Let’s say you visited Ghana for the year of return and now number one on your asset wishlist is a holiday home that you intend to use part of the year and rent out for the rest of it. There are number of things you’re going to research: what sort of price will you have to pay, what rent would you get, what are the taxes and service charges going to be, and how much will it cost to furnish it? See our tips & tricks for interior decor in Accra.
But if there is one question that people tend to forget during the purchase process, it’s the question of liquidity. How easy will it be to sell this place if I have to or want to? Liquidity boils down to two key factors – demand and access to that demand. Let me give you two examples. Every six months, we read about a Monet or a Picasso that has set a record price at auction. A seller found his buyer and got liquidity, but at what cost? As the gatekeepers to the marketplace, Sotheby’s and Christie’s charge a lot for access – 25% on the first $300,000, 20% up to $4,000,000 and 13.5% on everything after that.
Liquidity is clearly very expensive when it comes to art. Let’s say instead someone had her money in the most riskless investment, which is a U.S. Government bond. Most banks will sell it for you for free (assuming you’re a good customer) and it will take just milliseconds for the cash to hit your account – no cost and no waiting time.
If art and bonds are on separate sides of the ‘cost of liquidity’ spectrum, real estate falls in between and varies market to market. If we look at London, for example, the cost of selling is low and liquidity is high. Estate agents charge 1.7% on average and the typical flat sells within 60 days. New York has less liquidity, with homes taking 90 days to sell and real estate agents charging 5%. When you compare these costs and timelines with average rental yields - 2.5% in Manhattan and 3.7% in London - liquidity can cost as little as six months’ rent or as much as two years’ rent depending on the market.
By comparison, estate agents in Ghana are not expensive. Most charge private individuals in the range of 3% (just three months of rent), but service can be an issue and they tend to not invest money in marketing the way agents do overseas. When we’ve been approached by sellers, we charge 5% because we do the legal work too. And we tend to effect sales within 120 days – a pretty quick turnaround.
The truth is that a lot of money gets wasted in real estate in Ghana – bad construction, pricey buildings in the wrong neighborhood, houses that are so big that no one would ever buy them, strange designs, homes that haven’t been maintained, etc. But you can’t let these mistakes make you think that there is not liquidity in Ghana. None of us developers would be here if that was true. If I take our development, the Ivy at East Legon, for example, we sold twelve two beds over the course of eighteen months. Demand is fairly consistent and even as a non-developer you can get access to it cost effectively – however, you have to be selling something that the market wants.
In a sense, focusing on liquidity is just another way to make sure you buy smart – buy like you’re about to turn around and sell it. If you do that, you can get access to the attractive rental yields that Ghana has to offer without the fear of having your cash locked up forever. And while Ghana is an early emerging market (not without risks!), it does seem to be masterfully hedged – as the global economy teeters, gold prices rise; as the economy ramps up, oil prices climb, and all the while demand for chocolate increases.
In the end, it comes down to the fundamentals. Stick to the dollarized neighborhoods – Ridge up to East Legon. Make sure you have something of quality that appeals to others. And finally, when you’re ready to sell, find a good agent and pay the going rate. It’s not fun to cut that check, but liquidity costs money everywhere, and in Accra, the cost of selling out is actually fairly cheap – yet another reason to be grateful for our dear mother Ghana.
References:
- Sothebys, Sotheby’s Buyer’s Premium Chart, Viewed 27th February, 2020, http://www.sothebys.com/content/dam/sothebys/PDFs/buyerspremium/February-2019-Buyers-Premium.pdf?locale=en
- Christies, Buying at Christie’s, Important Update: New Buyer’s Premium Schedule, Viewed 27th February, 2020, https://www.christies.com/buying-services/buying-guide/financial-information/
- Prevu, Seller Closing Costs NYC - What You Can Expect in 2020, Viewed 27th February,2020, https://www.prevu.com/blog/seller-closing-costs-nyc
- Home Owners Alliance, How much should I pay the estate agent?, Viewed 27th February, 2020, https://hoa.org.uk/advice/guides-for-homeowners/i-am-selling/how-much-should-i-pay-the-estate-agent/
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