Accra's Price-To-Rent Ratio: Buying A Home Is More Favorable Than Renting

Accra's price-to-rent ratio which currently stands at 5.07 within the city center indicates that buying a home is more favorable than renting one in the city. Contrary to the city center, the data reveals that it is much better to rent a home outside the city center than to buy since its price-to-rent ratio stood at 514.69.

The general rule is that a price-to-rent ratio of 1 to 15 indicates it is much better to buy a home than rent; a price-to-rent ratio of 16 to 20 also indicates it is typically better to rent than buy, and finally, a price-to-rent ratio of 21 and above indicates it is much better to rent than buy.  

According to Numbeo, the average price for renting a 3-bedroom apartment within the center is GH₵14,914.87 compared to the GH₵7,524.51 price per square meter when buying an Apartment in the City Centre. However, outside the city center, the price for renting a 3-bedroom apartment is GH₵4,622.22 while the price per square meter for buying an Apartment is GH₵192,557.90.

The price-to-rent ratio shows whether buying or renting a home would be best for a particular property in a given market. While the price-to-rent ratio compares the economics of buying a home versus renting, it says nothing about the overall affordability of buying or renting in a given housing market. 

This ratio compares the average home price to the annual cost of renting a similar property. The higher the ratio, the more advantageous it becomes to purchase a home rather than rent. The current ratio suggests buying a home in Accra city center can be a better long-term investment than renting.

Though the trend has been the same, the price-to-rent ratio for Accra city center in 2022 was 7.70 compared to the 5.07 recorded this year. While the price-to-rent ratio outside the city center in 2022 was 277.98, this year recorded 514.69. This means that in comparison, the cost of purchasing a home in Accra city center to the cost of renting a similar property has gradually decreased in recent years.

How To Interpret the Price-to-Rent Ratio

Price-to-rent ratios of 15 or less indicate that it's a good financial decision to buy a home in Ghana. On the other hand, price-to-rent ratios of 21 or more tell you that the homes may be overpriced and it might be a financially smarter choice to rent instead.

For example, here is how to calculate the price-to-rent ratio for two different locations in Accra.: Accra City Center and Accra Outside City Center.

Accra City Center: GH₵74,713 / (717 X 12) = 9

Outside City Center: GH₵880,000 / (2,197 x 12) = 33

In this case, it's more financially sound to buy in Accra city center than to rent. Outside Accra city center, on the other hand, you may be better off renting than buying. 

Factors That Causes High Price-To-Rent Ratio in Accra

Several factors contribute to the high price-to-rent ratio in Accra. These include the city's growing population, the limited supply of housing, and the high cost of land. 

The growing population is putting a strain on the city's housing supply, which is driving up prices. The housing deficit in Accra continues to increase despite the growing number of housing construction. Over the last few years, homeowners have begun to rent rather than own in the buzzing city of Accra because of the cost associated with a house in Ghana. 

The high cost of land is also a major factor in the high price-to-rent ratio. Land prices in Accra are among the highest in Africa, which makes it difficult for developers to build affordable homes. At the same time, interest rates on mortgages have remained relatively high, making them more difficult to access.

Conclusion 

Before rushing off and purchasing a property in the Ghanaian real estate market that has a high price-to-rent ratio, there is a risk that you need to look out for. Even if you can afford to purchase a rental property in this market, the property may not always be optimal. When home prices are too high compared to annual rents, generating a high return on investment will be difficult and this ought to be considered.