REAL ESTATE MINUTE With Cyril Nii Ayitey Tetteh: To buy, sell or wait? Navigating the impact of the Cedi appreciation on property transactions

The other day a friend shared one of the several memes making round on social media, the essence of which is that some property developers are now pricing in cedis. We had a quick laugh at the situation.

Property developers have always indexed in dollars due to the volatility with the Ghanaian cedi against the dollar, some sort of hedging to prevent exchange rate losses.

The recent significant appreciation of the cedi against the dollar, with exchange rate dropping from almost as high as 16 cedis to 1 dollar to an average of 11 cedis to the dollar was significant enough to warrant action by the said developer to prevent exchange losses.

While at the macro level, the cedi appreciation bodes well for the economy, depending on which side of the transaction you sit, you may have been positively or negatively impacted Indeed it is not only developers who have been affected.

Be you a developer, a landlord, a mortgagee, property hunter or tenant, you cannot escape the impact of the cedi appreciation against the dollar in real estate transactions. Here are a few tips on how to navigate the situation positively.

For Developers and Private Vendors

Real estate developers find themselves in a curious situation. With the cedi appreciation, imports of building materials will be cheaper and thus now would be a great time to build a new stock, especially with Fitch Solutions forecasting that the cedi will end the year at 13 cedis. Stocking up will thus be a good hedging move to make significant savings ahead of the expected depreciation of the cedi at year end.

On the other hand, developers would “lose” having acquired land, taken loans to fund, imported materials at a higher dollar rate and would thus be hit by possible exchange losses. To mitigate these losses, developers and private vendors could price in the cedi equivalent of the earlier advertised dollar prices until a time cedi depreciates as forecasted.

Great Buying Window

If you are property hunting, be you a first time or second time buyer, there could be no better time than now to buy properties, with the dollar cheaper to the cedi right?

It looks like a no brainer on the face of it, but the average buying process with requisite due diligence and legal documentation takes an average of 3 to 6 months, some evAen stretching to a year if there are any legal complexities. The caution here is to contain your excitement and go through all the requisite processes as any quick transactions might end up costing you more.

What you could do is to negotiate for the sale price to be locked in cedis, although a typical developer will likely push back. Locking the price in the cedi equivalent of the dollar price will allow you to breathe and hedge against the expected depreciation of the cedi in the next year.

Should you fail to lock the price in cedis, do make a minimum deposit at least and request for a receipt in a dollar equivalent of the cedi amount you paid. Invest the rest of the funds if you have the full amount in some short-term securities, that will allow the interest to offset any possible exchange losses in the short term. Should you want to pay cash in full, ensure you make the payment via a banking system to leave a banking record and bargain hard for a significant discount for paying cash in full.

Servicing Your Mortgage 

When the cedi depreciates, mortgagors or homeowners servicing dollar denominated loans typically are worst affected as the cost of servicing their mortgages shoot up significantly.

So, it is always a welcome reprieve when the cedi rarely appreciates in value against the dollar, even if temporarily, as monthly repayments cost less in cedis and funds are freed up for other projects. Enjoying the temporary relief is however only one side of several benefits.

In a period of cedi appreciation, you should take the opportunity to convert your dollar mortgage to cedi, this is a hard sell, but trick is to ask for a top up loan, and the banks are ever willing to give you more money so they make interest income off you and with that as your bargaining chip, request for a new amortization schedule in cedis, especially if you earn in cedis.

You can also take the opportunity to release equity at favourable rates, or even completely refinance your loan by moving it to another finance house willing to inherit it at terms favourable to you.

That will be it for today’s tips, next week we conclude by looking at the retail and commercial sector.

The writer is the Executive director of Yecham Property Consult

 & Founder of Ghana Green Building Summit.

Email: [email protected]

LinkedIn: Cyril Nii Ayitey Tetteh

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