Strategies for Financing Real Estate Development in Ghana Essay Example
Strategies for Financing Real Estate Development in Ghana Essay Example

Strategies for Financing Real Estate Development in Ghana Essay Example

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  • Pages: 12 (3194 words)
  • Published: September 1, 2017
  • Type: Research Paper
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The existent estate sector comprises a major constituent of the national economic system and is closely linked with its fiscal markets ( Ermisch 1990. Miles 1994 ) . Real Estate development in Ghana is altering in response to developments in its political and economic context. Real estate bringing systems are in passage. as a portion of a more general tendency towards denationalization and ordinance of public undertakings.

The authorities of Ghana has made some intercessions in the constitution of Home Finance Company ( HFC ) to supply secondary mortgage to persons. companies and groups to buy houses constructed by private existent estate developers. Besides. the authorities has introduced some inducements into the country’s Investment Code for the benefit of those who want to put in lodging. They include revenue enhancement vacations. zero evaluation of all equipment and machinery imported into the state


and unrestricted transportation of loan and involvement refund every bit good as dividends. fees and royalties ( Corporate Ghana. 2005 ). These alterations suggest that it is non a requirement for existent estate developers to go financially autonomous to ship on development undertakings. Although this concerns the private existent estate sector in peculiar it besides affects the societal lodging sector since they both contribute their quota to shelter proviso.

Private and commercial investors have faced fiscal and market force per unit areas for a long clip. In add-on. the importance of rationalised. transparent schemes has increased. non merely in the societal sector. but besides in the commercial sector. This holds true in peculiar for larger. largely institutional existent estate investors. like pension financess and other mortgage companies.

Beginnings of funding corporate existent estate and the use

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techniques and motives involved in renting existent estate by fabrication and service corporations have been investigated by Redman and Tanner. These research workers found out that important beginnings of financess to get existent assets for production and distribution were runing hard currency flows instead than external beginnings. Leasing was a common technique to finance and get assets leting for managerial flexibleness and tax-sheltering benefits and making off-balance sheet funding ( Redman and Tanner. 1989 ).

Fundss for existent estate development in Ghana are acquired through diverse beginnings. Some are obtained through the debt finance with some comparatively few Bankss in the state giving fiscal support to existent estate developers provided all demands are fulfilled. Surveies throughout the state besides indicate the continuity of informal funding methods such as the usage of homeowners’ ain perspiration equity. swap agreements and remittals from abroad. ( Debrah et al. 2002 and Erguden. 2002 ).

The loans acquired are given on short. medium and long footings repayment period with involvement rates charged on them. There are assorted signifiers of support that can be considered by existent estate houses in Ghana. Some of these are bonds. mortgage installations stocks investing trusts. merchandiser and commercial Bankss and mortgage companies. .

Furthermore. there are other signifiers of fiscal relieve that are being enjoyed by existent estate developers. Trade crediting involves the hold of payment of creditors beyond the normal period. high buying system enables a company to bask a full usage of goods or equipment but avoids initial full amount payment.

The proviso of existent estate is capable to the public presentation of macro-economies within which the assorted lodging finance systems are located. This research therefore. examines

and classifies chief tendencies of existent estate finance systems and factors considered in doing fiscal determinations towards existent estate development in Ghana. This research will besides cast visible radiation on the beginnings of finance and techniques used by existent estate developers and analyze the motive behind utilizing those beginnings and schemes. This is anticipated to demo some alone activity in the Ghanese existent estate finance system.

First. it should be borne in head that the lodging finance system consists of three markets: the primary mortgage market. the secondary mortgage market. and the capital market. In the primary mortgage market. mortgages are created and financess are loaned straight to borrowers. In the secondary mortgage market. loaners and investors buy and sell bing mortgage loans and mortgage-backed securities ( MBS ) . In the capital market. investors buy and sell longterm investing vehicles such as MBS. stocks. and bonds. By puting in mortgages and MBS capital market investors help increase the flow of financess available for mortgage loaning.

The growing in the size and cost of undertakings over the old ages has brought a new dimension to the existent estate industry with respects to international undertaking funding. Advanced fiscal instrument such as Project Finance Initiative and Public Private Initiative are well-known in Northern American existent estate finance markets. For old ages. existent estate funding in Ghana has been dominated by traditional mortgage credits with hazard minimization being the most of import issue. While in the Northern American existent estate markets. advanced funding instruments appear to be portion of the standard repertory of specialized establishments. in Ghanese Bankss ; these instruments play a minor function. ( Iblher and Lucius. 2003


An extended reappraisal of related literature and personal interactions with existent estate developers has convinced the research worker of the importance of reexamining the theoretical literature which might give penetration into and supply an apprehension of the restraints refering the manner of handiness of finance for existent estate development in Ghana. This research will therefore supply the theoretical apprehension on the funding of existent estate houses in Ghana.

A research survey which embraces the current patterns and jobs of the existent estate industry will hold a momentous part to literature sing the augmenting demand of the industry for competitory and accessible finance options sing their investing actions. On the reverse. some research workers have identified fiscal spreads in developed states even though others are of the position that there were no such spreads ( Galizia and Steinberger. 2001 ) . However. this might non be applicable in developing states like Ghana. This research will try to place challenges that existent estate developers face in funding their activities in a underdeveloped state like Ghana.

The degree of fiscal cognition and capablenesss of existent estate directors to a big extent influences their fiscal determinations to integrate fiscal and accounting information into their operations. However personal interaction with existent estate developers has convinced the research worker that. neither the thought of what factors influence fiscal determinations of existent estate developers nor any relationship between these developers and their degree of fiscal capablenesss are known among most of the developers for any possible steps to be explored in shuting up these challenges. The importance of a research in this field will offer policy shapers a profound penetration about the existent estate

industry and how frenetic attempts geared towards their fiscal challenges could be met.

Microeconomic variables such as involvement rate revenue enhancement and rising prices have an impact on a firm’s determination in taking between debt and equity ( Modigliani. 1958 and Narayanan 1988 ) . In the context of a underdeveloped state like Ghana. the usage of these variables may non clearly be applicable sing the seeable volatility of these variables. Probably other factors could break history for the fiscal methods and determination standards of existent estate developers.

Ghana has a immense lodging shortage of about 1. 57 million and there is the demand for 2. 76 million units by 2020. ( Minister for Water Resources. Works and Housing 2011 ) . Approximately 90 % of the lodging stock in Ghana is produced informally. ( GoG. National Shelter Strategy 1999 ) . There is therefore the demand for fiscal schemes and handiness to heighten bringing of residential belongingss by existent estate developers. This calls for the engagement of loaning establishments to supply fiscal aid to existent estate developers to spread out their activities.

Real estate is a capital intensive investing and developers frequently face challenges in accessing finance. to finish the assorted phases in their development procedure which they commence with hard currency nest eggs and personal loans from household members ( and in some instances from usurers ). Local Bankss progress merely 2 % of fiscal aid to the lodging sector as against 27 % for commercialism and finance and 22 % for fabrication.

One of the chief grounds why finance for existent estate bringing has received small attending is the big capital that is needed to purchase

or lease a residential belongings ( Derban. et Al. 2002 ) . Most banking establishment nevertheless. demand higher involvement rate and warrants rendering loan acquisition intricate. However. by and large. deficiency of assurance in the banking system by the populace. the banks’ inability to prosecute in venture capital. high default rates. widespread deceitful patterns and deficiency of expertness to decently measure undertakings are some of the jobs confronting the banking system ( Hanson. 1999 ).

In Ghana. deficiency of entree to long term capital is a major barrier to existent estate bringing. Even though the authorities policies recognises the private sector’s dominant function in lodging proviso. the Bankss have short term support and unable to impart on medium or long-run bases. therefore stultifying the existent estate industry ( Adjonyoh. 2007 ).

Presently. there is a research spread between fiscal schemes. entree to finance. the adoption capacity and existent estate development in Ghana. With the lifting demand of Ghana for technological and fiscal inputs in the field of existent estate bringing. a research survey which deals with techniques of funding existent estate development in Ghana in will hold a important part to knowledge.

Real estate finance in Ghana has followed a conventional form of traditional loan acquisition from fiscal establishments. ( Asare. 2004 ) . In most underdeveloped states including Ghana. entree to funding remains highly hard owing to the high hazard runing environment ( London Financial Group. 2005 ) . As a consequence. existent estate finance in the 1980s was seen as staying in a crude province compared to the rapid development of the banking sector. ( Jaffe and Renaud. 1996 ). There is. nevertheless. a clear segregation

between the existent estate sector and the fiscal market in Ghana since there is small or no long term seed capital for existent estate development.

There has been a rapid enlargement in the scope of public private sector fiscal enterprises in recent times. Additionally. the rapid growing in fiscal liberalization minimising restraints and barriers to competitory entree to finance from diverse beginnings ( Gilbert and Scott. 2001 ) makes it necessary to shift imparting establishments to help in an effort to extinguish or understate the troubles in accessing finance for existent estate activities so as to guarantee its sustainability in Ghana.

There is a general acknowledgment of the importance of the existent estate sector and the value of its part to the wellness of the economic systems of developed and developing states. In Ghana. by and large. it takes a long period. frequently between five and 15 old ages. for private persons to finish their residential belongings development. which can massively increase building costs. ( Asare. 2004 ) . However. financess that could efficaciously be used for other income generating ventures are tied up in the belongings.

Relatively. states with a developed existent estate finance system tend to bask both lower building costs and the usage of existent estate assets to back up broader investing chances through formal institutional models ( Boleat and Coles. 1987 ) . The fiscal market is critical to the development procedure for existent estate developers and investors ( Miles et al 2000 ). This suggests that with the development of a existent estate formal sector in Ghana. investing can be enabled and payments spread over a long period of clip with respects to

net incomes and capacity.

Real estate markets and lodging building in assorted economic systems have served as an engine of growing. The existent estate sector can typically play a prima function in the procedure of economic recovery from depression. This is particularly true in wealthier societies. notably the US and Japan. For illustration. residential belongings was found to be taking in the concern rhythm in front of all other investings. harmonizing to a survey of concern rhythms in the US between 1959 and 1992 ( Green. 1997 ).

In Japan there has been the usage of public residential activities and residential loans as a macro-economic stabilizer to increase supply and make employment during recessions in the 1970s and 1990s. ( Hirayama. 2003 ) . Other states. such as Thailand and Singapore. have besides used investing in existent estate as a recovery step. ( Sheng & A ; Kirinpanu. 2000 ; Phang. 2001 ) . A cardinal advantage of residential belongingss is that it is a domestic sector. and as such is protected from external influences. It could therefore. be used to accomplish short and long-run economic aims. ( Arku. 2006 ).

Ghana has an estimated entire population of 22. 409. 000 with an tenancy rate of 5 individuals per family and a population growing rate of 2. 7 % per annum. ( Ghana Census Department 2007 ) . With a domestic lodging shortage of about 1. 57 million units as at 2011. there is therefore a immense lodging inadequacy in the state. hence the demand to happen solutions to the job through fiscal techniques to existent estate developers ( Minister for Water Resources. Works and Housing 2011 ).


of belongings. particularly houses. is a really of import facet of the Ghanese tradition. Houses do non merely supply shelter. but besides serves as a step of societal standing and prestigiousness. Despite this high importance placed on houses and belongings. the Ghana Real Estate Developers Association ( GREDA ) . notes that merely 5 % of those who want to have a house can make so from their ain resources. 60 % would necessitate some signifier of fiscal aid and the staying 35 % are non capable of having and constructing a house in their life-time.

Between 1990 and 1998 some 15. 000 houses units between a individual sleeping room to four sleeping room or executive five sleeping room sign of the zodiac with an out-house have been bought either through mortgage funding or cash-and–carry ( straight-out payment ) . In add-on. the Social Security and National Insurance Trust ( SSNIT ) has provided over 30. 000 blocks of flats over the same period. Ghana. nevertheless. needs over 130. 000 units yearly over a ten-year period to be able to run into the turning lodging demands ( Statistical Service. 2004 ) . Research on finance schemes will bridge the spread in lodging shortage through assorted signifiers of fiscal bundle which can be made available to existent estate developers in Ghana.

This survey has been conducted with specific attending to the fiscal beginnings. troubles in accessing finance. tendencies in existent estate finance and determination standards of existent estate developers. Though the supply of financess for existent estate development is still important in a underdeveloped state like Ghana small or no empirical research has been documented on how existent

estate developers finance their undertakings. Hence a research geared towards the above discussed issues will lend vastly to knowledge in Ghana.

The importance of the topic will be farther enhanced through formal research by manner of parts to the literature and by developing new standards and constructs associating to theory of fiscal methods and their relevancy to the investing schemes of the Ghanese existent estate industry.

The chief purpose of the survey is to lend to a better apprehension of the fiscal patterns and jobs on the growing of existent estate houses in Ghana. In prosecuting this chief purpose. the survey efforts to research the variables that explain the patterns and jobs of financing the growing of existent estate houses.

In order to accomplish the above listed aims. the research examines the function of the authorities of Ghana and fiscal establishments in the proviso of mortgage finance services to developers. The theory of existent estate houses and their proviso of finance. elaboratenesss in raising finance in footings of fiscal troubles and determination standards in finance proviso by the houses are discussed in the subsequent subdivisions. This research samples the fiscal schemes of active members of Ghana Real Estate Development Association ( GREDA ) members in Ghana.

To place major beginnings of existent estate finance Empirical survey was conducted into chief beginnings of finance. the types of finance available and fiscal forms. This was achieved through sample study of questionnaire design and interviews by appraisal of the incidence forms. types of finance and troubles faced by existent estate developers in sourcing for finance.

To analyze troubles faced in raising finance Literature was reviewed and a sample study of questionnaires were designed

and administered to obtain empirical informations on the jobs faced by existent estate developers in raising finance from the position of both loaning establishments and the developers. Related restraints in raising finance like debt restraints equity information and cognition. funding planning and direction restraints are loosely discussed.

To place the tendencies and inventions in existent estate finance This facet of the research examines past tendencies and inventions such as fiscal beginnings. the type of loaning establishments used and the troubles encountered in the existent estate industry. Sample study of questionnaire design and interviews were conducted to obtain the needful empirical information.

To look into the fiscal techniques and determination standards used by existent estate developers Literature was reviewed on fiscal variables to determine funding determination schemes used by existent estate developers. The literature will be broadened to integrate fiscal variables such as income statement balance sheet hard currency flow appraisal and other cardinal fiscal ratios which help existent estate developers in doing fiscal determinations. Data was gathered through the usage of questionnaires and interviews.

The thesis has been organised harmonizing to the research procedure employed in this survey. It comprises five chapters. Chapter One contains a general background to the research. It states the purpose and aims of the research. range. methodological analysis and its importance have been justified. Chapter Two nowadayss an extended reappraisal of the related literature dwelling of theoretical empirical and dianoetic Hagiographas. The demand for finance. beginnings of finance. troubles in raising finance and fiscal determinations factors are all discussed in this chapter. This chapter besides highlights the importance of the features of a house. its growing forms and the planning techniques used on

existent estate building undertakings.

Chapter Three considers the method to be adopted for the survey. The choice of research methodological analysis for informations aggregation and analysis was influenced by the plants of Bryman ( 1992 ) and Bryman ( 2004 ). The pick of research methodological analysis must non be influenced by more popular adopted scientific schemes but instead careful consideration should be given to the relevancy and utility of the research and the research worker must choose the most befitted scheme to carry through his intent ( Bryman 1992 ). Furthermore research schemes to heighten good-quality research are dependent on the how the methodological analysis and available informations are awarded the due disposition ( Bryman 2004 ). This will animate farther research into the theoretical model to steer the survey.

Data was obtained from GREDA members and fiscal establishments. Questionnaires were distributed to all 69 active members of GREDA and some selected fiscal establishments. Datas collected was analysed and discussed in Chapter Four. A multi-variation analysis was used in analysing informations collected. Under multi-variation analysis. chief component analysis and factor analysis were used to group influential factors and their constituents.

Multiple additive arrested development was used to rank the factors in order of importance bespeaking their relationship with other chief constituents through the usage of its co-efficient. A non-parametric trial was conducted to corroborate trial consequences. Chapter Five gives a sum-up of the research findings and research parts restrictions of the research and the chief decisions. The chapter will besides include recommendations to the existent estate finance and future research.

This chapter has presented an debut to the survey the job statement. purposes and aims and research importance

have been presented. The relevancy of the research part to knowledge and methodology directing this research has been highlighted.


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