Is Ethiopia’s Real Estate Losing its Balance?
With a series of impactful economic reforms, Ethiopia’s business environment is undergoing a significant transformation, impacting virtually all sectors. One of the most affected is the real estate sector, which is navigating a complex landscape marked by both opportunity and constraint. The recent shift to a market-based foreign exchange rate has led to increased costs for imported construction materials and machinery, along with fluctuations in the value of the USD against the birr.
New regulatory measures, like the draft ‘Real Estate Development and Real Property Marketing and Valuation Proclamation’ and updated setback rules, are adding some complexity to the industry. At the same time, the government’s decision to open the door to foreign investors is shaking things up in the real estate market. It’s shifting from being dominated by just a few local developers to a much more diverse and competitive environment.
“Ethiopia’s real estate sector has faced numerous challenges for a long time. Insufficient infrastructure development, particularly in water and electricity, remains a critical issue that the government must address. Previously, we relied solely on Ethiopian Electric Power (EEP) for transformers, which created significant delays due to long queues. Fortunately, this issue has been resolved, allowing us to source transformers from the open market now. However, water supply continues to be a challenge. At Noah Real Estate, we are proactively addressing this by developing underground water sources before constructing new homes,” said Yoseph Desta, Legal Advisor and Customer Service Manager at Noah Real Estate.
According to him, devaluation is not the only reason many developers are raising prices. He believes that some developers adjust their prices based on market research of input prices, while others respond to public concern over the devaluation of the birr. He advises that, given the recent floating exchange rate reform, buyers should take advantage of the initial pricing of homes by paying 100% upfront. This approach provides security, especially as the value of the birr continues to decline daily.
The Ethiopian government is aggressively pursuing policy reforms that can bring both good and bad news for businesses. Yoseph is worried that the recent draft of the Asset Recovery Proclamation might put a damper on interest in the real estate market, especially if it’s rushed through. “While we won’t feel the effects right away since the properties have already been sold, it could shake our buyers’ confidence and make them hesitant about future purchases, which could really impact the market in the long run,” he shared.
The proposed mandatory licensing for real estate businesses through the “Real Estate and Development and Real Property Marketing and Valuation Proclamation” adds significant complexity to the sector. This new requirement, outlined in Ethiopia’s Real Estate Development and Immovable Property Transaction and Valuation Bill, aims to ensure that only certified and qualified professionals are allowed to carry out real estate activities. While this move is intended to enhance the industry’s credibility, it also presents challenges for developers and agents navigating the new regulations.
For instance, the proclamation requires developers to build and hand over at least 50 housing units to obtain a real estate license, while those seeking government land must deliver between 500 and 5,000 units based on demand, with 40 percent designated as affordable housing. Additionally, funds raised from homebuyers will be securely held in a closed account. Updated setback rules complicate operations for real estate businesses by dictating the minimum distance between buildings, which aligns with urban planning goals for public safety and sustainability. Compliance may increase costs and extend project timelines.
“The setback rule will only impact developers working on homes that are 500 square meters or smaller. For those developing larger properties, there won’t be any effect. While demolishing buildings close to the street may come with additional costs for developers, it ultimately supports the city’s urbanization plan,” Yoseph Desta said.
However, he points out that many developers in Ethiopia, like those around the world, often rely on buyers’ funds to finance construction. He sees the proposed ‘Real Estate Development and Real Property Marketing and Valuation Proclamation’ as a positive step that could help reduce illegal practices in the sector, like developers vanishing after taking buyers’ money.
However, he worries that this new requirement might create significant hurdles for emerging developers who are working with limited resources.
While the real estate sector has struggled with affordability, it has made significant strides over the last decade. What was once dominated by a handful of developers has now expanded, much like small shops lining the streets. This growth bodes well for the country’s urbanization goals. However, many real estate developers have often lacked loyalty to their buyers, relying heavily on captivating marketing strategies. To truly support the sector, it’s essential for the government to make housing more affordable and ensure its availability. At the same time, the government must strike a balance between discouraging illegal practices and promoting legitimate development.
“Developers need to be respectful of regulations, while the government should ensure land is available at reasonable prices and provide subsidies. It’s also important to encourage and support local manufacturers of real estate inputs. We should discourage imports and instead welcome import substitution,” Yoseph Desta advised.
Despite facing numerous challenges, Noah Real Estate officially handed over 750 homes to new owners at its latest residential community, the Noah Airport Drive Site in Summit. This development offers a variety of properties, including apartments ranging from 75 to 128 square meters, with options for 2 to 3 bedrooms, along with 32 villas and 45 commercial shops.
“The COVID-19 pandemic presented significant hurdles during this project, forcing us to even reduce our staff. On top of that, our market has been unstable, and ongoing conflicts in various parts of the country have added to the difficulties. Yet, despite these challenges, we successfully delivered these homes,” shared Yoseph Desta.
