Towards Innovative Housing Financing in Ghana: An Evidence-Based From South Africa’s Pension Housing Financing System

Abstract

It is onerous for low- and middle-income earners in most developing economies to satisfy the five (5) Cs lending criteria: character, capacity, capital, collateral and conditions. Consequently, about 80% - 90% of Ghanaians cannot afford a mortgage to purchase the cheapest developer-built unit. Key to the affordability problem is inadequate sources of long-term funds and the high cost of the available formal housing financing sources; i.e. mortgage. The concept of pension housing financing in South Africa provides evidence as a potential innovative solution to the above challenges in Ghana. Hence, through a review of extant literature based on axiological philosophy argues for the similar use of pension assets for ‘direct’ mortgage and micro housing financing in Ghana. In theory, pension loans and pension-secured loans could provide a better asset-liability matching for housing financing based on the Preferred Habitats Hypothesis; a potential solution to the long-term scarcity of mortgage funds, maturity gap problem and liquidity risk, which currently accounts partly for the substantial risk premiums on mortgage loans. Thus, eighty-five (85%) of SSNIT members have about 25-30 years to retirement. The paper starts a debate for the implementation of section 103 (2) of the National Pensions Act of Ghana, 2008 (Act 776), which provides the legal impetus for the collateralization of pension benefits as security in replacement of the adverse traditional brick and mortar collateral regime in accessing mortgage finance. Future studies could identify ways by which section 103 (2) could be implemented. Prior to that, testing the proposed hypotheses is vital.

KEYWORDS: Ghana, Housing Financing, Innovative Financing, Mortgage, Pension Loan