If you have ever undertaken a property transaction in Ghana, you would discover that many properties within the country are priced in dollars. Listing sites, property developers and real estate agents often price real estate assets in dollars. Financial institutions also provide dollar-denominated mortgages.
This practice of pricing properties in dollars shields property investors from fluctuations in the local currency (the Ghanaian cedi). This has become more apparent, especially in these periods of rising inflation, where the general price of goods and services, including building materials continue in an upward trajectory. While this shields property developers, owners or investors from currency fluctuations, the practice further makes real estate an expensive investment for the average Ghanaian who earns income in the Ghanaian cedi.
Although property investors have good reasons to price real estate assets in dollars, economists have established that this practice is not sustainable for any local economy in the long-term. Here are 4 reasons why pricing real estate assets in dollars is not sustainable:
- It Weakens the Local Currency
As more and more real estate transactions are undertaken in the dollar currency, property developers, investors and owners create an increased demand for the dollar currency over the local currency. This increases the value of the dollar currency while the Ghanaian cedi continues to lose value.
- It Worsens the Country’s Balance of Trade
The practice results in an increase in the value of imports over the value of exports. As the cedi continues to lose its value, it makes imports more expensive, while exports become less expensive. Subsequently, this will result in years of trade deficit in the country, leading to a negative outlook in the country’s economy.
- Interest Rates will Continue to Rise
As real estate transactions are priced in the dollar currency, it pushes inflation higher due to an increased demand for the dollar. Consequently, the Bank of Ghana would resort to increasing interest rates in a bid to control the spike in inflation.
- Increases Public Debt
As currency decreases in value, the country will be obliged to borrow money from international lenders to fund public sector projects. This decreases the attractiveness of the country’s economy to foreign investors.
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