.
6. Infrastructure Development:
The lack of adequate infrastructure poses a significant challenge for property developers in Ghana. Developing properties in areas with inadequate road networks, water supply, sewage systems, and other essential services can significantly hamper the attraction of the developed properties. Developers often have to bear the additional burden of investing in basic infrastructure to make their properties more appealing to potential buyers or tenants.
7. Regulatory Environment:
Property developers must contend with a complex regulatory environment that encompasses land use regulations, building codes, and zoning requirements. Frequent changes to these regulations can lead to uncertainty and confusion among developers, necessitating constant adjustments to project plans and designs. Keeping up with evolving regulations and ensuring compliance can be a daunting task.
8. Market Volatility:
Property developers are also exposed to market volatility, which can impact demand for real estate. Fluctuations in property prices, changes in consumer preferences, and economic downturns can lead to unpredictability in the market. This is closely linked with the currency depreciation and inflation issue earlier stated. If I was a developer, I am sure it must really feel scary to hear words like global meltdown, post pandemic crash, recession etc… what does these speculations do to the real estate market like every other global market? In the wake of all market speculations, people put a hold on their decision to buy, they wait to look a bit into the future and when they finally decide to buy, they become so picky!
Developers need to carefully assess market trends and conduct thorough feasibility studies to minimize the risk of investing in projects that might not yield expected returns.
9. Market Competition
About two years ago, Madam Fuseina Abu, managing director of Goldkey Properties was interviewed by the Real Estate Times, somewhere in the middle of her interview she had to answer the big question; What are the major challenges the sector faces? And her answer reveals a fundamental makeshift that can not be overlooked in the sector business.
She said, “The major challenge the sector faces is the increased competition. For many years, there were a few key players, but the number of developers in the market has increased a lot in recent years. Now, it is a challenge. It means that we need to stay on top of our game and to do that we need to be sure that we are the developer that is putting the best quality buildings on the market.”
The market competition is good for the sector as more options could help ensure a fair price regime and defeat market monopoly, but it can also be bad for individual business especially as many experts have complained about market saturation where there are too many finished houses sitting idle and unoccupied, some believe there are too many developers than we need for our relatively small industry space.
Property development in worldwide is rife with challenges that require a concerted effort from government bodies, developers, and other stakeholders to overcome. In Ghana, access to land, access to finance and some of the issues raised in this article are the most commonly noted challenges affecting housing delivery or more precisely urban housing supply. Addressing these challenges will require constant reviews and reforms in land tenure systems, streamlining the permitting process, improving access to financing, enhancing infrastructure, and promoting a more stable regulatory environment. By tackling these obstacles, Ghana can unlock the full potential of its property development sector, fostering sustainable urban growth and contributing to the nation’s economic well-being.
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