Prospective home owners will now have to pay more for decent accommodation, following authorisation by the Ghana Revenue Authority (GRA) for real estate developers to start charging a flat rate of 5 percent Value Added Tax on all housing units sold from October 1, 2015.

“We hereby write to inform you that, as agreed at the said meeting, October 1, 2015 is the date from which you are to commence charging and accounting for the tax,” the GRA said in a letter dated September 29, 2015, addressed to the Chief Executive Officer of the Ghana Real Estate Development Association (GREDA).

Houses sold between two or more parties before October 1, 2015, will however, not attract the flat 5 percent VAT.

“It should be noted that in accordance with Regulation 45 of the Value Added Tax Regulations, 1998 (LI 1646), for contracts concluded between two or more parties before October 1, 2015, the terms of which did not include provisions relating to the tax, the supplier shall recover the tax due on any taxable supplies made under the contract after October 1, 2015,” the letter said.

With a housing deficit of more than 1.8million units, the developers have criticised the move and called for suspension of the tax for broader consultation.

Baffour Akoto Osei, Chief Executive of GHS Housing Limited, told the B&FT that: “Already it very difficult for clients to buy. We serve the middle income market. Most of our clients are between 25 and 35, while the others are those around 55 years preparing for retirement.

“Incomes haven’t gone up so much, but prices have escalated very much. At the current 32 percent interest rate from the banks, most of the working class don’t qualify for mortgages.

“Private individuals and public servants who were buying houses in 2010 and 2011, have declined to zero. All those that are now able to buy houses are those drawing mortgages from their companies; and even then you have to give them a payment plan to make up the small difference -- they don’t even qualify. This VAT will only increase house prices, limit the number of people who qualify for mortgages, and put developers out of a job. The GRA should suspend it for broader consultation,” he said.

An ISSER report early this year cited the lack of a coherent plan and short-sightedness of policymakers as causes of the housing shortage. The GREDA estimates that about 50% of Ghanaians live in sub-standard housing and various unsuitable structures.

Indeed, rising cost of raw materials due primarily to the depreciation of the cedi, cost of constructing drains, and lack of long-term funds are some of the issues bedevilling the sector and have held back any attempt by private individuals to reduce the housing deficit.

The cedi has depreciated about 40 percent over the past 17 months. It July, the local currency gained some ground when the cedi was trading GH¢3.236 on the interbank market and leaving the year-to-date at 1.1 percent.

The cedi now trades against the dollar at GH¢3.7178 as at close of trading on Friday.

Given that most of the construction materials are imported, house prices reflect the behaviour of the dollar.

“Previously, with qualifying salaries people with a salary level of GH¢3,000 could buy a home. But right from 2014 when the cedi depreciation started so steeply, the minimum income required to buy a home -- after all expenses on the houses -- is about GH¢5,000,” Mr. Osei said.

Limited long-term funding for developers has also bridled any attempt to address the shortfall in housing. Unit and mutual trust fund managers are restricted to investing just 10 percent of their funds in the real-estate sector.

The SEC last year said it was reviewing the said regulation to encourage fund managers of pooled investor schemes to commit more resources into the housing sector, as the country struggles to address its widening housing deficit.

Banks have also been described as risk-averse and seeking to play safe for assured regular returns by investing in government Treasury bills.

Patrick Honohan, writing in African Finance in the 21st Century, noted that: “Data collected by the Bank for International Settlement (BIS) on the nationality of deposit-holders at banks in advanced economies reveal that African offshore deposits represent a high proportion of the onshore deposits in their countries -- over 100 percent in one case, and typically in the region of 25-60 percent.

“Deepening has been more pronounced for deposits than for private credit. This reflects the growing pattern whereby African banks place a much lower proportion of their resources with private sector borrowers than do banks in other regions,” he wrote.