Finance & Lifestyle: GHL-offering Young Professionals in Ghana a Chance to get on the Property Ladder….

 

Title: Entrepreneurs: Ghana Home Loans

Three entrepreneurs have taken a model for housing finance from South Africa to Ghana’s crowded cities


It might look like the ultimate in sub-prime instruments, but Ghana Home Loans, which has driven the resurgence of a mortgage market in the West African country, wants to take its products across the region and finance their portfolio by securitising their portfolio.

The company launched in 2006 after a few years of fundraising by its founders Dominic Adu, Kojo Addo-Kufuor and Ellis Atekpe. Adu and Addo-Kufuor were working in Lagos for private equity company Actis and for Citigroup, respectively, while Atekpe was in Accra running the mortgage operations of HFC, a local bank.

“The view we took was that Ghana was really transitioning into middle income status, and with middle income comes various things – acquisition of homes, cars, credit cards, certain must-haves of every middle income countries,” Addo-Kufuor, now chief operating officer, explained. HFC had been in the market for 20 years, but its housing finance operations were only a small part of its banking business.

They settled on a model pioneered by South Africa Home Loans, which raised capital from development finance institutions and the capital markets and then tailored mortgages to match the terms of the loans. Simon Stockley, SA Home Loans’ founder, joined as chairman, and a number of investors came on board, including Standard Bank, the Dutch development financier FMO and the International Finance Corporation.

Since then, GHL has raised funding from FMO, the French private sector development fund Proparco, the US Overseas Private Investment Corporation and Sheltafrique. The team had got to the point of discussing further financing from private sector investors from Europe in 2008 when global conditions changed dramatically.

“They were getting comfortable at the point when the credit crunch hit, and mortgages were suddenly off the table. And the same with pension funds and other people we would have been talking about it with,” Addo-Kufuor said. “Gradually that interest is returning, and it’s coming back at a time when we have an even better story to tell, because our loans have a 5-year story. They have seen our originating model, and we hope this time around we should be able to conclude those conversations.”

Ghana made the transition to middle income status in late 2010 – before its began pumping oil commercially. The country is forecast to grow around 7.5 per cent in 2012, following more than 14 per cent growth in 2011. This has translated into a huge and growing demand for modern housing, which developers are struggling to keep up with.

Even so, mortgages have been a hard sell in some cases. Ghanaians still prefer to build their own houses from scratch, a practice that is entrenched and hard to change.

“What you would typically do in Ghana is, you would buy land from a chief or the government or some other institution, you would get an architect and a builder together, give them some money and build your own house,” Addo-Kufuor explained. “The problem with that is, if you don’t have ready money sitting in the bank account, you get stuck. If you drive around Accra, you see a lot of uncompleted houses, for that reason.”

GHL has been marketing direct to a younger generation to educate them about the benefits of mortgage finance, and they are, he said, making ground.

For those that insist on the old ways, the company has developed products – home construction and home completion mortgages – to meet their needs. The group also hopes to expand into deposit-taking and insurance, and may look at entering the construction business “as a last resort” if the undersupply in the market persists. It is also looking to diversify geographically to other countries with similar demographics.

That, in light of the mortgage market crash in the US, might look a little too speculative for most international investors – until they look at the underlying portfolio, he insisted.

“The difference between what we do here and what your typical investor might be used to in New York or London is that we’re still very much in the 80s or 90s, we’re pre-credit crunch,” he said. “The people who are coming to us are looking to buy their first and probably only home. You can imagine, if you’ve managed to get a mortgage from Ghana Home Loans in Accra, you will do everything you can to make those payments.”

The vast majority – 85-90 per cent of customers – are first time buyers. They are two income households, often with additional sources of revenue, such as taxis or buses, alongside their day jobs. The family lives in the house, and they fight to make the payments despite fluctuations in currencies and interest rates, according to Addo-Kufuor.

“There’s no social housing, there’s no council flats. There’s no halfway situation. Here, people really think long and hard before they default,” he said. “If we were to replicate this model across [West Africa], it would really, I would expect the quality to be slightly better than average. I know it’s counterintuitive, because an institutional investor will think it’s coming out of sub-Saharan Africa, it must be a bit questionable, but that’s the reality.”

Source: http://www.gatewaytoafrica.com/profiles/entrepreneurs-ghana-home-loans.htm