Investing in real estate in Accra today: is there cause for optimism?
Last week I spoke on a panel about the future of Accra and one of the topics we debated was whether investors have more cause for optimism or pessimism in the real estate market today. My short soundbite belied a more substantive discussion and so I decided to expand upon my thoughts in this article.
Of course, there are many issues facing the real estate market in Accra (see my discussions on construction quality), but what I wanted to focus on this time is the issue of physical connectivity. The adage – location, location, location – is nothing more than a codification of the importance of connectivity. It’s not just what you’re buying (that which can be inspected), but where you’re buying it (your location should enable an easy physical connection to the places you regularly go to: your place of employment, children’s schools, medical care, shopping, restaurants, etc.). The tricky thing with connectivity - and this is what you need to realize - is that it can and does change.
Let’s take Trasacco Valley, for example. When the first houses were coming up, it was just a short-drive on the motorway to reach Independence Avenue, and the road into East Legon was a straight shot. It was then in the early 2000s that Trasacco Valley represented the pinnacle of gated-community luxury in Accra. But as adjacent neighborhoods expanded, with many new houses being built, the volume of traffic grew exponentially.
The result is that houses in Trasacco Valley today are almost unsaleable. The plot and home sizes, interior quality, and communal amenities – all of which come at a significant cost – no longer match the value of the location. Buyers at a Trasacco price point would rather buy a home in AU Village (Cantonments) or Airport Hills than contend with the inconvenient daily commute that living there requires.
This is a cautionary tale that real estate investors should heed – connectivity is actually not measured in distance, but rather travelling time. Therefore, it changes. And most of Accra has experienced travel times getting worse, not better.
Looking ahead, say over the next thirty years, if we assume 5% real GDP growth, economic activity in Ghana will grow to four times what it is today(!). While it’s hard to predict what impact that will have on Madina, I think we can all agree that the prime neighborhoods in Accra will become even more prime. There will not be a new Airport Residential. Cantonments will still be Cantonments. If we look at the examples of other capital cities – old bungalows in the center of New Delhi selling for $30M plus – we get a sense of what’s to come.
Were we to be investing in real estate in the developed world – say London or New York – predicting future improvements to connectivity is almost a requirement if one wants to achieve above market returns. But in a high growth city like Accra, you don't need to take that kind of risk.
Stick to buying in the most central neighborhoods where travel time cannot meaningfully increase because travel distances are short. Then focus on construction quality because the bet you’re making is inherently a long-term one. If you buy a property that holds its physical value over the next thirty years (meaning the structure is strong and well-built), you will eventually see the land underneath quadruple in value (see my discussion on house durability). Imagine if that apartment in the meantime yields a high single digit or low double-digit return – that's a pretty compelling investment, both short-term and long-term.
Too many people buy real estate based on today’s sentiment. Markets are up? Let's buy. Markets are down? Let's wait. The secret is to take a longer-term view, make sure that the connectivity of your location will not become compromised over time, and then buy quality. If you do that, there is plenty of reason for optimism.
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