The onset of the COVID-19 pandemic in 2020 changed the dynamics of the very existence of mankind. Not only were the health of people affected, but the gamut of activities that constitutes everyday living were affected too.
Several sectors of the global economy including Real Estate were also affected. Apart from food, health care and IT services which recorded a high demand from consumers, the other aspects of the economy saw a decline in demand. This was due to the restrictions that came with reducing the spread of the virus and restoring normalcy.
The US Congressional Research Service’ report on Global Economic Effects of COVID-19 released in November 2021 indicated that the “pandemic has disrupted lives across all countries and communities and negatively affected global economic growth in 2020 beyond anything experienced in nearly a century.”
It added that estimates indicate the virus reduced global economic growth in 2020 to an annualized rate of around -3.2%, with a recovery of 5.9% projected for 2021. Global trade is estimated to have also fallen by 5.3% in 2020. These percentages run into billions of dollars in real terms.
Nonetheless several reports indicate a rebound from the 2021 and beyond as the monetary policies employed to tackle the pandemic have shown positive signs. One may be wondering why a Real Estate professional is interested in the economic situation. This is because it brings light to what is happening in the Real Estate sector which is dependent on liquidity; thus people’s ability to have access to money and spend.
Like many other countries across the globe, Ghana’s Real Estate Sector was also affected. These developments in the last two years also left in its track lessons that are useful for 2022 and beyond.
Real Estate In Ghana is Still a Good Investment
The effect of the pandemic on the sector in Ghana was not as pronounced as it was elsewhere; like the US and other developed countries where the decline in the sector was huge.
The variation may be due to the infant nature of the sector in Ghana. Landlords who had rented out housing and commercial properties continued to enjoy rent during the pandemic whereas other businesses lost out completely.
I must admit however that some property owners deferred rent payment for their clients. Of course, deferred payment of rent is only a delay in payment and not loss of money. I know one landlord around Spintex Road who waived housing rents for a month or two. I am yet to hear of commercial property owners who waived rent.
Although property purchases reduced due to restrictions and cash flow challenges from other business streams of potential buyers, it is important to note that it was a temporary situation. The good thing about Real Estate is that it is not easily perishable and appreciates in value with time. In other words, the fact that many deals could not be closed during the pandemic does not mean an outright loss.
Whereas Real Estate in City Centres reduced, especially commercial real estate, housing did quite well. Information from colleagues in peri-urban and city outskirts show that Real Estate (housing) was minimally affected, thus it did better than housing in city centres. Particularly so, as quite a number of people moved into work from home mode. For them, the pandemic was more of a blessing and reiterates the fact that it is a good time to start moving to outskirts and peri-urban centres where one can have the best of both worlds; access to good amenities, serenity, healthier and peaceful spaces and untapped opportunities.
The pandemic also confirmed the fact that property ownership is a good form of long-term investment that provides stability and economic independence. If you have your own home and rent out other spaces or invest in the property market, either physically or through instruments, you get to benefit from a passive income and long-term financial security. Like we say in the Ghanaian parlance, “your money will be working for you 24/7.”
Rent, Transport and Food takes a huge part of the Ghanaian’s expenditure. Many Ghanaians who break free economically, usually do so, when they are able to deal with the rent problem. It frees up money that helps to efficiently deal with transport and food, by multiplying the freed up rent expenditure.
Let me break this down. Although the law bars property owners from taking more than six months’ rent advance, the reality is not the same. In most cases, the minimum rent advance one may pay is two years (24 months) for initial contract. It subsequently reverts to yearly after the initial payment expires. Thus, if one wants to remain a tenant of the particular property. For families who want a two-bedroom house, irrespective of the location in Accra, the initial payment can secure a land in communities adjoining Accra or in other regional capitals.
In order not to find oneself in the vicious cycle of rent payment, it is important for young people to consider securing lands on the outskirts of city centres and build or work out a mortgage payment that secures you a home by the time your family grows into a full nest. It is the best stability you can ever get. This has the potential of giving you the financial independence you want.
You can use the property and probably a loan from your salaried or business account to build another home and rent out. The proceeds of the rent services the loan; beyond which all subsequent rent become returns on investment. You can replicate this many times.
It is not Too late to Break Free
When people hear about the absolute cost of properties or even land, it deters them. Considering that the rent burden makes it impossible to perceive owning their own property and breaking free.
It is normal for many first timers. However, if the pandemic has not taught anything at all, it exposed the vulnerability of tenants in Ghana. Many who lost their jobs or had their income reduced due to restrictions found it difficult to keep up with rent payments. While all home or property owners had to do was at best defer rent payments. Thus, tenants still had to meet rent obligations even if it was delayed.
I know families who had to move from two and three-bedroom- homes to hall and chamber homes. Others had to relocate from urban (city) centres to the outskirts and other regions to cut down on rent payment. This relocation included businesses too. The lesson here is clear, that until you own the property it is difficult to break free.
What one must do is to assess their income, their line of work and the kind of education and life they want for their children. Based on this, move to a smaller property and save the extra income over time to secure a land and be committed to the building project. In about five to ten years one can break that cycle. It sounds like a long time, but it is possible; and you will not be late.
If your income level can help you to secure a mortgage, start now. Just do your due diligence and talk to the right people. CBC property has a team that is ready to help anyone that requires such an assistance. The point is that the experience you gain from the transition puts you in a good position to make more passive income by replicating the process faster after you completed your mortgage or building.
Functional Properties Beats Them All
The pandemic by its nature raised serious health and environmental concerns. Of course the health sector was exposed due to inadequate infrastructural, logistical, personnel and investment provision. The ripple effect also called for housing and commercial properties that were more functional in terms of space, ventilation, environmentally friendliness and modification flexibility.
For a very long time many spaces had not taken these concerns very seriously despite the many expert advice. The pandemic forced the hand of property owners and users as well as governments to ensure these standards are complied with to avert a catastrophe.
Today many property buyers and owners are concerned with how spacious a property is, how green it is and its multi-purpose nature. This means that new entrants in the sector must consider all these in their plans to create more value from their property. Similarly, existing players must make adjustments to reflect this trend which is geared towards shaping the future of the Real Estate Industry.
To stay ahead of the game, one must consider more than one way to use a property with the view of making more value even in the time of a pandemic or any unforeseen disruption in the normal way of life. Is it possible to turn your space into an isolation centre, hostel or event center and rent out when it becomes necessary or just give it out as a social investment for leverage in future?
For many businesses the hybrid system, thus working from both the office setting and home is high on the table. Hence, home buyers are also considering how possible it is to work from home should the need be and hence will readily accept properties that provide such an opportunity.
Modification in Transactions
No one anticipated the pandemic nor its rippling effect like the way it did until it actually hit. Life and business was going on as usual; including Real Estate business. Many of the transactions between property owners and renters did not anticipate the pandemic and hence had no provisions to deal with that. That is to say, the sale and lease agreements did not fully determine what ought to be done during an uncertain economic situation like the pandemic presented.
I am sure in some high risk industries like mining, oil and gas among others such clauses (force majeure) may be in effect. In the Real Estate sector in Ghana that was not the case for most transactions. Hence, as the lockdowns and other restrictions kicked in, many businesses had to close down or downsize or cut pays.
This meant their inflows dwindled and hence had difficulties to fulfill their financial obligations including rent. Some renters of both commercial and housing properties had to renegotiate with their prospective landlords but that was difficult to do, because that was not anticipated by the contracts they signed.
Thus they had to either let go of the property or find the money to pay and hope that things will pick up. Some sacrificed their workers (pay cuts and downsizing) to keep their spaces. Others lost the business altogether after squeezing to pay the rent due to the unimpressive rebound of the business.
This new challenge that the pandemic carried in its wake has called for the need to include some of these proactive clauses (force majeure) in new transactions to protect both the property owner and the renter.
For instance, new agreements can include that should there be any unanticipated natural disaster that affects the economic situation, tenants could stop paying rent until the situation improves. This is different from insurance.
Now, more than ever, new transactions must consider the worst-case scenario. Some of these scenarios to consider is Whether or not it is possible to end the transaction without any adverse effects should it become necessary? Whether or not rent can be deferred in case of unanticipated economic situation? How will a property owner still earn his or her due during or after an unanticipated economic situation?
It is a complex situation, but lawyers and Real Estate Professionals are always happy to assist you should you call on them.
By Chris Nii Abbosey
The writer is the CEO of CBC Properties Limited, a member of Ghana Association of Real Estate Brokers (GAR) and Ghana Real Estate Developers Association (GREDA); Email: [email protected] Cell: +233-20-422-5002