Housing Debacle

Cleaning the Housing Debacle

Addis Ababans spend two-thirds of their income on housing. Although there is an additional 250,000 units of new housing demand created every year in the city, only one third is supplied, mainly by government programs.
The contribution of private developers to Addis Ababa’s housing supply is limited to less than 5Pct. The property market is dominated by the land allocation policies adopted to fit only a few as well as the lack of finance and construction materials. Land supply is constrained to generate more revenue for the government, rather than as a vehicle to solve sheltering problems. The city administration is currently finalizing revising the land lease directive, expected to increase land lease prices by several fold.
Government is also devising new state-led property development schemes on state landholdings in the capital, despite inefficiency and resource wastage lessons garnered from condominiums.
In a bid to outmaneuver the land supply grip, private developers are exploiting possibilities in partnering with individual landlords, who contribute their land, to jointly develop apartments and villas. This arrangement has also been picked up by the government which is offering its federal landholdings in the capital to partner primarily with foreign developers to build complexes for housing, business, education, health, and leisure. EBR’s Ashenafi Endale navigated newly surfacing housing options.

When Dietrich Rogge, Founder and CEO of the German based real estate company Rockstone came to Ethiopia three years ago, he saw many unfinished buildings in Addis Ababa. He found out that construction processes get stuck mainly because of the lack of finishing materials owing to foreign currency scarcity. At the same time, Dietrich observed the demand for housing as high. So, if he could solve the foreign currency shortage, his company could ease the demand by building residences in the shortest time possible.

By partnering with Schulze Global Investments (SGI), a noted American equity financer with a growing presence in Ethiopia, and Bigar Developers and Builders, the company secured a USD15 million loan. Rockstone then embarked on construction after securing a prime plot around Kazanchis to develop luxury apartments.

“The construction is progressing fast. We have no problem in importing construction materials because we have our own foreign currency stock,” says Dietrich.
Close to 80Pct of real estate developers target high incomers, while the majority of Addis Ababa residents’ earnings doesn’t qualify them as such. Currently, the average price of a residential unit developed by these companies is around ETB20,000 per square meter in central parts of Addis Ababa—almost doubling in the last five years. As a result, owning a home is becoming more and more unaffordable for the majority of low- and middle-income residents of the city.

The share of private real estate developers in the housing supply of Addis Ababa has increased from 0.6Pct in 2005 to 3.8Pct currently, according to the World Bank, a meagre contribution compared to government’s 61Pct share and 35.1Pct by individuals through cooperatives and lease schemes.

The average price of dwellings developed under the government’s housing program is four times lower at around ETB5,000 per square meter. However, the supply of condos is much lower than demand. Since the Addis Ababa City Administration started constructing condominium houses 15 years ago, close to only 200,000 housing units have been finished and transferred to residents thus far. In addition, the price of condominium houses is expected to be adjusted soon as harsh inflation bears down on the country.

The cumulative housing demand in Addis Ababa exceeded 2.5 million units in 2015, to which an additional 250,000 is added every year. Yet, only one-third is supplied.
According to Biruk Shimelis, Deputy General Manager of Flintstone Homes, three major bottlenecks are hindering private real estate developers from constructing more homes and bridging the housing supply deficit. “Difficulty in accessing land and finance as well as foreign currency for the importation of construction materials are the major difficulties property developers face in Ethiopia,” argues Biruk. “Discouraging policies and regulations are also persisting bottlenecks.” Flintstone is currently developing 6,000 abodes.

“Land allocation in Addis Ababa is disproportionate among residential, commercial, public institutions, green, industry, and infrastructure areas, according to Tamrat Eshetu, Urban Planner. “Land is largely held by public institutions.”

Private developers access land through two methods. The first is through auction by the Addis Ababa City Administration, which must take place four times yearly. “But there hasn’t been an auction in years. We are relying on this no more,” says Biruk.

The size of land provisions through auctions has been declining over the last decade, before a total halt last year.
Further, total land supply by the Addis Ababa city government through lease, auction, and allotment has been declining over the years, while prices have been increasing, according to “Bidders Premium on Government Land Auction: Floor Price Versus Winning Price”, a study by Alebel et al. “The city administration injects land for auction without any predetermined plan. Such practice clearly shows an inefficiency in the land market.”

Currently the city council is finalizing revisions to the land lease directive for Addis Ababa, expected to drastically raise the existing auction floor price, according to insiders. “The new lease price is approved but not yet implemented. There is a growing push from the government as it is itself developing many projects like Sheger Park and others in the city,” explains Terefe Hailemariam, Director of the Developed Land Transferring Directorate at the Addis Ababa Land Development and Administration Bureau. “This will affect the size of plots provided to private developers.” It seems developers are better off partnering with individual landlords. “This is the best option currently in use,” adds Biruk. “However, since the agreements with landholders are based on the old commercial and civil codes, it is very difficult to solve disputes. Government must introduce legal frameworks.”

Gojo Bridge House, just established in February 2021, is bidding to address the housing demand-supply deadlock in the capital. “We enter into an agreement with the landholders to access their land. We then collect money from home seekers including in the diaspora, which is deposited in closed accounts and used to develop the residences,” says Almaw Gari, General Manager.

So far, the company has convinced 2,800 landlords who have registered to provide a total of over 2 million square meters of land. The company is preparing to build 1,000 homes on four sites. The company’s plan is to yield 100,000 units in the next five years. The Commercial Bank of Ethiopia as well as Dashen, Awash, and Oromia International banks have agreed to provide finance, according to Almaw.

In similar fashion, the government is currently searching for pockets of land to bridge the housing gap, but in a different manner from the existing condominium scheme. For example, the Ministry of Urban Development and Construction (MoUDC) is to embark on constructing homes. “Legal frameworks are being finalized to allow the ministry to build and rent or sell homes. Also, the Civil Service Commission will commence facilitations to provide housing to all public servants,” explains Sileshi Zegeye, Deputy Director for communication at MoUDC.

Another arrangement the government is working to implement is the development of dwellings on vacant spaces under federal institutions’ landholdings. “We are communicating with developers and financers to build dwellings under the Public-Private Partnership modality,” underlines Lensa Mekonnen, CEO of the Land Bank and Development Corporation, a newly formed state enterprise partaking in the state’s efforts towards residential property development.

Yet, Sileshi argues that the government’s plan for the long run is to create a favorable environment for real estate developers and private investors. “We have already opened the housing market to international developers. We are also finalizing a new real estate regulation aiming to solve many bottlenecks including access to land and financing.” The regulation is currently being reviewed by the attorney general, according to Sileshi. PM Abiy Ahmed (Phd) has even hinted that foreign-owned mortgage banks could enter the market, though its modalities and legality are unclear in today’s Ethiopia. But such is the issue’s gravitas. EBR

9th Year • Mar 16 – Apr 15 2021 • No. 96

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