Back when the government announced the 40/60, 20/80 ad 10/90 housing schemes to address the ever-expanding demand for residential houses in Addis Ababa and large cities, the kind of turnout, which was expected at Commercial Bank of Ethiopia, although high, did not match what was actually seen on the ground. All three programs saw interest in the neighborhood of one million, an overwhelming demand for city administration to satisfy. Nevertheless, although not emphasized often, private real estate sector as well has been experiencing an impressive growth in demand. Recently, the sector seems to be seeing another awakening driving by renewed interest in high-end houses. In this edition of The Reporter, Dawit Endeshaw explores the sector.
When talking about real estate market in Ethiopia, names like Access Real Estate, Jackross Ethiopia and few others are always on the frontline.
It is not about their well-established reputation or market success they enjoyed in the industry; in fact it is the other way around.
Access Real Estate, masterminded by the ex-investment banker Ermais T. Amelga, has managed to mobilize more than one billion birr in a very short period of time from close to 2,000 homebuyers. By the time Access started to promote its housing package, it was like the housing market was struck by lightning. Banking on what Access has called a new and modern way of constructing houses—using steel structure and magnesium boards—the company promised homebuyers that it would deliver affordable homes in less than one year, a feat which has not been tried in Ethiopia before.
Access’s money, as they say, was on the steel structure and how it will cut down construction cost and time, significantly. Encouraged or perhaps a bit overconfident with this new way of constructing houses, Access went ahead to offer mouth-watering deals like promising to pay 5,000 birr in rent monthly for homebuyers if the delivery of the units exceed the stated timeframe. On top of that, Access promised to return the full amount of the down payment plus 15 percent interest should a customer decides not to continue with Access.
Well it seems that this overconfidence has finally brought Access down to its knees. Such a bold ambition and hope of homebuyers dissipated into thin air when Access failed to provide not even a single housing unit to its customers.
Following this, homebuyers have tried to go here and there to get either their house or their money back. The case has brought a public uproar which finally led to the intervention of the government to find solutions. But again, this has still brought no solution.
In addition, a number of court litigations involving real estate developers and homebuyers have been common in Ethiopia such as those involving Habitat Real Estate, May Real Estate, Country Club Developers (CCD) and earlier cases like Ayat Real Estate.
The chronicles of many real estate developers go to 2004 and 2005 where the first large scale real estate development was pioneered by Ayat Real Estate. Between 2004 and 2007, close to 2.7 million sqm plot of land was leased by developers.
It was the time of Arkebe Oqubay (PhD), the then mayor of Addis Ababa, where he tried to bring a comprehensive solution to the growing demand for house in the city. One solution was by launching a low cost condominium housing project and by allocating a large plot to private developers.
The plan was to build 50,000 low cost houses in a year’s time to the city’s residents. This plan, however, could not materialize; not even today.
As part of this solution, the city under Arkebe started to allot 50,000 sqm of land to each private developer at a subsidized price. Since 2010 alone, close to six million sqm was said to have been allocated to developers.
In 2010, the real estate business went through its first hiccup as price hike which in turn led to a double-digit inflation significantly increased the cost of construction materials. Not only that, Kuma Demekssa, who was heading a city administration which replaced the caretaker administration of Berhane Deressa, has begun to enforce measures against those who failed to develop the land to its intended purposes. By the time, it was only 14 percent of the total allotted land which was rightly used for real estate development.
Whereas the developers, which were given large tracts of land mostly located in the outskirts of Addis Ababa, were struggling to cope with the market as they did not develop their properties due to poor infrastructure such as road, power and water.
City officials, in addition to identifying poor performance from the side of developers, also found out that some of these developers were selling their land which is outright unconstitutional.
Despite such an extensive move from developers, city residents, on the other hand, had high hopes for owning their own homes. The fact remains, Access had significantly shrouded the public’s trust over the Ethiopian real estate sector, according to many players in the real estate industry.
Almost twelve years after the mushrooming of the first real estate companies, the Ethiopian real estate market is yet to take off. Currently, there are around 630 real estate investments across the country with a total investment capital of 3.5 billion birr.
According to data from Ethiopian Investment Commission, since 2015, close to 117 companies took an investment license to invest on 56 different real estate projects. From 117, 99 percent of them are owned by Ethiopians or in joint venture with foreign investors. Some were still fully owned by foreigners.
Out of the existing 56 real estate projects to date, 43 are located in Addis Ababa.
These companies exclusively focus on building houses to the upper and upper middle class.
Noah Real Estate, a sister company of Great Abyssinia, is among those local companies who joined the industry four years ago.
Known for its well branded motto “Yaltgeneba Anshetim” meaning “we don’t sell what we haven’t built”, Noah seems to be doing well in the market as housing demand from the upper class is growing impressively from time to time.
The company has, so far, said to have built around 2,200 housing units in prime locations in the city as well as in the outskirts of Addis Ababa.
“It is good that new companies are joining the industry,” Abiy Hailemariam from Noah said. “We know that there is still a huge demand.”
Among those new entrants, Country Trading PLC joined the market with around 1,000 middle class housing units around CMC, located in the Eastern part of Addis Ababa.
Given the developed infrastructure and transportation system, this part of the city is now becoming a hub for many real estate companies such as Tsehay Real Estate, Noah and others.
Companies such as Tsemex and EverGrand have also joined the market recently.
“We are happy with new companies joining the industry because they will somehow stabilize the market,” Abiy said.
So far, Noah at its current capacity is pushing to deliver at least 500 units a year. The company is said to be offering units around Gurd Shola and Ayat for 900,000 birr to 1.9 million birr whereas those around Bole and Atlas areas go for a much higher price tag.
The price per square meter may rise as high as 35,000 birr.
Tsedeke Yihune, founder of Flintstone Real Estate, mentioned some of the paramount factors which are limiting private developers in Ethiopia.
He asserted that one of the factors is limited access to land where developers are not getting as per their demand.
The limited access as well as the lengthy process to get one plot is a discouraging factor for developers.
There are two ways to access land which is either from a private ownership or leasing it from the city administration through an open bid process.
Currently, land under private ownership – depending on its location and size – is on average priced at 15,000 birr to 30,000 birr per sqm; and sometimes it goes up to 60,000 birr.
Factors including the type of building resting on the land and the number of storeys also determine the price of the plot. In general, the cost of the land may take up to eight percent to 20 percent of the overall investment outlay of the building.
“The common trend nowadays is getting land from private ownership,” Abiy said.
As far as the challenges are concerned, Tsedeke argues that the procedures related with acquiring land are very lengthy and tiresome. And, this adds up to the price of land making the entire project very pricy. Most of these land related procedures are handled at the municipal level making things quite difficult for developers due to delays and elongated procedures.
“The procedures have to be decentralized to the lower level of the administration to avoid congestion,” he suggested.
Yet the demand is growing and the supply is still limited; companies like Flintstone, with a good reputation, have the capacity to build at least 200 housing units per a year.
Following failure of the government to delivery its 40/60 condominium projects on time, which is said to have targeted customers in the middle income category in comparison to those in 20/80 and 10/90, the situation is said to have created an advantage for private developers. The government has failed to honor the contract it has entered into by providing the houses even for the one percent of the people who have met the full payment requirements for 40/60 housing package.
“There are a few people who shifted from 40/60 to us,” Abiy said.
But still private developers argue that they themselves have a limited capacity to serve if a significant number of people who shifted from government houses to their side.
“It will be huge for us if, for instance, 1,000 people decide to come to us en masse,” Tsedeke said. But, still this will be too much for us to handle.
Developers also argue that lack of comprehensive legal framework to regulate the industry is creating a problem for both developers and clients.
A bill, which was expected to be a guide to the industry, is still pending since the past four years.
Tsedeke expresses dismay because the bill has taken this long time.
It will give a guarantee for both the clients and the developers, he argued.
It will create a healthy environment in the in industry, he said.
The draft proclamation is said to regulate real estate development and transactions. The draft proclamation will introduce provisions which will oblige developers to have project-based registrations.
It also gives developers the right to get land within one month. Given the current trend, it will at least take three months for a developer to get access to land and start construction.
The government has also the responsibility to fulfill the needed infrastructure.
The draft proclamation also included provision that prohibits real estate developers to announce the sale of properties via mass media and register and receive a down payment for properties without the proper permission from relevant bodies.
It also obliged developers to have a detailed contract agreement with their clients. The bill is expected to be approved next year.
Tsedeke argues that there needs to be a consultation first since the bill has been in limbo for the past four years without get approval.