Is Ethiopian real estate tipping the balance?
A series of influential economic reforms have undergone significant changes in Ethiopia’s business environment, impacting virtually all sectors. The real estate sector is the most affected, navigating a complex landscape characterized by both opportunities and constraints. The recent shift to market-based foreign exchange rates has increased the cost of imported construction materials and machinery and has also fluctuated the value of the US dollar against the Birr.
New regulatory measures, such as the draft Declaration on Real Estate Development and Marketing and Valuation of Real Estate and updated setback rules, are adding further complexity to the industry. At the same time, the government’s decision to open the door to foreign investors has shaken up the real estate market. We are moving from an environment dominated by a few local developers to a more diverse and competitive environment.
“Ethiopia’s real estate sector has long faced numerous challenges. Inadequate infrastructure, especially water and electricity, remains a key issue that the government must address. , which relied solely on Ethiopian Electric Power (EEP) for transformers, which was causing significant delays due to long queues. Fortunately, this problem has been resolved and transformers can be procured from the open market. However, water supply remains a challenge. At Noah Real Estate, we are proactively addressing this issue by developing underground water sources before building new homes.” – said Joseph Desta, General Counsel and Customer Service Manager at Real Estate.
He said devaluation is not the only reason many developers are raising prices. He believes that some developers are adjusting prices based on market research on input prices, while others are responding to public concerns about the devaluation of the birr. He advises that buyers should pay 100% upfront to take advantage of the initial price of the home, given the recent floating exchange rate reforms. This approach provides security, especially as the bull’s value continues to decline day by day.
The Ethiopian government is actively pursuing policy reforms that could bring both good and bad news for businesses. Mr Yosef is concerned that the recent draft of the asset recovery declaration, especially if passed hastily, could dampen interest in the real estate market. “Properties have already been sold so the impact will not be felt immediately, but it could have a significant impact on the market in the long term by shaking buyers’ confidence and potentially making them hesitant to buy in the future. “There is,” he said.
The proposed compulsory licensing for real estate businesses through the Declaration on Real Estate and Development and Real Estate Marketing and Valuation adds significant complexity to this area. This new requirement, outlined in the Ethiopian Real Estate Development and Real Estate Transactions and Valuation Bill, aims to ensure that only certified and qualified professionals can carry out real estate activities. While the move is aimed at increasing confidence in the industry, it also poses challenges for developers and agencies dealing with new regulations.
For example, the declaration requires developers to build and deliver at least 50 homes to obtain a real estate license, while companies seeking state-owned land must deliver between 500 and 5,000 homes, depending on demand. 40% of which is designated as affordable housing. Additionally, the funds collected from homebuyers are kept securely in a closed account. Updated setback rules complicate the operation of real estate businesses because they prescribe minimum distances between buildings that align with city planning goals for public safety and sustainability. Compliance can increase costs and extend project schedules.
“Setback rules only affect developers who are developing housing of 500 square meters or less. There is no impact for those developing larger properties. The demolition of buildings close to the road is It may be an additional cost for the contractor, but in the end it will support the city’s urbanization plans,” said Josef Desta.
However, he points out that many developers in Ethiopia, like those around the world, often rely on buyer funds to finance construction. He said the proposed Declaration on Real Estate Development and Real Estate Marketing and Valuation could help reduce illegal activities in the sector, such as developers disappearing after taking buyers’ money. I see it as a positive step.
But he worries that the new requirements will be a major hurdle for emerging developers working with limited resources.
Although the real estate sector struggles with affordability, it has made significant progress over the past decade. Areas that were once dominated by a few developers have now expanded to small shops lining the streets. This growth bodes well for the country’s urbanization goals. However, many real estate developers rely heavily on attractive marketing strategies and often lack buyer loyalty. To truly support this sector, it is essential that governments make housing more affordable and ensure access. At the same time, governments must strike a balance between deterring illegal activities and promoting legitimate development.
“Developers need to respect regulations, but the government needs to ensure land is available at a fair price and provide subsidies. It is also important to encourage and support local real estate agents. We should block imports and instead welcome import substitutes,” advised Joseph Desta.
Despite facing numerous challenges, Noah Real Estate has officially handed over 750 homes to new owners at the Noah Airport Drive site, its newest residential community in Summit. The development offers a range of properties including 75 to 128 square meter apartments with two and three bedroom options, 32 villas and 45 commercial outlets.
“The COVID-19 pandemic has created significant obstacles to this project and forced staff reductions. Added to this is the instability of our markets and the ongoing conflicts in many parts of the country. However, despite these challenges, we were able to successfully deliver these homes,” said Josef Desta.
