Real Estate Development In Ghana

One of the fastest growing sectors in the Ghanaian economy is the Real Estate industry. In fact this is not strange to industry analyst especially as the World Bank’s Global Economic Prospect Report has projected that Ghana will become the fastest growing economy in fiscal year 2011 in sub-Saharan Africa.

The report singled out the construction industry as one of the sectors to see a significant growth in the next couple of years. This report is coming at the heels of 10 years of growth that has seen a significant increase in income levels within the economy.

This positive outlook has obviously led to a sustained increase in investments in the Ghanaian economy. The Real Estate industry in particular seems to be doing very well especially based on the fact that the country presently has a staggering housing shortfall in both the residential and commercial sectors in the urban areas. It is not surprising therefore that the returns on investment are lucrative in this sector. Office and housing units are often sold out before construction is completed. However, investments in the Real Estate industry are fraught with many pitfalls and the astute investor must tread carefully in order to maximize their return on investment. There are many latent pitfalls and potential transactional costs in the Real Estate industry which can trip even the most experienced investor.

The most critical of these latent pitfalls is the land tenure system in Ghana. The Ghanaian Constitution provides that no interest in or any right over stool lands (stool lands make up the bulk of land interest in Ghana) shall be created which vest in any person or body corporate a freehold interest in land. The constitution states further that no interest or right over any land shall be created which vests in any person who is not a citizen of Ghana a freehold interest in land in Ghana. Thus effectively, majority of Real Estate properties are constructed on lands that have been leased. A lease by definition must have a beginning and an end date. In Ghana, the industry practice is to grant a lease for 99 years in the case of individual leases.

The standard lease agreement in practice has a clause stipulating that the lessor must obtain permission from the head lease before any sub lease or assignment can be granted. It is imperative that an investor obtains from the lessor a properly executed permission from the head lease before any money is paid. Failure to obtain a properly executed permission from the head lease may lead to undue delay in the registration process or even possible litigation.

Since the lessor can only grant you what he has, an investor must make sure the remainder of the lease is adequate for his or her specific investment needs. Thus, if the remainder of the original lease is 20 years, then the most interest you can obtain under the circumstance is an assignment of the remaining 20-year interest.

The lease document must also include an option for renewal. Since there is currently no legislation as to how to deal with ownership rights and disputes in the event that the lessor decides not to renew the lease after the term has expired, it is very critical that the parties agree among themselves at the front end how the land and any investment on the land will be dealt with at the expiration of the lease.

AUTHOR: AB Lexmall & Associates

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