Government Housing Crowding Private Real Estate Developers

The registration process for the new government housing projects has gotten people talking. Starting May 3, 2013 all 115 branches of the Commercial Bank of Ethiopia (CBE) in Addis Abeba were busy with swarms of people hoping to take advantage of the new program. Despite its multi-faceted benefits, not everyone seems to be happy though. Private banks may face further depleted savings as the masses rush to open an account in the Commercial Bank of Ethiopia (CBE); the public financial institution mandated with handling the financial aspect of the project. The 40/60 program that targets the middle class is set to challenge private real estate companies as well.

The 40/60 scheme provides a one bedroom apartment for ETB1,302 per sqm; two bedrooms are available for around ETB3,333 per sqm and apartments with three bedrooms are available for ETB3,864 per sqm.

Moreover, the location of the sites for this specific project, for which registration is to start on August 12, 2013, are at Sengatera, Meri, Gergi, Megenagna, Bulbula and Kality, which are not very far from the city center. Construction of 10 thousand houses under this scheme has already started and the first round of delivery can be made as soon as May, 2014, less than a year after registration. Addis Abeba Housing Enterprise has made a promise to deliver houses to all registered customers that fulfill the criteria. These apartment buildings will also use relatively high valued construction materials.

Yet not everyone is convinced, “Delivering the houses and fulfilling the promise is what really matters,” says Bekele Gadissa, general manager of Habesha Construction Materials Development (HCMD), which is to hand over its first round of 384 houses in September, 2013. The projects of HCMD, which are located around Meri Lockie and CMC, have been sold for ETBeight thousand to 11 thousand per sqm. Delivering quality houses that can compete with those in the private Real Estate corridors, for a price that is competitive with the government is unthinkable for Bekele, unless quality is compromised somehow.

“If the government improves its delivery time and avoids the additional finishing costs people are forced to incur after receiving their homes, as seen in condominium projects, the challenge from the project can be imminent,” says Bekele.”

“As you know the Private Real Estate sector is suffering from a public trust deficiency”, he added, referring to the slump in public confidence following the saga surrounding Access Real Estate. “It is obvious that the government is more trustworthy in the eye of the public.”

Some other players in the industry see the new government housing project as an opportunity. “The government’s new housing project is more likely to mobilize savings, which may eventually cause people to buy homes from private Real Estate companies,” says Tsedeke Yihune, managing director of Flintstone Homes.

Flintstone Homes has delivered 600 houses in the last three years. In one of its sites, around what is commonly known as Hayahulet Mazoriya, a single bedroom apartment is available for ETB14,971 per sqm. “All the private Real Estate companies in the country do not even deliver five Pct of what the government is planning to provide, we cannot be competitors in the first place,” says Tsedeke.

According to the data from the Ethiopian Investment Agency, between April 1993 and February 2013 661 projects with a total registered capital of more than ETB20 billion were licensed. However most of the projects have not materialized.