By Daniel Kontie – Founder/CEO, African Continental Engineering & Construction Network (ACECNLTD)
…continued from Previous Series
Material and Input Costs are often in US Dollars
Real estate development relies on imported materials, usually priced in US Dollar. Quoting sale property prices in the US Dollar ensures revenue aligns with input costs. It is a fact, and I know you and I are aware that, significant portion of building materials used in Ghana’s construction industry, such as steel, cement, tiles, paints, roofing sheets, tools, equipment etc. are imported and priced in US Dollar.
Consequently, developers incur costs in dollars, prompting them to price properties in the same currency to align revenues with expenditures in order to mitigate the risks of exchange rate and inflation. In countries with volatile exchange rates (like Ghana), quoting property prices in US Dollar ensures that developers and sellers don’t suffer losses when converting sale proceeds into foreign currency for materials, debt servicing or profit repatriation.
Economic Implications
It is important for us to know that the volatility of our economy, high inflations, volatile exchange rates etc poses a significant erosion in value of investor’s capital. Taking into cognizance the impacts of the inflation and volatile exchange rates discussed earlier, if an investor decides to accept and follow public opinion, chances are that, he is most likely to sell his last investment at a point in time and may not be able to build or purchase the next property for reinvestment because all the capital might have been eroded over time by the impact of inflation and exchange rate fluctuations.
Apart from this, the widespread use of the US Dollar in property transactions increases demand for the dollar, putting pressure on the Cedi and contributing to its depreciation. This cycle exacerbates economic instability and undermines confidence in the local currency. We shall be looking at a few of these economic implications, among which are these; exclusion of local buyers, social and development impact and the influence this practice on urban development planning.
Exclusion of Local Buyers
Pricing properties in US Dollar effectively prices out a significant portion of the local population who earn and save in Cedis. This practice limits access to home ownership for many Ghanaians, therefore, widening the housing affordability gap.
Social and Developmental Impact
The dollarization of property prices has broader social implications, housing inequality: It exacerbates disparities in housing access, favoring foreign investors over residents.
Urban Development
It influences urban planning and development, with a focus on high-end properties catering to foreign buyers, potentially neglecting the housing needs of the broader population. This is where we are as a country, with about 90% of percent of investment in the sector skewed towards high-end properties at the expense of social housing which is really needed by the mass majority.
Recommendations
To address the challenges associated with dollar pricing in Ghana’s real estate market, the following measures are recommended.
Support for Affordable Housing: Implement policies that encourage the development of affordable housing projects priced in cedis to cater to the needs of the local population.
Stakeholder Engagement: Engage real estate developers, financial institutions, and investors in dialogues to align practices with national economic goals.
Changing the Structure of the Economy: It is important we change the structure of the economy by implementing supply-side economic policies. That is basically producing more of what we consume locally while adding value to what we export. This will reduce the volume of national imports, therefore easing pressure on Cedi.
I know many would have thought that my first recommendation would be to call for enforcement of the law by prosecuting perpetrators, which is not the ideal solution, it is practically impossible to push business minded people to adhere to laws that will put them out of business. It will not work, they will either flout the law or boycott investment in the sector in question and that will ultimately lead to market distortions.
Even the government knows about this, hence, the reason we see even many state institutions including the Ghana Ports and Habour Authority charging duties in US Dollar. I stand corrected though, but I have doubts if the Ghana Ports and Habour has the authorization from the bank of Ghana to charge duties in US Dollars.
I equally have doubts also in establishments that has government stakes or shares in them such as the Labadi Beach Hotel and several other state owed enterprises (SOEs), all have the authorization from the Bank of Ghana to do business in US Dollar etc.
Do note that, I am not reporting or alleging any wrongdoing here by anybody or institution, because I do not have the evidence to prove any. I am only expressing my doubts and will appreciate any education from readers.
Conclusion
While pricing properties in US Dollar offers certain advantages, such as protection against currency and inflation volatility and appeal to foreign investors, it poses significant challenges to Ghana’s economic stability, legal frameworks, and social equity. A balanced approach that aligns with legal provisions, promotes the use of the local currency, and support inclusive housing development is essential for the sustainable growth of Ghana’s real estate market.
But before we take leave, let me be quick to issue this disclaimer that views or opinions expressed in this article or any article by this writer are not to be relied on without obtaining legal or other professional advice when taking a step or entering into a legally binding agreement.
For real estate consultancy services, land banking investment strategies, property development, brokerage services, title registration, project funding consultancy services, feasibility studies etc. across Ghana and Africa, contact the Africa Continental Engineering & Construction Network Ltd (ACECN Ltd). We have you covered 360℃.
The author, Mr. Daniel Kontie is a seasoned and astute Real Estate professional. He can be reached via phone on +233 209032280. See more on www.acecnltd.com
