download (2)

Ethiopia scrambles to meet property demand in booming …

 

 

* Burgeoning middle class drives demand in the capital

 

* Buyers forced to pay cash in a market without mortgages

 

* State-built apartments affordable but have waiting list

 

* Economy heading into double-digit growth

 

A property boom in Ethiopia’s capital is putting pressure on the government to keep

homes affordable for some of Africa’s poorest people who also
live in one of its fastest-growing economies.

 

Smart flats and hotels in mirror-glass buildings rise up in
areas of Addis Ababa where shacks once stood. A new metro snakes
through a city where an emerging middle class is snapping up new
homes, but waiting lists for cheap state-built apartments grow.

 

This is a challenge for the government whose huge, state-led
investments in infrastructure have sucked in financing from
heavily regulated banks, driving up economic growth but leaving
little capital to spur on private developers who could help meet
the shortfall in housing.

 

“This house and flat business is booming. If I had enough
money, I would buy more,” said businessman Seife Tefera, who
bought a flat for 1.7 million birr ($83,000), paid for in two
cash instalments.

 

Paying that kind of sum is only possible for a tiny portion
of the population of Ethiopia, a country that was ravaged by
communist purges in the 1970s and famine in the 1980s.

 

The economy may boast double-digit growth now, but average
income per capita in the nation of 96 million people is still
about $470 a year, below the Sub-Saharan African average.

 

Across Africa, rising wealth and an expanding middle class
have fuelled demand for new homes as well as stoking property
prices. But there are few parallels to Ethiopia’s state
interventionist approach and its control over how banks lend
their money.

 

“The main challenge in Ethiopia is financing,” said Rateneh
Fassil, who markets homes for upscale developer Noah Real
Estate, blaming part of the real estate boom on people hunting
for investments when bank deposits offer poor returns.

 

“It’s not just about owning a home, in some ways it is a
hedge against inflation.”

 

 

FINDING FINANCING

 

Ethiopia’s banking system is dominated by state-owned
institutions. There are about 16 private banks, but they are
required to invest the equivalent of 27 percent of their loan
portfolio in low-yielding state development bonds.

 

The bonds have contributed to building a new national rail
network, hydro-electric dams and roads to remote regions,
lifting growth forecasts to 10 percent in the 2015/2016 fiscal
year.

 

But there are few funds left to develop a mortgage market,
so private real estate developers struggle to raise financing
for new projects. The homes they can build target cash buyers,
demanding sums most of those in the capital can only imagine.

 

“We can’t think for a minute that we can afford private
housing,” said Sergut Adamu, 34, a hotel worker earning about
1,400 birr ($68) a month. “We would have to win the lottery.”

 

The government has promised to step in. It has embarked on
one of Africa’s biggest state housing projects, building about
32,000 units per year since 2006 and creating a national savings
scheme that offers subsidised mortgages to the poorest.

 

But that still falls far short of demand. A the end of 2013,
the last year for which official figures were available, about
900,000 people were on a waiting list for a flat in Addis Ababa,
whose population is set to more than double to 8.1 million by
2040.

 

The state’s next five-year “Growth and Transformation Plan”
starting this month foresees a five-fold increase in house
building, said Tadesse Gebregiorgis, acting head of housing
development in the Urban Development Ministry.

 

“The government has recognised the fact that housing
provision for the urban population would require huge financial
resources,” Tadesse said, adding that 1.5 million homes would be
built by 2025.

 

 

MIXED QUALITY

 

For a new home, purchasers will still need a deposit worth
at least 10 percent of the value of one- to three-bedroom flats
costing between 120,000 to 380,000 birr, or about $5,800 to
$18,500. That is more affordable, but the wait can be years.

 

And the quality of the buildings can be mixed. At the vast
state-built Summit Condominium complex on the edge of the
capital, one building reeked from a burst sewage pipe, walls had
cracks and wires protruded.

 

“We sometimes go two to three days without water,” said Abdi
Kumsa, who lives in one of Summit’s three-year-old buildings.
“But it’s still a better life than people are accustomed to.”

 

While praising Ethiopia for strong growth, the International
Monetary Fund has urged the government to give private business
more space to drive the economy, allow banks more freedom and
take other steps to boost investment.

 

Foreigners are barred from owning property, banks, retail
firms and some other industries, while telecoms is a state
monopoly. Even Ethiopians can only have leasehold agreements, as
all land is owned by the state.

 

Foreign construction firms are allowed to build residential
and other mixed complexes. But few have taken up the offer so
far. China’s Tsehay Real Estate Plc, however, has begun work on
a $150 million upmarket complex of flats, offices, retails
outlets and a hotel, next to the Chinese-built city metro line.

 

($1 = 20.5500 birr)

(Editing by Edmund Blair and Anna Willard)

By Drazen Jorgic and Aaron Maasho

ADDIS ABABA, July 2 (Reuters) –

 

Facebook

Twitter

YouTube