THE ROLE THAT MARKETING PLAYS IN ESTABLISHING A REALESTATE COMPANY.

The case of Access Real-Estate S.C.

ACKNOWLEDGEMENT. I would like to convey my deepest gratitude to those who contributed to the success of this thesis. To all staff of Access Real estate for their support and advise that they have given me and for providing some material support and encouragement. I thank you.

Table of Contents
Executive Summary------------------------------------5 2. Introduction -------------------------------------------7 3. Methodology---------------------------------------------9 4. Analysis ----------------------------------------------10
1.

Housing demand ---------------------------------------11 b. Income and employment of Addis Ababa Residents ------------------------------------------------18 c. Target Income groups. --------------------------------20 d. Ethiopian Diaspora -------------------------------------25 e. Housing supply -----------------------------------------25 f. Land supply --------------------------------------------31 g. Expansion area -------------------------------------------38 h. Real Estate developers -------------------------------41 i. Sector Comparative ranking --------------------------45 j. Development of Industrial and business Buildings ------------------------------------------------47 k. Startegic Overview. -----------------------------------48 l. Conclusion -----------------------------------------------58 m. Limitations ----------------------------------------------59 n. Bibliography --------------------------------------------60
a.

EXECUTIVE SUMMARY Philip kotler, the Marketing guru, has said that marketing deals with identifying and meeting human and social needs profitably. It is crucial to break down this statement in to three parts. The first is to identify the human and social needs, second to meet those needs and the third is to meet them with profit since we are taking business in to consideration. All the three parts are equally important as it is a one package deal if it is to succeed. In the pages to follow, Ill try to cover what this statement means in practice and how they were applicable in Access real estate (ARE). I would like every one to note that ARE is under formation and the scope of this thesis is the impact that marketing had on the path to the smooth integration and establishment of the company. This includes various researches made regarding the real estate opportunities in the city of Addis Ababa which gives a clear picture of the supply and demand of housing units in a city whose population is increasing in an alarming rate every year. The result of this research is crucial in the steps which follows the research. Another important point to discuss is the brand equity of the company. Building the brand equity is extremely important and it should start, if possible, before the company is fully established. The report will try to cover the strides that ARE has taken to build its brand equity.
4

As I was working in marketing division particularly sales, I was responsible for various responsibilities including handling different potential buyers of shares by contacting them and briefing them about our company, assisting in coordinating the sales effort to a certain degree and so on. The introduction part will try to cover these activities in detail and I will also try to evaluate the efforts taken based on the results achieved.

INTRODUCTION.

In establishing a company, the activities of different divisions like human resource, finance, marketing, and information technology, each with their own immense contribution to the over all success of the future of that company play a major role. Overlooking the proper functioning of these units is the task of a brilliant top manager or CEO but individually the significance of each of these units is undeniable. The Marketing unit has an equal, if not more, significance in contributing to the desired success. The contribution are the major tasks of marketing which includes research, sales, creating brand equity, developing core competencies and others as well. Each of this tasks are carefully scrutinized from different data acquired from the company itself through various forms of interviews, research data and from my personal experience and observations while working for the company and come up with a fair conclusion and therefore my recommendations if any.

Basically, this research aims to identify the role that marketing plays in establishing ARE and what are the challenges that were faced and how they were controlled. As we all are aware of, real estate development is a line of business which requires huge resources starting from money, skilled man power, and various other things specially when present in a country whose business environment is not that much liberal yet. This makes is even more difficult to take the building up of the company smoothly in to previously anticipated result with out any difficulty. It makes the work of the top managers difficult as they deal with various unnecessary problems which could arise because of this. Inspite this, a good deal of research has been done on the demand and supply of the residential houses in Addis Ababa, capital city of Ethiopia, which is crucial to proper design of strategies to attract potential share holders and deposit the capital of the company.

METHODOLOGY

Primary Data.
One to one interviews. Conversations from staff of ARE.

Secondary Data.
Text books. Journals from Ethiopian Economic Association. Research made by Access real-estate S.C. Internet.

ANALYSIS
Introduction The marketing department had the task of conducting a lengthy and careful research on the supply and demand of residential housing. This is important as the company needs to know how successful it is going to be if it is to set out in this line of business. The research has indicated that the city of Addis has expanded mainly to the east, south and southwest, since the high-relief topographic feature which marks the north, northwest and west fringe of the municipal boundary prohibits advancement of human intervention in the form of any physical development. In the far south, southwest and east (Akaki-Kality, Nafas-Silk Lafto, Kolfe Keranio, Yeka and Bole) the topography is relatively flat providing suitable conditions for construction of buildings and development infrastructures. In Addis Ababa land use usually occurs along major streets or corridors and land use along the Ring-Road has picked up since its completion. In general, space occupation along corridors at the central parts of the city is compact and dense, while as one goes to the periphery less dense and more scattered development and vacant spaces are observed. This is usually driven by accessibility of an area and existence of utilities.
9

Housing Demand As of 2007, both international and domestic estimates put Addis Ababas population at 4,700,000 people. The most recent official census was in 1994, when only 2,046,491 were counted, but undercounting and continued evidence of rapid growth, makes 4.7 million a reasonable estimate. The current urban growth rate in Ethiopia is estimated at 4.1%, but others have estimated an annual growth rate as high as 8% for Addis Ababa. In any case, it is clear that the city is continuing to grow, although some of the growth may be circulatory, with migrants leaving their families in rural areas and coming to work in Addis Ababa on a short term or seasonal basis. The 2002 Addis Ababa Structure Plan: Housing Component document calculates that in 2002 there was a backlog of approximately 233,000 units. This was the number of units needed to meet the pent-up demand for housing that is currently overcrowded, and to replace the severely-deteriorated or grossly illegal housing. However, it also estimated that by 2010 (just three years from now) an additional 223,000 units would be needed to house new households at the medium variant growth projection for the city. This amounts to a total of 456,000 units needed by 2010 . If we were to go out another 5 years to 2015 (a total of 8 years from now), an additional 91,000 units will be needed or about 550,000. This would require the production of about 70,000 units per year.
10

Fig. Ababa

Growth trends between 1982 and 2007 in Addis

Urban area built before 1982 Urban area built between 1982 and 1992 Urban area built between 1992 and 2002 Urban area built between 2002 and 2007

11

Pent-up and projected housing demand (2003- 2015) 2003 2004 2005 2006 2007 2008 2009 Pent-up d Demand Deman d current y year Total d Demand 233,00 260,87 288,75 316,62 344,50 372,37 400,25 0 5 0 5 0 5 0

2010

428,125

27,875 27,875 27,875 27,875 27,875 27,875 27,875 27,875 260,87 288,75 5 2010 0 316,62 344,50 372,37 400,25 428,12 5 0 5 0 5 456,000 428,125 27,875 456,000 2011 456,00 0 18,00 474,20 0 2012 474,20 0 18,200 492,40 0 2013 492,40 0 18,200 510,60 0 2014 510,60 0 18,200 528,80 0 2015 528,800 18,200 547,000

The focus of current housing implementation in Addis Ababa has been the Low Cost (Condominium) Housing Scheme, now known as the Integrated Housing Development Program (IHDP). It was conceived as a way to privatize current kebele housing using low-cost materials and methods to provide housing below cost to low-income residents.

12

About 3,000 units have been completed to date, with the expectation of completing another 28,000 30,000 within the year. In the mean time, costs rose from an estimated 850 birr per square meters to about 1,400 birr. Most units are occupied by higher income households who could afford to pay full price (35,000 60,000 birr or more) at one go or a better down payment. Even with low-interest loans, the down payment and monthly payments are not affordable to 80% of the population. Units have been sold for as low as 30,000 birr, and as much as 100,000 birr. 50,000 birr is probably typical. But to the 60% of Addis Ababa households earning below 700 birr per month, the difference is unimportant. Any requirement of payment more than 50 150 birr per month, or a deposit of more than perhaps 1,000 birr, will be unaffordable.

13

Annual housing demand by income distribution (2007 to

Inco me catego ry Lowincom e (75%) Middl eincom e (10%) Highincom e (15%)

2007

2008

2009

2010

2011

2012 2013 2014 382, 950

2015 410,2 50

279,2 300,18 312,0 342,0 355,6 369, 81 7 93 00 50 300

396,600

37,23 42,81 45,60 47,42 49,2 7 40,025 2 0 0 40 55,85 64,21 68,40 71,13 73,8 6 60,037 8 0 0 60

51,0 60 76,5 90

52,880

54,70 0 82,05 0

79,320

Total dema nd 372,3 400,25 428,1 456,0 474,2 4924 510,

75 90 2015) 25 00 00 00 600 528,800

547, 000

Established Household Income Distribution for Addis Ababa Low-income - Middle-income

-

0 to 1,100 Birr per month 1,100 to 1,600 Birr per month

14

High-income

1,600 Birr and above per month

Ring road Ring road profile (planned) Major boulevards for transport. Proposed roads Interchanges and roundabouts. Centre.

15

It is simply unrealistic to expect any significant costrecovery for capital costs from households earning less than 700 birr per month and this is 70% of Addis Ababas population! These residents could be expected to pay 15 25% of their incomes toward housing in the range of 40 150 birr per month. While this is not enough to provide significant capital cost recovery, it could be an important contribution to ongoing operation and maintenance of the building. But, so far, efforts targeted at solving the housing problem in Addis Ababa have always fallen short of the accumulated demand. Shortage is especially acute for lowincome households that account for over 80 percent of the citys population. Shortages for medium income groups are just as acute. Overcrowding and deterioration widely prevail. An estimated 60 percent of the city's core is dilapidated, and about a quarter of all housing units have been built informally.

16

3. Income and Employment of Addis Ababa Residents The table presented below is an attempt to update the distribution of income levels based on the best available information:

[*Accurate current income data for Addis Ababa is not available. Where data is available it appears that the report of expenses often exceeds the report of income, most likely indicating an underreporting of income. (See Bertaud, Alain et al. "Improving Delivery of Urban Land and Housing in Ethiopia: The Case of Addis Ababa (Draft)." Addis Ababa: The Cities Alliance, April 28, 2004.) The first estimate is based on a combination of data provided by the Central Statistical Authority (2001, based on a 1998 survey) and the PADCO study (1997, based on data collected in 1995). This breakdown is also used by The Structure Plan: Housing Component (2002). The top end of each category has been increased slightly from the PADCO and CSA categories. **The 2006 estimate attempts to correct for the underreporting of income (in relation to expenses) and to account for a small increase in

Extrem ely Low Incom e Very Low Incom e Low Incom e

17

middle income households. It is probably a "high end" (optimistic) estimate. ***Using midpoint income of the group.] Source: Supplying Central City Housing for all income groups Addis Ababa: Choosing Public Policies that Facilitate Mixed-Use, Mixed-Income Redevelopment using Land Regulation and Cost-Sharing Approaches, Rosemary T. Curran, Ph.D, April, 2007

Based on this distribution, it is likely that the median household income is around 500 to 525 birr (about US $60) per month. The employment levels in Addis Ababa make it evident why so many households remain very poor. Only about 27% of the population is formally-employed, about 43% are informally or self-employed, and about 30% are unemployed. Income in the informal sector, is unreliable, inconsistent, and holds little hope for advancement or longterm security. It also provides no opportunity for obtaining a housing loan.

18

4. Target income groups A.Domestic Client Base Based on the Estimated Household Income Distribution for Addis Ababa, it is likely that the median household income is around 500 to 525 birr (about US $60) per month. The employment levels in Addis Ababa make it evident why so many households remain very poor. Only about 27% of the population is formally-employed, about 43% are informally or self-employed, and about 30% are unemployed. Income in the informal sector, is unreliable, inconsistent, and holds little hope for advancement or long-term security. It also provides no opportunity for obtaining a housing loan. The income groups who can afford monthly mortgage payments are either high earning business people that are paying their government taxes by the book:; o 6,132 people that are making 500,000 birr or more and o 132,100 making 100,000 to 500,000 birr per year and o 430,000 who are earning less than 100,000 birr per year but more than 50,000 biir o 8,240 paying Federal Taxes and incorporated under PLCs In addition there is a large underground economy, (those that are making their money dealing in contraband trade, currency changers, and those whose transactions are generally not reported or under reported for tax purposes)
19

whose size is rather difficult to determine but estimated to be just as high, if not higher than the formal sector. There is considerable concern that income is underreported by Addis Ababas residents, as it is in many parts of the world. The recently completed (2006) PASDEP (Plan for Accelerated and Sustainable Development to End Poverty) report uses measures of total and per capita consumption to estimate income/consumption for households. The methodology is somewhat complex, but urban per capita consumption for 2004/2005 was put at 1,909 birr/year. Based on an estimated 4.3 persons/household, this would be 8,208 birr per household per year. This is effectively an average household consumption rather than a median or a distribution. An average such as this will be skewed upwards by the high level consumption of a relatively small number of middle and well-to-do households. Nevertheless, along with the PADCO estimates, it gives a broad idea of average income/consumption level. One characteristic of Addis Ababa, which is true of many cities in the developing world, is that its rapid growth is largely due to a continuing influx of rural-born residents. Rural-born residents were a majority of the citys population through the late 1980s while accounting for nearly 47% of the citys population in 1994. As a result, a vast majority of Addis Ababas residents seem to prefer having some type of courtyard, or outdoor space, even though their home itself may be extremely small. Where homes are very crowded together or face directly on the
20

street, residents do seem to use communal or shared space for many functions. On the other hand, middle and upper class homes are adorned with reclusive fencing and gated compounds with typically spacious grounds. More and more, extravagant fences and gates are starting to serve as a symbol of social status B. The Ethiopian Diaspora The population of the Ethiopian Diaspora is variously estimated to reach up to 2 million. There are between 500,000 and one million Ethiopians in North America alone and they represent a significant number of immigrant populations in some major cities of North America. Their economic strength, educational as well as professional backgrounds and entrepreneurial skill are widely acknowledged in many North American, European and other countries. A great many of them have achieved a fair measure of success in their adopted homelands as eminent professors, researchers and scientists and other professional positions. What is common among the Ethiopian Diaspora is their cultural heritage and their deep attachment to their country of origin. Many Ethiopians at least believe that they should make a genuine effort to help their country of origin in some way. The impact of the Ethiopian Diaspora is already significant to the domestic economy. Remittances are estimated to have exceeded the $1 billion mark a few years ago
21

according to the Ethiopian Economics Association. Direct investment into businesses in the construction, manufacturing, industry, agro-industry and other major development sectors is already estimated to be in the hundreds of millions of dollars. However, considering the potential that exists, this is only a drop in the bucket. As a quick illustration, even if only 8,000 of them buy or build houses worth about $50 thousand on annual basis, Ethiopia would stand to earn about $400 million annually or $12 billion in the next thirty years. As a comparison, this amount would be four to five times larger than the current amount of foreign investment in Ethiopia. o Net receipts from private money transfers increased from USD 671.3 million in 2003/04 to USD 810.8 million in 2004/05 mainly due to a significant increase in private individual transfers. o Private individual transfers surged by 58.8 % over the previous year largely due to the conductive environment that eased the transfer of money by the Ethiopians in the Diaspora thru international money transfers such as Western Union and Money Gram in cooperation with domestic commercial banks.

22

Private transfers as reported by NBE

800 700 600 500 400 300 200 100 0 2002/03 2003/04 2004/05 2005/06 private individuals cash in-kind underground

Private individual transfers increased by 26.6% over the previous year (2004/05) level of USD 582.8 million mainly due to 72% rise in underground transfer in kind. A large portion of the Ethiopian Diaspora in North America, Europe, and the Middle East are living on relatively good paying jobs but that can not provide the price the real-estate developers are currently asking for at their domicile. Substantial numbers of this section of Diaspora do not participate in the various retirement plans their companies are providing, except for maybe social security. But they support their families in Ethiopia by sending money on regular bases via informal and formal money transfers and would welcome the opportunity to invest in a home for their retirement. Affordable housing would be in the range 300,000 to 700,000 Birr and more likely to be paid by their remittances.

23

A series of measures taken by the Government in order to facilitate Diaspora engagement, including, among others, the opening of Diaspora Departments within two federal ministries, the creation of Diaspora regional offices and community outreach and constituency building roles by Ethiopian missions. Programs and mechanisms are established to encourage Ethiopian Diaspora involvement in the country's capacity building efforts, with a view to furthering the discussion and identifying the way forward. As a result there is growing momentum among expatriates to get involved in the development of their country and there are many in number. This was especially so since the evolution of information and communication technology (ICT) now presents options to contribute without the need for permanent or physical relocation. 5. Housing Supply A study conducted by the City Administration estimated that there are a total of 640,000 housing units of which about 35.3% are owned by the occupants and 40.9% are kebele rented. The rest are rented from relatives, non relatives, subsidized by organizations, etc. 83.9% of dwellings area made up of mud and wooden structures, 10% made of cement blocks and brick and 2.4% are made of cement and stone. 99.6% have roof covers of corrugated iron sheet. Private flush toilet account for only 9.4%, flush toilet shared 6.1% of household and pit latrines private and shared 26.15% and 45%. Electrification of private and shared runs the range of 52.1% and 44% of household respectively.
24

pesentage 100 80 60 40 20 0 Owner occupied Kebele rented Mud & wooden structure Cement Cement & block & stone bricks pesentage

After the 1975 nationalization of rented houses, about 73% of the housing stock became kebele housing. During this period and subsequently, mixed land use and mixed socioeconomic groupings were the rule rather than the exception. Only 5% of the population owned 95% of the urban land at the time of the 1975 nationalization and most of the development of Addis Ababa was characterized by its unplanned, spontaneous growth. The outcome of the nationalization policy is well known: The higher-end rentals, those with rents over 50 birr per month were managed by the Addis Ababa Rental Housing Authority while the lower-end rentals were handed over to kebele management, and had their rents reduced to make them affordable to the very poor. Rents became as low as 0.5 birr per month with a monthly rental of 2 or 3 birr often the norm. As a result, Kebele renters are quite stable- 52% of the households had lived in the area for more than 25 years, and 80% had lived there at
25

least 10 years. Once established in a kebele house, tenants are not likely to risk relinquishing it. 1 The 1986 (E.C.) Addis Ababa Master Plan proposed that new housing in expansion areas to solve the then identified housing problems in the city. Accordingly, a total of 6,400 hectares (25.9 million square meters) of land at Kotebe, Keraniyo, Mekanissa, Kotari and Kaliti expansion areas were proposed to be developed for residential uses. Review of the implementation of the Master Plan (2002) showed that an estimated 55% of the total proposed expansion areas have already been developed and 45% has not been utilized. The major reason for this is that the formal land provision had been discontinued for significant number of years. In addition, the whole process has been highly constrained, inefficient and complicated, creating huge backlogs of housing in the city. As a consequence, informal/squatter settlements have proliferated. And within the recent past, the informal sector has produced the largest number of residential units in the expansion areas of Addis Ababa. The growth of illegal units is a somewhat recent phenomenon for Addis Ababa, which historically did not have a large percentage of units built on illegal land, although it had many informal or extra-legal units. Nevertheless, informal housing has infested the Kotebe,
1

Supplying Central City Housing for all income groups Addis Ababa: Choosing Public Policies that Facilitate MixedUse, Mixed-Income Redevelopment using Land Regulation and Cost-Sharing Approaches, Rosemary T. Curran, Ph.D, April, 2007

26

Akaki, Lideta, and Nefas Silk, Kara-Ajo, Lafto, Kality and CMC areas of the city. At present an estimated over 300,000 people live in these informal settlements. The estimated number of units in these settlements is about 60,000. The housing condition in these informal settlements is generally poor, but there are some exceptions where quality housing can be found. The national average occupancy rate areas is about 2.2 persons per room and significant number of multiple households co-inhabit housing units.In Addis Ababa, one and two-roomed houses make up about 60% of the housing stock and most of these houses are less than 30 sq. mts each.

27

28

The population number is significant, because estimates of existing housing units have been in the range of 370,000 to 380,000, with the number of households put at just over 400,000. In order to reconcile these two numbers, there would need to be nearly 9 persons per household or close to 10 persons per housing unit. Several sources, based on the 1994 census indicate only 5.5 persons per housing unit. Either household size has increased dramatically (and thus, over-crowding), or 40% of the population is homeless, or there are more housing units created than have been officially counted or estimated. With 5.5 persons per housing unit, and a population of 4.7 million, there would need to be nearly 636,000 housing units. Currently housing covers 80% of urban land in Addis compared to about 60% in most developing countries, and 40% in developed countries.2 In order to meet its goals of preserving and increasing green areas, limiting infringement on surrounding farmland, and building sufficient, affordable housing, Addis needs to expand vertically rather than only horizontally. There is no need to inundate the city with hectares of high-rise apartment blocks. The current densities could be replicated on half the horizontal space, by rising to just G + 2 or G + 3 residential buildings, leaving an equivalent amount of surrounding garden and open space. Semi-private courtyards can be maintained, along with balconies, roof gardens and/or roof-top areas for drying laundry. 60 to 100 households on a hectare (or less) of land is a very livable
2

Ibid. p. 29

29

density, if adequate open space and amenities are provided.3

6. Land Supply The Addis Ababa Master Plan with a goal of addressing the backlog housing demand has allocated land in the expansion area: Table 2: Addis Ababa Master Plan Expansion Areas 1st Five Year Plan: 2nd Five Year Plan: (1996 2001) (2002 2006) Location Land # of Land # of Area Household Area Household s s East Expansion 2,070 ha 97,290 2,000 ha 94,000 (Yeka & Bole) West & South Expansion 1,300 ha 61,100 1,200 ha 56,400 (Keranyo & Lafto) South 298 ha 14,010 325 ha 15,280 Expansion (Akaki3

For comparison, in 1999, the 11th arrondissement of Paris, its densest area, had a density of about 372 persons per ha., or well over 100 households / ha.

30

Kality) 3,668 ha (13.8 TOTAL Million Sq. Meters) Source: Master Plan 172,400 3,525 ha (14.7 Millions Sq. Meters 165,680

Overall proposed expansion area, of which up to 15% will be used for large and unforeseen developments equals 8,950 hectares or 36.2 million square meters. Of the 54,000 hectares of land that makes up Addis Ababa approximately 35,000 are already occupied. Urban land has been mostly available on a lease-auction basis. The auction prices vary depending as they do on demand and the limited supply at any one time, but are often quite high. Kirkos, Addis-ketema and Arada are the most expensive areas for acquiring land through the (auction) leasing system in the past, fetching an average of 1,914 birr, 1,659 birr and 1,444 birr per square meter respectively. Followed by Akaki-kality (734 birr/sq. meter) Bole (687 birr/sq. meter), Kolfe-keranyo (622 birr/sq. meter) and Yeka (661 birr/sq. meter). In Gulele, Lideta, Nefas-silk Lafto land has been leasing at a comparatively cheaper price of under 400 birr/sq. meter or there about.

31

H ig h e s t la n d p r ic e la s t 2 0 a u c t io n s
1 0 ,0 0 0 9 ,0 0 0 8 ,0 0 0 7 ,0 0 0 6 ,0 0 0 5 ,0 0 0 4 ,0 0 0 3 ,0 0 0 2 ,0 0 0 1 ,0 0 0 0
ta Lide o Laft ele Gul a Yek anio Ker e Bol ki Aka da Ara a etem A. K os Kirk

B ir r

Between 1994 and 1999 (1987 and 1992 E.C) a total of only 440,240 square meters of land was made available for business, industry and in the later years for apartments(close to 100,000 square meters of land in three years). Notice the total absence of land allocation for residential purposes in the earlier years.

32

Land allocation prior to 1999 ( 1992 E.C.)

120,000 100,000 80,000 60,000 40,000 20,000 0 1987 1988 1989 1990 1991 1992 Business Industry Residential Total

The level of land grants has greatly accelerated since with a total of 9,265,665 square meters of land being allocated through the land lease system in the years 2004, 2005 and 2006-07 (1997, 1998 and 1999 E.C.) in the five KifleKetemas of Yeka, Bole, Akaki, NefasSilk and Keranio. This includes land for real-estate, apartments, business, industry, schools, hospitals, universities, market halls, gas stations, etc

33

Total land allocation in expansion areas in 2004, 2005 and 2006-07

4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 Yeka Bole Akaki Lafto Keranio square meters

In the years 2002 to 2006 (1995 to 1999 E.C.) approximately 1,400 permits were granted for the construction of commercial buildings, for purposes of office space, stores, shops, factories, etc. (one storey to 16 storey buildings). According to our survey conducted in April 2007, only 28% of the total were fully completed and ready for occupancy; 6% were at three quarter-completion; 9% half-completed; a quarter of the work was done for about 10% of the buildings. And fully 48% show no sign of construction activity at all. Only in Addis Ketema, Akaki and Kirkos were completions ahead of non-starts.

34

Completions vs. non-starts

70 60 50 40 30 20 10 0 A.Ketema Akaki Arada Bole Gulele Keranio Kirkos Lideta Nefasilk 100% 0%

Land acquisitions from the government for business and industry in Akaki, Yeka, Bole, Lafto and Keranio amounts to 1.5 million square meters.

Land allocation for business and industry in 2004, 2005, 2006-07

7. Expansion Areas

800,000 700,000

35

36

7. Expansion Area There is hardly any open area available in the center of Addis Ababa where administrative, commercial and mixed use residential development overlap. It is densely populated and land prices are relatively high. So is cost of relocation. At present, various parts of Addis Ababa exhibit different density levels ranging from 75 residents per hectare at the expansion areas to 2,500 residents per hectare at the city core. In general the further away from the city center the less the density of the settlement and one begins to see open and less developed areas. For more detailed information on the expansion areas see 8. Real-estate developers In these same three years alone 2004, 2005 and 2006-7 (1997, 1998, and 1999 E.C.) land allocated through the land-lease system for real-estate development and construction of apartments in the expansion areas is huge. The highest allocations took place in Bole Kifle Ketema (about 1.5 million square meters) and practically none in Akaki.

37

Land allocated apartments

1,600,000 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 200,000 0 Yeka

for

real-estate

development

and

Real-estate Apartments

Bole

Akaki

Lafto Keranio

Of the 220 real-estate developers that are licensed today only three ( Ayat, Berta and Ropack ) were existence in when Mayor Arkebe took over in 19??? In total, over 2.7 million square meters of land have been leased by these real-estate development companies. About 30 of the developers have taken 50,000 square meters or more; 27 of them have taken more than 20,000 square meters and there are about 75 so called investors (or speculators) are listed has having leased more than 10,000 square meters or more. Although the list of real-estate developers and speculators is extensive, only few are serious and have actually started construction of any kind. On top of that, time is running out on the majority of the holdings, the use it or loose it law will soon apply In the mean time, it is disclosed that a huge
38

and complicated web of corruption involving those who granted the land and the recipients in all five sub-cities. In the last few months, the real estate development sector seems to have gotten into gear, perhaps in the hope of completing condominium construction by the millennium. Nevertheless, construction of houses and condominiums in Addis Ababa is grossly inadequate with an estimated 2,000 to 2,500 units under construction, at the most. It certainly is no where near meeting even the current demand of approximately 28,000 units, let alone the additional pent-up demand of 233,000 housing units. Construction condominium apartments is concentrated in a number of locations in Addis Ababa: at Kazanchis (behind ECA), Besrate Gabriel neighborhood (300), Gerji (500), about 400 units just east of Ayat a few hundred units behind CMC (site of the Saudi-German Hospital), 200 units in front of CMC and CMC road itself 200 to 400 units more next around the Civil Service College, and a few hundred more units scattered around town. All of them are currently under early construction phase with exception of the condominiums being built by Sunshine Construction at Gerji which are nearing completion. To mention a few:
o

Clearly the front runner of the real-estate development is Sunshine Construction. It has acquired 291,628 square meters of land in several different locations in including Gerji (28,760 square meters), opposite CMC and behind CMC (138,500 sq. meters). Construction of condominiums
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apartments in Gergi is nearing completion and is sold out at an average of 700,000 Birr per unit. The housing development at Merilook is on the high end and rage in price from 1.3 to 2.4 million Birr. The Diaspora is 70 to 75% of the market. o Ayat is another major player in the residential realestate sector with Ayat Settlement as its anchor with approximately 3,000 homes. Originally selling for about 400,000 Birr, some six years ago, houses fetched 650,000 Birr 2 years back and are now asking for one million Birr or more. Average rent is about 3,000 birr. Even the secondary market is predominantly the Diaspora or repatriates who have no where to invest their money but in real-estate. Ayat has also building condominiums behind the ECA (approximately 250 units) The Ethiopian Diaspora is making its presence felt here too, buying up 85% of the homes at Ayat Settlement and fully 70% of those who are renters are also from the Diaspora and actively looking for an opportunity to invest in a home. o Trakcon Trading is another real-estate developer which has acquired 50,000 square meters of land in Nefas-silk Lafto sub-city in Lebu area sufficient to build 46 villas and condominium that will accommodate 539 house holds. Pricing is rather high raging from 1.5 million to 2.6 million (including VAT) for the houses. Three bedroom apartments will cost 743,000 birr, 2-bedroom 527,000 and 1-bedroom 321,000 birr including vat. They are at the registration stage.
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o Ambassador Real Estate has secured 75,000 square meters plot of land for the construction of villas and 1,319 square meters plot of land for the construction of condominium apartment. The apartment will be located near to the African Avenue, in front of Alem Cinema and prices range from 2 to 3.7 million birr for the houses and in the range of 1.7 million for apartments. Clearly targeting the high end of the market and registration stage. o Nasew Real Estae has taken 24,000 sq. meters of land on lease at Nefas-silk Lafto ( Makanisa Ring Road) and is ready to construct fourteen (G+5) apartments. Has already started construction of villas and will soon start condominiums. Cost of apartments range from 380,000 to 600,000 birr. o Habitat New Flower Homes has acquired plots in two sites: Kolefe 45,329 sq. meters and Kaliti Prices rage from 1.5 million to 2.8 million birr plus the land lease. Again the high end market and clearly the Diaspora. o 3M Real-Estate has acquired across the street from Imperial Hotel and AMCE on the Ring Road and building apartments and houses. Houses sale for about 2.4 million and apartments for 800,000 birr o Berta Construction was granted 120,000 sq. meters of land near CMC. I t expects to build 500 villas and 500 condos. It has requested an additional 100,000 sq. meters for its second phase project.

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Below are cost comparisons of the major real-estate developers for apartments that are 100 square meters including VAT.
Cost comparison for three bedrooms
800,000 600,000 400,000 200,000 0 Sunshine Tracon Gift Cost per sq. mt 3M Total cost NM Average

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Cost per square meter three bedroom

6,000 5,000 4,000 3,000 2,000 1,000 0 Sunshine Tracon Gift 3M NM Average Sunshine Tracon Gift 3M NM Average

Problems faced by the real-estate sector: o Delivery is a huge problem o Lack of mortgage financing o Upfront cash payment to buy a house or condominium apartment discourages potential buyers who otherwise might afford a 10 to 30% down payment and a monthly payment o Volatility of price in material used for construction

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II. SECTOR COMPARATIVE RANKING Construction of condominiums According to Addis Ababa City Administration, there is a tremendous demand for housing in the city. The numbers are actually staggering. This year alone the demand (including pent-up demand) is 55,800 for high-income houses, 35,230 units for middle-income and 279,300 units for low-income housing. 4 Just three years from now (2010) the projected demand in Addis Ababa will jump to 68,400, 45,600 and 342,000, houses and condominium units respectively and will only increase the following years as the population multiply and the city expands. It will be necessary to build more than 70,000 houses and condominium units annually for the next eight to ten tears.5 It is difficult to determine how this number was arrived at. But even if these numbers are off by 50%, the demand is so high it would still presents an excellent opportunity for investment. It is evident that as far as investment opportunities in residential real-estate is concerned it is located mostly the five designated expansion areas of Bole, Lafto Yeka, Keranio and a lesser extent Akaki. Here the roads and infrastructure are well developed and in place or in the
4

Supplying Central City Housing for all income groups Addis Ababa: Choosing Public Policies that Facilitate MixedUse, Mixed-Income Redevelopment using Land Regulation and Cost-Sharing Approaches,

Rosemary T. Curran, PhD, April, 2007. 5 Ibid

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process of being developed and land-leased for real-estate and apartment construction is at its highest. However, opportunities for building apartment buildings in smaller plots are also available in the inner core of the city. But there the cost of land and relocation are higher. For example, in the most recent auction in Addis-ketema land fetched as much as 10,000 birr, in Kirkos 4,000, and Arada 2,500 birr per square meter; where as in Bole, Lafto, Keranio, and Lafto land was only commanding an average of 600 to 800 birr per sq. meter. There is great opportunity in the construction of condominiums for the middle-income population and residential housing for the high-income, in partnership with those who own land or acquisition of the land out right. Most of the land was acquired from the government in the years 2004, 2005, and 2006/07 (1997, 1998 and 1999 E.C.) with a maximum of three years time limit for commencement of construction. Prices could be negotiated in the absence of bank loans that is not so readily available. A total of 1.9 million square meters of land allocated for real-estate development construction of apartments building in Bole Kifle Ketema alone; in Lafto another 650,000 and a further 780,000 sq. meters is allocated in Yeka and Kernio. There is no land shortage in Addis Ababa; the city is growing and the only thing that holding it back is shortage of living space. (See page 14 for chart)

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Development of industrial or business buildings There is also an opportunity to get involved in the construction of business and industrial buildings. Again there is plenty of land holding in the name of industrial development. Land acquisitions from the government for business and industry in Akaki, Yeka, Bole, Lafto and Keranio amounts to 1.5 million square meters. Of the 1,400 permits granted for the construction of commercial buildings; for purposes of office space, stores, shops, factories, 48% show no sign of construction activity. Only in Addis Ketema, Akaki and Kirkos were completions ahead of non-starts.

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III. STRATIGIC OVERVIEW 1. Economic Factors The economy has enjoyed a strong and steady growth in the past three years after a significant drought-related contraction in 2002/03. This strong growth performance resulted in real per capita income increasing at 7% per annum, the fastest in Ethiopias recent history. However, this has been accompanied by rising inflation, with consumer price accelerating to 19% in February 2007. Strong economic growth is expected to continue in 2006/07. Real GDP growth is projected to hold at about 9 % as productivity gains in agriculture continues and nonagricultural activities, especially manufacturing and construction, expand further. Inflation is projected to decline to about 15% at the end of 2006/07, in light of completion of the pass-through of fuel price increase and full adoption by farmers of the new pattern for food supply. Agriculture sector the growth rates of other sectors (industry, service) have been relatively stable. But in spite of relative stability of other sectors, due to the dominance of agriculture in the economy, the variability in the growth rate of the agriculture sector will influenced the growth performance of the overall economy. Similarly, owing to the high population growth rate, the growth rate of the GDP has not been high enough to improve the standard of living of the population.
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The official exchange rate for the birr remained relatively stable at around birr 8.7 per US dollar in 2005/06. After a period of relative stability, the depreciation of the birr against the US dollar is expected to continue, reflecting the recent external balance developments. The Ministry of Finance and Economic Development (MoFED) forecasts that Ethiopias economy is due to grow by 10.1% this year. The largest contribution to this growth is to come from agriculture sector which is expected to exhibit 10.9% growth; industry and the service sectors are also projected to expand by 10.9% and 9.6% respectively. However soaring inflation (the official figure puts it at 13.5%) while there are those who claim even higher figures (19%), is taking a bite out of peoples pockets. But in a rapidly growing economy there is more money in peoples pockets and demand in ahead of supply. 2, Interest rates The Nation Bank of Ethiopia gradually liberalized interest rates. The only interest rate that is now administratively set by the NBE is the minimum on savings deposit that was slashed five years ago to a deposit rate of 3% prompted by concerns of potential deflation that was hovering at the time. Things have changed since then and there is little rational for maintaining the interest rate at this level. As purchasing power erodes continuously, the economy could run the risk of plunging itself into deflation.

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In the meantime, due to the ascending inflation rate, real interest rate has nose-dived into the negative and money has become cheap and easy to obtain. When real interest rates are in the negative savers are the ones that shoulder he cost and investors go on a borrowing binge. In the face of upward movement moving prices and plummeting real interest rate, there should be little rational for maintaining the minimum of 3%. The possibility that banks raising their lending rates following an adjustment on interest on deposits which would choke additional investment worries some. And besides interest rates is not a weapon for runaway inflation or the only instruments for containing it. However, a gradual move to positive real interest rates would help to contain inflationary pressures. 3. The Banks The banks have played an important part in the commercial real-estate development in the last few years. Total housing and construction loans disbursements for all banks, public and private, increased from 372.5 million Birr in 2003/04 to 626.5 million Birr in 2004/05 according to National Bank figures. This represents 68% increase for the period. Outstanding loans and advances showed a steady increase from year to year

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Total outstanding loans for Housing & Construction

3.5 3 2.5 2 1.5 1 0.5 0

1997/98 1198/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 in billions of Birr

The amount of new loans disbursed by the banking system was Birr 3.0 billion during the first quarter of 2006/07, indicating a growth rate of 36.2 percent on annual basis, but declined by 5.1 percent on quarterly basis. The quarterly decline was due to 42.8 percent slowdown in loan disbursements by public banks. Loan disbursements by private banks, however, rose by 23.4 percent. About 99.0 percent of the fresh loan disbursement was channeled to the private sector. Sector wise, loan disbursements to foreign trade accounted for 25.3 percent followed by domestic trade (20.1 percent), housing & construction (14.6 percent) and industry (13 percent). Similarly, the share of transport & communication and agricultural sector amounted to 10.6 and 10.4 percent, respectively. The private banks gave about 75.0 percent of the total loan disbursed during the quarter. Construction and Business Bank has recently rumored to have decided to abandon the loan market putting itself in a deep freeze. An indicator that the bank is either concerned about the soundness of its past loans or it is no longer as
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liquid. Share of Housing and Construction Loans was running at 29.1% and loans in the legal department at 17.4% (2005). In the mean time CBB construction loans increased by almost 60% from 64 million in 2004 to 108 million birr in 2005 and by another 51% to 213 million Birr in 2006. Other banks are said to be applying the brakes on all loans including construction loans, making such loans available at a considerably slower rate especially considering that they made increasing amounts every year for the past few years. Perhaps they foresee a crunch has borrowers find it increasingly difficult to make payments on time with additional thousands of square footage of retail and office space under construction. Perhaps they are asking the same questions we are, namely whether all this construction is demand driven. But it would not make any sense to freeze loans on residential real-estate since the demand is so high.

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Persentage of laons and advances disbursed for Housing & Construction

DB UB BOA AIB CBE CBB NIB 0 5 10 15 20 25 30 %

Sources: Annual reports of NIB June 2006; CBB June 2005; CBE June 2005; AIB May 2005; BOA November 2006; UB June 2006; DB November 2006. CBE is the only bank that can afford to give construction loans with comparatively smaller percentage of share in Building & Construction loans of only 6% and greater liquidity than the private banks. But currently CBE is reluctant to make such loans available. This situation will not reverse in the foreseeable future.

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4. Urbanization The tremendous demand for residential housing is fuelled primarily by a population explosion in Addis Ababa that is growing by leaps and bounds: o Ethiopia's current population size is 80 million, which is second only to Nigeria in Sub-Saharan Africa. The population will be 129 million by the year 2030, at an average growth rate of 2.5 percent. o But Urbanization is at its lowest level in Ethiopia compared to other African countries. Only about 15 % of Ethiopia's population lives in urban areas. Moreover, 40% of the urban population is found in only one city - Addis Ababa. o The urban population of Addis Ababa is currently estimated at about 4.7 million while the population growth rate is pegged around 8%. o UNFPA pointed to rural-to-urban migration trends, rather than the more common natural population increase, for the increased urban growth observed across all of the major cities in Ethiopia, especially in the capital Addis Ababa. o No country in the industrial age had ever achieved significant economic growth without urbanization. And urbanization is inevitable in Ethiopia, as one out of four (4) Ethiopian will be an urban dweller in a little over ten (10) years.

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Growth of Addis Ababa population at different rates

5,000,000.00 4,500,000.00 4,000,000.00 3,500,000.00 3,000,000.00 2,500,000.00 2,000,000.00 1,500,000.00 1,000,000.00 500,000.00 4.10% 4.70% 5.50% 6.30% 7.10% 8% 2007

5. The land factor In Ethiopia, land is public property. Individuals, companies and other organizations have only the use right of land. Peasant farmers are entitled to use right for an indefinite period, including the right to transfer the land to legal heirs and to lease it to third parties. The maximum limit on rural landholding has been set at 10 hectares per household. Urban land is divided into land for industrial use and land for other activities. Industrial land is given much attention by the government and the necessary infrastructure
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connections (roads, electricity, water, telephone) are facilitated. Industrial land in Addis Ababa and in parts of the Amhara and Oromiya regions comes at a low fixed price and the administrative machinery is fairly efficient. Land for export-oriented industries, for example, is generally available at a very low rate. The Ethiopian Investment Commission now has the authority to facilitate the acquisition of land by FDI projects throughout the country. In principle, the lease value of the land as well as the fixed assets on it can be mortgaged or pledged as' collateral, and banks may accept such collateral, perhaps at a discounted rate. In practice, this does not work smoothly. The price of urban land and the difficulty of using leases as collateral are among the primary concerns voiced by investors in this context. 6. Housing Styles and Preferences One characteristic of Addis Ababa that is true of many cities in the developing world is that its rapid growth is largely due to a continuing influx of rural-born residents. Rural-born residents were a majority of the citys population through the late 1980s, and in 1994, still accounted for nearly 47% of the population. As a result, a vast majority of Addis Ababas residents seem to prefer having some type of courtyard, or outdoor space, even though their home itself may be extremely small. This also means they have historically preferred a single-storey
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private house to living in a multi-family, multi-storey building.

Where homes are very crowded together or face directly on the street, residents do seem to use communal or shared space for many functions. However, for middle and upper class homes, it is certainly the case that fences and gates enclosing private space are considered a necessity. Not only do they provide privacy, but they provide an indicator of status. Fences, especially the front piece together with the gate design, acted as the main status markers of homeowners 7. Construction cost Cost of building depends on the type of construction materials used, type of construction, wall height, finishing and location. According to Ethiopian Investment Commission costs raged from $127.9 to $406.95 per meter square in 2004. (1,126 birr to 3,581 birr per sq. meters). In the last couple of years cost of building has gone up to 3,500 to 4,000 birr per sq. meters to build an apartment complex and 2,500 to 3,000 for an office structure. The cost of construction has escalated in the last couple of years. Cost of steel, cement (although it has come down a bit) finishing material, cost of aluminum, labor and the cost of skilled and semi-skilled labor have all gone up.
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CONCLUSION
Tremendous effort has been done to investigate the housing needs of Addis Ababa putting various variables and issues in consideration. Over all, the city of Addis Ababa, with respect to its population growth, needs innovative and new solution to resolve what could become a major problem. The number of rural inhabitants flocking to urban areas poses a major treat to the economy if not handled well. It could create a problem of unemployment, increase in crime in the city, increase in street dwellers etc.

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LIMITATATION OF THE STUDY. There was a lack of adequate time to write this thesis. I was, for most of the time, involved in the actual work in Access Real Estate. There for finding time to concentrate and work on this thesis has proven to be difficult. I was not able to have a formal or informal communication with the founder and CEO of Access Capital services S.C. If I had, it would have added more perspective on the thesis.

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BIBLIOGRAPHY.
Central Statistical Agency, Report on the 2006 Urban Employment Unemployment Survey.

1.

National Bank of Ethiopia, Annual report 20042005.

2.

3.

Addis Ababa Master Plan.

4. Report on the Ethiopian Economy, Ethiopian Economic Association 5.

6.

Addis Ababa City Administration Fortune magazine.

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