The start of commercial crude production helped propel Ghana to the top of the continent's investment destinations, but it also drove successive administrations to overborrow. Today, even after Ghana's central bank announced another 250 bps increase in interest rates during its October meeting, Ghana's annual inflation rate has increased to 37.2% in September 2022 from 33.9% in August for the 16th consecutive month. The last time the country saw such high ratings was in July 2001's recession.
What has caused Ghana’s high inflation rate?
The COVID-19 global pandemic and the Russian-Ukrainian turmoil, according to Ghana's President Nana Addo Dankwa Akufo-Addo, are to blame for the nation's economic difficulties. Black market operators and unregistered currency traders have also consequently contributed to the dramatic decline in the value of the Ghana cedi and economy. Based on the Bank of Ghana's most recent official statistics, which were published in October, the Ghana cedi declined by 37.5% between January and August of this year.
What is currency devaluation?
Devaluation is the decrease in a currency's value in correlation to a standard or currency from another country. This happens as a result of the rising national debt, excessive inflation, trade imbalances, and deficits and surpluses. When a country's currency devalues, its exports to foreign clients become more affordable, the tax on materials brought in increases, and the growth rate falls, all of which ultimately lead to the collapse of the economy. Inflation is on the rise in Ghana, which is now experiencing currency depreciation conditions and volatile markets.
How does property act as a good hedge against inflation and currency devaluation?
Investors focus on investing in different types of tangible asset classes that prosper during currency depreciation or hyperinflation in order to be ready for an approaching financial downturn. Real estate is one financial asset that does particularly well under such conditions. Property is an asset that keeps up with inflationary pressures and can be used as a strong hedge that ensures investors continue to receive a fixed income. Because land is limited in supply, it has intrinsic value and may appreciate over time as inflation rises.
In the past, buying property during a period of depreciation has proven to be highly profitable for investors because the asset is worth more in terms of the local currency. When currency depreciation is applied, a property's value rises in nominal terms. This is why buying real estate is preferable to leaving your money idle in a bank account.
Investors are currently seeking safe havens for their declining funds as a result of growing inflation in Ghana. It should not, therefore, be surprising that investor interest is rising in Ghana’s property market, despite the possibility of higher mortgage rates.
How does real estate act as a hedge against currency devaluation?
Investing in tangible assets that prosper during currency devaluation or hyperinflation is suggested if you want to be ready for an approaching financial downturn. Real estate is one asset that does particularly well under such conditions. Real estate is an asset that keeps up with inflation and can be used as a hedge. Because real estate is limited in supply, it has intrinsic value and may appreciate over time as inflation rises.
In the past, buying property during a period of depreciation has proven to be highly profitable because the asset is worth more in terms of the local currency. When currency depreciation is applied, a property's value rises in nominal terms. This is why investing in real estate is preferable to leaving your money idle in a bank account.
Investors are currently seeking safe havens for their declining funds as a result of growing inflation in Ghana. It should not, therefore, be surprising that investor interest is rising in Ghana’s real estate market, despite the possibility of higher mortgage rates.
What are the benefits of investing in property during a currency devaluation?
Although an investor's purchasing power is reduced, the property industry is likely to thrive since most people would buy property to seek long-term financial security. These are a few advantages of property investment in Ghana during the country's currency depreciation.
Ongoing cash flow
The fact that you receive passive cash flow in the form of monthly rental income is one of the advantages of investing in property. Most individuals make investments to help them diversify their portfolios, save money each month, and pay all of their monthly costs. When investing in property, though, you must be wise since you need to pick locations where there is a significant demand for rentals.
Earnings from investments
You will earn more money if you hang onto your real estate investment for a longer period of time. History has shown time and time again that investing in property offers the possibility of generating additional income. In uncertain times, the real estate market has always recovered from booms. Real estate investments are a fantastic way to increase your wealth since it provides revenue that is less variable than that of other assets.
As more individuals search for investment opportunities in this high inflationary climate, the price of real estate is expected to rise as a result of the depreciation of the Ghanaian currency. Land will become more expensive due to the rising demand and limited availability, making it an excellent investment choice for consumers in uncertain times. Those who have previously made real estate investments will benefit from capital appreciation as their property values rise.
Security and financial leverage
Owning a rental property may provide investors with a sense of security due to the property's increase in value over time. This implies that when land and buildings appreciate, the value of your property will also increase. This gives you real estate leverage which you may use to finance other property purchases. You can basically own the property without instantly covering the whole amount by employing leverage. Leveraged real estate also enables you to diversify your investments over a number of rental homes.
Wealth growth and steady equity
Your net worth is a part of the money you create when you pay off a bond on a house. Additionally, when your equity increases, you'll be able to use it to buy other properties, which will increase both your wealth and cash flow.
Minimized volatility risk
Unlike other securities and shares, investing in real estate does not involve frequent fluctuations. The real estate market is generally stable, and price increases take place over time. It suggests that, in contrast to stock markets, where there is always a danger of loss, there is less of a chance of losing money in real estate.
Do you want to invest in real estate?
Real estate investors have a variety of advantages. You may leverage real estate to increase your wealth with well-picked assets, and you can also enjoy dependable cash flow, exceptional yields, tax benefits, and diversity.
Are you considering purchasing property in Ghana? Contact the expert property consultants at Akka Kappa for more information on how you can use real estate as a good hedge against inflation and currency depreciation.