On Friday, February 3, 2023, the Finance Ministry released the Second Amended and Restated Exchange Memorandum offering to issue new bonds for institutional and individual bondholders invested in Government of Ghana (GoG), ESLA Plc and Daakye Trust Plc bonds to the tune of GH¢130 billion.
The debt exchange programme comes in the wake of challenging economic conditions in 2022 which, according to the finance minister, has left Ghana's public debt unsustainable. Data from the Bank of Ghana's Summary of Economic and Financial Data shows that the cedi depreciated by 30% against the US dollar in 2022 while inflation reached 54.1%, a rate not recorded since the 1990s.
Prospects for an economic recovery largely hinge on the receipt of board approval for a $3 billion Extended Credit Facility (ECF) from the International Monetary Fund (IMF). Disbursements from the fund will provide both budget support to the government and balance of payments support to the central bank. This, in addition to a successful debt exchange programme, will contribute to the reopening of access to the international capital markets for the country and hopefully place the public debt of GHS 575 billion (93.5% of GDP) back on a sustainable path.
While every significant investment decision one takes should involve a licensed financial advisor, as someone who has closely followed a wide range of investments in Ghana, I believe I can share some insights that would prove useful to people who are wondering what options are available to them on the Ghanaian market and beyond.
The debt exchange has unsettled many investors (domestic and international) who considered government securities as the best form of investment in Ghana. Billions flowed into government bonds and for good reason – the minimum capital required was low, the returns were generous, and the risk was (supposedly) non-existent. However, the debt exchange has shown that bonds are not without risk and they may not be the gold standard for investment that they had hitherto been viewed as.
Treasury bills are fixed-interest government securities ranging in maturity from 91 to 364 days. These are also popular forms of investment, with well over GHS1 billion invested in them every week. Nevertheless, treasury bills in the past several months have lost their inflation-protection quality as the interest rates of about 35% they return are far below the inflation rate of 54.1%. Also, the government's fiscal struggles have dented the perception of treasury bills as a risk-free investment.
Another popular investment in Ghana is the shares of companies listed on the Ghana Stock Exchange (GSE). However, stocks as measured by the GSE Composite Index have yielded negative returns in 4 of the 5 years from 2018 to 2022. This is not even accounting for inflation or currency depreciation. The current difficult economic conditions, unfortunately, do not augur well for the future of the bourse.
Collective Investment Schemes (CIS) such as mutual funds and unit trusts pool funds from several investors to purchase a wide range of assets. However, regulations have ensured that Ghanaian collective investment schemes are invested in the same government securities and shares available to individual investors and they have therefore suffered a similar fate to the investments already discussed.
Investing in foreign stocks, particularly in US stocks, is gradually becoming popular with a section of investors. However, this is not a foolproof investment. Apart from the high transaction fees one would pay to get invested, there are also taxes on capital gains and volatility which does not make it suitable for just any investor. Also, 2022 was a bad year for US stocks as the S&P 500 (a measure of the top 500 publicly traded US stocks) declined by more than 19%.
Cryptocurrencies such as Bitcoin and Ethereum have also been considered by younger investors as an exciting new investment opportunity. However, these are even more volatile than stocks. For example, the price of Bitcoin reached an all-time high of US$65,000 in November 2021 and has since declined by 66% to be trading at around US$22,000 as of the time of writing.
As for fixed deposits and savings accounts, it is clear that their returns are insufficient to counter the harsh economic realities that investors are up against. It is an unfortunate reality that many of the investments usually considered by investors as low-risk, inflation-protecting or lucrative have been through a rough patch and failed to deliver the returns that investors sought. There is a desperate need for an investment which is not correlated with all these other investments and can deliver superior returns in both good and bad times. In this article, I will explain why real estate is exactly that investment vehicle.
Ghana's housing deficit is estimated to total about 1.8 million housing units. Despite what may seem like a construction boom, there's still a huge demand for housing to shelter a population that now has more than 50% of people living in urban areas. Adding to this demand for real estate has been Ghana's emergence as a destination for people in the diaspora seeking to establish some form of permanent presence in the country. This healthy demand has ensured that despite the economic downturn, real estate prices have remained on the ascendancy, delivering healthy returns to investors.
Investing in real estate serves several purposes beyond just the lure of immediate financial returns. The ownership of property, whether as an individual or a business, is one of the cornerstones of wealth building and capital preservation. It is also one of the biggest financial commitments anyone can make. It is therefore essential that in securing property, you do not compromise in the selection of a credible, experienced, and trusted partner. And Devtraco Plus Properties is such a partner.
Devtraco Plus Properties is an industry leader in the development of exclusive premium housing units in the prime areas of Accra. As part of the larger Devtraco group, we have a foundation of excellence that we have relied on to provide suites, studios, 1-2-3 bedroom apartments, and 5 bedroom townhouses with a quality to match the highest standards. When you buy property from us, you are buying a top-end asset built with comfort and security in mind.
When you invest in real estate through Devtraco Plus Properties, you are acquiring a steady cash flow because of the high demand for the rental of our properties. Whether you want to rent out for short stays or longer leases, your property ensures that you have a reliable source of income which you can plan with. Apart from being a source of steady passive income, the returns from investing in real estate compare favourably with other investments. This is because the returns are negotiated by the owners themselves through the rent they charge to tenants. These rents can also be adjusted to match the cost of living, thus providing an in-built inflation hedge that other investments cannot provide.
According to the Global Property Guide (2021), gross rental yield in property in Accra is about 8% to 11%. This means that the rental income on the property is about 8% to 11% of the value of the property each year. As the value of the property increases (due to a burgeoning urban population, inflation, currency depreciation, and demand from foreign investors) the rental income grows at the same rate. This would mean that even as the value of your property appreciates, rental income will be able to generate nominal returns equal to the value of the whole property in any time between 9 to 11 years.
Even if you do not intend to use your property as a cash-generating asset, the appreciation in the value of the property over time is an excellent protection against inflation and currency depreciation. Owning a property from Devtraco Plus also provides you with an advantage when you are seeking credit facilities. This is because the valuation of the property can be ascertained with relative ease, and any institution would consider the property as acceptable collateral.
As the icing on the cake, consider that if you are acquiring residential property through a mortgage from a recognized financial institution, the mortgage interest is deductible from your income for the purposes of tax assessment. Essentially, the government promotes the acquisition of property by not taxing the portion of your income that is used in paying interest on your mortgage. One can hardly find other investments which the government subsidises in such a manner.
So why not take a major step today towards securing your financial future, diversifying your investment portfolio and building a solid foundation for wealth? Visit devtracoplus.com and take a look at our exciting projects in Cantonments, Labone, Roman Ridge, Dzorwulu, Airport Residential area, and other prime locations in Accra. Talk to Devtraco Plus Properties at +233 (0)27 000 0004 and let's get you started on this exciting wealth-building journey.
The author is the CEO of Devtraco Group.