by Scot Murray

The dream of owning your own home has an alluring pull – it marks the end of paying rent, the start of financial peace, and the first of hopefully many assets you aim to leave to your children.

Unfortunately, the reality is that homes are expensive in Ghana. Both macro and micro factors having to do with scale, manufacturing affordability, and taxation schemes all contribute to the high cost of housing, forcing the dream of home ownership for many to go unrealized.

Unquestionably there is a significant housing deficit in Ghana. But in truth, it’s less of a housing deficit than it is an income deficit. Too many people simply don’t make enough money to get themselves on the property ladder. And if the private sector hasn’t been able to solve this conundrum to date, it means that significant government support will be required before the value equation makes sense for developers to deploy risk equity.

So let’s say you happen to be one of the fortunate ones who can afford a home, either because of your own prosperous labor or the success of your parents or grandparents. It’s important that you consider the preservation of capital and not fall into the trap of building a home that is destined to lose value.

In prior articles, I’ve discussed the importance of quality construction and how value diminishing subpar materials and poor execution can be. But leaving quality factors aside for a moment, the decisions of what to build, where to build it and how much to spend can have an incredible impact on the future value of your home.

Imagine the following scenario: you’ve bought a land in Weija and you’re building your dream home. The land cost you USD$20K and your seven-bedroom two story house with maid’s quarters is going to set you back just over USD$280K. Now let’s say that life deals you a curve ball and you are forced to sell. How many people are out there who want to buy a house in Weija for $300K, if not even higher owing to the time value of your money?

The fact is that you need to consider spending ratios when building your home. It doesn’t make sense to design and construct a million-dollar home on a five-thousand-dollar piece of property. After all, it is the land that drives the majority of home appreciation, rather than the depreciating building you put on it. To stay safe, try to devote at least 25% of your budget to land so that the land merits the expensive structure you plan to build.

Also, don’t let your dreams go too wild – especially when those dreams add greatly to the cost. Orange mosaic columns and trapezoidal windows may look great to you, but other people probably won’t like them and certainly won’t pay extra for them. Value for money and universal appeal should be factored into every decision. If I were to conduct a poll of five of my friends, would they agree that spending money on this feature is worth it?

Finally (and this is an important one), stick to house sizes that developers sell. If developers aren’t selling 800 square meter homes, it’s probably because there isn’t sufficient demand for them. The larger you build, the higher the cost, and the higher the cost, the harder it will be to sell.

If you are dead set that your creativity of home expression should not be bound by the constraints of value and good reason, then just make sure that your home is less than 20% of your total net worth. If you had to walk away from it in the future, it shouldn’t have a meaningful impact on your world. For those of us less fortunate, think well before you build.

As much as a home is an emotional asset, it costs too much to be designed on emotion alone. Whatever you plan to build, plan to be able to sell it for more than you spend. It’s a hard equation to get right, but a costly equation to get wrong.

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Scot Murray is the Managing Director of Denya Developers. He and Ernest Hanson, the Managing Director of Beaufort Properties, write a column on the property market in Accra. You can contact them at +233268315111 or sales@denyadevelopers.com