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Fannie Mae Conforming. Housing loans: Looking to the long run for the mortgages industry | Ghana 2012

In Ghana, subprime lending remains undeveloped, with the sector confronted with challenges such as a shortage of new residential space, real estate related complexities and a shortage of bank interest rates due to questions such as the separation between the long-term character of subprime lending and Ghana's predominantly short-term deposits base.

As a relatively minor part of Ghana's overall borrowing, according to the Bank of Ghana (BoG), the 2011 mortgages accounted for only 1.6% of overall loans to the consumer economy (around USD 81.2 million for around GHS 137 million). According to the research company Findex, only 2.5% of Ghanaians had a pending 2011 home buyer debt in 2011, down from 5.4% and 5.5% respectively.

DEVELOPMENT CHALLENGES: Apart from some banks such as HFC, Fidelity, Stanbic and non-bank banks such as Ghana Home Loans (GHL), many creditors give little consideration to the home loans business, although some actually provide overdraft facilities that are used to buy houses. "Except for a few like HFC, most banks are not interested in the residential real estate industry and do not sell off loans in an aggressive way because loans are long-term investment and they do not want to tie their funds for long periods," said Sulemana Mohammed, research Analyst at Ecobank Capital.

The banks themselves do not have the long-term financing to make mortgage loans profitable, while high debt capital cost discourages them. "Major issues are the present banking deposits structures, which are mostly shortterm, and historic high interest levels, which bring down months of payment on long-term loans for most people," said Alhassan Andani, Stanbic Bank's executive manager.

However, this situation evolved with the adoption of the Home Mortgage Finance Act (HMFA), which was developed in 2008 with the help of the World Bank's IFC. The IFC also started a loan guarantee and mortgage advisory service for banks in 2007 to help develop the industry, although Kojo Addo-Kufuor, GHL's CEO, described the IFC's effort as ineffective.

A further constraint is the lack of new residential space, which limits the scale of the overall population. "According to officials, the estimated number of persons in need of accommodation is about 1.5 million. Anyone looking for a home to buy a home mortgages, the actual buyer, could possibly half this figure - 750,000 people," said Addo-Kufuor OBG.

"Residential supplies, however, are far from being as high as actual market demands, with some 20,000 new homes being constructed each year, due in part to a shortage of building financing for developers". The Ghana housing profile states that the nation will need 2 million new homes by 2020. It was published by the Ministry of Water Resources, Building and Urban Affairs in collaboration with the United Nations Human Settlement Programme in June 2012.

An agreement between the US federal goverment and the US company STX Engineering and Building, targeting residential distress, broke down in 2011, providing for the first 30,000 unit building at $1.5 billion and the building of 200,000 over five years for around $10 billion. The company may have had a 60% stake in 2010, while the Proparco company, which made $7 million available in April 2012, described it as the "market leader" in terms of loans and gave it a 50% stake.

When these numbers are correct, they indicate that GHL had a material effect on the performance of the Segments. By 2011, the firm had already paid out USD 80 million of the USD 100 million it borrowed in the form of long-term finance - mainly from developer finance agencies such as the US Overseas Privat Investment Corporation, the Netherlands based FMO and the International Finance Corporation, the WB privatesector - which it uses to provide US dollar mortgage finance, most of which is aimed at first-time purchasers.

"In Ghana, there are apparent dangers to dollar-denominated lending, but we have two currency fluctuations behind us. These interest levels are cheap in comparison to the 30% annuity which is the option the markets can provide. In April 2012, GHC's mortgages exposure amounted to approximately USD 65 million in comparison with, for example, HFC Bank's GHS70 exposure.

Currently, the company has only one office, but provides cover for all of Ghana. It has a number of business roadmaps, among them raising funds in the near run, which it would use to substitute its stock line (i.e. borrow short-term from banks while they are waiting for funds from financial intermediaries ) to reduce cost, move to other Africa and offer loan facilities such as insurances, and expand its lending beyond financial intermediaries by looking at the domestic equity markets and securitizing parts of its portfolios.

NON-BANKING LENDOR: Developing a specialised borrower outside the banking sector has helped to foster the development of the regulation environment and prepared the way for other banks. Addo-Kufuor said Ms. Kufuor said Ms. Kufuor worked in close cooperation with Ms. Kufuor to clarify the regulation questions unique to this area. Recent large-scale trends are also increasing the outlook for the mortgages markets.

Collaboration between developer and issuer has strengthened trust in the sustainability of a project and increased the probability of funding. In June 2012, the Renaissance Group, which is working on two large scale development schemes with a total of 180,000 inhabitants, informed the media that it had entered into an arrangement with a mortgaging company that would allow purchasers to obtain GHS18,000 ($10,670) of 15-year-old loans.

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