Naturally by basic economic theory, a higher demand for a given commodity presents an opportunity to supply same based on the principle of single variable effect; however, the reverse appears to be the case when it comes to real estate investment in Ghana. Many would wonder why real estate investors in Ghana neglect the huge demand for low-end residential properties (social housing) by the over 90% of the Ghanaian population, to concentrate on the less than 10% of the population whose property demands are high-end (luxury). In other words, why the average Ghanaian real estate investor neglects the supply of the over 1million social housing units in demand whilst attention is paid to the development of luxury properties in demand by less than 10% of the population.

The purpose of this article is to unravel and bring to bare the existence of the 90/10 syndrome, its causes, effects and to offer recommendations to stakeholders.  To put the discussion into context, let me give you a data-driven exploration of the population and income distribution of Ghana. This will give you insight on how we arrived at the 90/10 syndrome; a perfect description in our opinion, of the status quo and the subject of this article.

Taking a close look at the Ghana population and income distribution as at December 26, 2024 according to Woldometer, Ghana’s population stood at approximately 34,735,161. Out of this number, about 5% constituted the affluent class (most often, entrepreneurs).

This class typically earns more with average net worth or investable assets between USD$100,000 to USD$200,000 or more per annum whilst about 46% constituted the middle class-upper who earns an average income or investable assets between USD$30,000 to USD$50,000 or more per annum, the middle class-lower constituted 24.7% of the population with average income or investible assets between USD$2,400 to USD$3,600 per annum and the poor constituting about 24.3% earning an average income of USD$400 or less per annum.

Now, taking a retrospective look at the average prices of luxury properties in Ghana particularly, the capital city Accra, and its surroundings which are normally townhouses that sells averagely between USD$180,000 to USD$500,000 depending on the location, number of rooms or amenities etc and juxtaposing that with the aforementioned population and income distribution statistics, one would have given us credit for being charitable with the description that the percentage of the Ghanaian population that can afford the average luxury property that sells between  USD$180,000 to USD$500,000 is 10% or less.

Having established this fact, the Africa Continental Engineering & Construction Network conducted a further study to empirically substantiate the existence of the 90/10 syndrome that, real estate investors in Ghana neglect the supply of the over 1million social housing in demand whilst attention is concentrated on luxury development only in demand by less than 10% of the population.

 In a field study that lasted for one year, we sampled one hundred (100) developers in Accra, both corporate and non-corporate.  It is interesting for one to know in our findings that, out of the 100 developers, 95% (95) of them are into high-end property development whilst the remaining 5% (5) does a mix or only social housing.

Apart from this, we also went a step further to explore the one hundred and forty (140) members of the Ghana Real Estate Developers Association (GREDA) in good standing as at 2023 (GREDA Real Estate Journal, Issue 6, 2023), whose core businesses are housing (remember, it’s not all GREDA members that build houses) and it also came to our surprise that, there is a gradual and surreptitious swift in the property development portfolio of many of these members in this category from either social housing or mid-end to high-end properties. Now the multi-million dollar question is why will the average profit orientated investor neglect such a huge demand for social housing and focus only on the top 5% of the population. This brings the discussion to where we examine the genesis of this paradox, the causes.   

The Causes

Even though there is a high demand for social housing by the 90%, the sector is neglected by developers because the middle class is unable to make outright payment or significant bulk payments for properties unlike the top 5%, even though they can afford if given a flexible installment payment plan. This has made investing in this sector unattractive because the investor in question will have to complete the property development 100% and sell it out to this class of buyers on an installment payment basis for a reasonable period of time.

This development model automatically puts the developer in waiting for several years for him to recoup his investment. The flipside of this also is that, the developer risks losing his capital through exchange rate depreciation or better still inflation if he does not quote the property price in US dollars. Even with the few who may take this risk, chances are that, interest will have to be added to the property price as a hedge against inflation and the fluctuating prices of building materials over the construction period.  

This eventually prices out the average middle class from acquiring these properties making the property difficult to sell, hence locking up capital of the investor.

Mention is not yet made about the high chances of default on payments and project delivery timelines by both parties that may lead to frustrations and legal stalemates. The above and many other factors have made investment in this category unattractive to many real estate investors in Ghana, hence the paradigm shift to luxury residential property development by the mass majority of developers in recent times.

Taking the above analysis into consideration, the developer will naturally go for the luxury development where the top 5% category has the affordability to either make outright payment or do significant bulk payments to complete the property purchase within a shortest possible time, giving good returns on investment by virtue of the good turnover rate.

The effects

The effects of this gross neglect of the social housing sector cannot be overlooked. The lack of political will and investment interest by the private sector is what has led to the persistent widening of the housing deficit for decades to what it is today. The resultant effect is the arbitrary and skyrocketing rental prices of properties across major cities in Ghana with Accra being the worst, because demand always outweighs supply.

The rapid growth of new slam communities with significant expansions in existing ones is no accident.  Between the year 2022 to 2023 alone, the Tema Motorway stretch has witnessed significant new slam community settlements occasioned by the hash rental price hikes within the period because, many of these middle class were priced out of decent shelter within the mainstream city. This did not only affect residential properties, a significant number of businesses occupying commercial spaces in roadside buildings had to move out to setup in fabricated metal containers on the shoulders of the roads and streets in many communities around, our survey shows (ACECN, 2023). Time and space will fail us to name all the negative impacts of this phenomenon.  

The recommendations

The concluding question now is, can something be done about this situation, this leads us to the recommendations if taken seriously, the 90/10 syndrome can be broken.   Starting with the private developers, the best development model to really take advantage of this huge investment opportunity in the social housing sector is the Off-plan development model. This is where a developer uses his goodwill to sell a property at a discounted price to a buyer before the property is developed.

With this method, the developer allocates the land to the prospective buyer together with a flexible payment plan. So as the buyer is making the installment payment, the developer develops the property for as long as it may take to complete depending on the agreement between the two. Even though this also has its own challenges, it gives relief to both the developer and the buyer in terms of flexibility. The model has put shelter over the heads of many in Accra until its abuse in recent times. Off-plan will be treated as a whole article in subsequent editions.

Second, despite the fact that the mortgage system is cumbersome in Ghana, a few of these middle class may qualify. Individuals must be intentionally desperate to search for information on mortgage and other construction financing facilities to enable them take advantage to acquire their properties. The mortgage banking institutions should also begin to shift focus from mortgage sales to mass mortgage education among the general public. Information asymmetry is one of the biggest challenges in property financing in Ghana. We believe that if mortgage information becomes common knowledge, the few middle class who qualify may escape the pressures of annual rents.

Finally on the side of the state, the acquisition of land banks on the few parcels of lands left around our cities is key. Areas of recommendation are the Tema-Aflao stretch, the Afienya-Shai Hills stretch,  the Apollonia city area, the Dodowa-Valley View University stretch, Amasaman, Nsawam, Oyibi-Abokobi stretch, just to mention a few. This will help government have some level of land price control that will enable the state enter into public private partnership agreements with the private sector to develop mass social housing units at moderate prices as has been the case in many other jurisdictions across the world. The situation may look hopeless, but it is possible if these recommendations are taken and implementation done meticulously. The Africa Continental Engineering & Construction Network Ltd is an industry giant in the real estate and construction space in Ghana. Do not hesitate to reach out for all your construction and real estate services. Do remember to also subscribe to the Business & Financial Times Newspaper (B&FT) today to follow our channel for more trending industry updates.