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BusinessWhat is happening with "the crazy" housing market?

What is happening with “the crazy” housing market?

A year ago, Abraham Terecha called the credit department of the business where he now works as a branch manager to find out if he qualified for a mortgage loan provided to employees. He was overjoyed at hearing the news. A credit officer informed him that he qualified for a mortgage loan of up to two million birr. He wasted little time in moving on. Abraham made a quick call to the brokers. He told them his plan to purchase a condominium apartment in any area in Addis.

The city government had established a rule that prohibited any type of title deed transfer at the time, so none of the house owners were in a position to sell, and the brokers whom he called was sitting idle and were waiting until the lifting of the prohibition. Because of the inflationary pressure brought on by the steadily rising price of homes, he was aware that waiting until the suspension was lifted was not a wise decision.

When he considered his options, he found that some cities, like Dukem, which is around 36 kilometers from the capital, allow the purchase of real estate. He didn’t have much of a choice because transferring ownership was restricted by regional and zonal administrations across the country. The seller has changed his mind prior to the actual purchase after agreeing to a pre-agreement, or “Yemender Wul,” to buy a villa for two million birr, because the market price has climbed by 200,000 birr in just a week.

The ban has been abolished this time, and Abraham can now purchase a home in the capital; but, he is still looking for a villa in adjacent cities. Bishoftu is where he is headed now.

“The real estate market in this area is likewise ridiculous. A house that was originally going for 1.1 million birr saw its price increase by more than half that amount in just one month,” remarked Abraham. “In the past, at least a banker with a mid-level position could purchase an apartment and now that you can’t get to it.”

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The property market is going through an odd development. Price is increasing at an unprecedented rate, beyond what market insiders anticipated with demand surging. Limited supply and high prices extended to locations where they had not previously been. The scarcity and exorbitant costs that are common in some of the most dynamic housing markets has spread all across the country.

Addis Ababa continues to have the busiest market for homes. The most expensive housing units are found in Lideta, Bladers, Gotera, and Gerji, areas that command greater prices than any other places in the nation, particularly when it comes to condominium homes.

A one bedroom condominium house now costs as high as four million birr in these locations. It is two times higher than the price registered two years ago. The figure is staggeringly high for two-bedroom condominium houses, reaching as high as six million birr, money that was enough to buy a luxury real estate apartment or a villa sprawling on 100 sq.m of land.

In case of real estate companies, the price is even exceedingly high. Price is usually charged per square meter. A rate unheard of in the real estate market if it was before 2021, 100,000 birr is the least price real estate companies charge for a square meter when they sell apartments.

Given the country’s double-digit inflation rate, which has persistently hovered above 20 percent for a year and 30 percent for five months, all sectors of the economy should foresee price hikes. However, the figure that has been recorded in the housing market lately is strange and difficult to comprehend, even for those who work in the sector.

“Since prices are increasing daily, I’ve seen a lot of good offers get passed over. Don’t come without holding the cash: “the new market rule,” said Degfew Desta, a broker who has been active in the housing market for over a decade.

No surprise, given that housing has been a contentious topic ever since. Owning a home has become a hope that has never been fulfilled since the government’s plan to provide housing for low-income households has proved unattainable.

Despite a pledge to provide housing for more than six million residents of the capital with the introduction of low-income housing projects and, subsequently, in 2013, when the administration saw the registration of one million capital residents, this has not yet been possible.

The ownership transfer process has been rather demanding. A recent draw to deliver 25,491 homes resulted in the arrest of the former director of the city’s Innovation and Technology Bureau and other public officials who took part in the draw on suspicion of corruption and misusing their positions of authority to allegedly include those who were not allowed to participate.

Regardless of the controversy, there are a number of additional factors that contribute to the shortage of housing available on the market and the recent spike in property prices.

Tiruneh Assefa, an economist by profession, believes this is the outcome of the inflationary pressure, which is discouraging saving at a level never seen before. “Saving is no longer a viable option, unless the depositor is a low-income household or puts money in banks for the sake of safety,” he said.

In an economy with a negative interest rate on deposits, it is typical to see people discouraged from saving money. Many savers have been dissatisfied by the unparalleled development of inflation and interest rates, which has made deposit mobilization by banks more difficult than ever.

“People would rather gamble their hard-earned money for a land without a title deed (commonly known as Yechereka Bet, literally translated as moon house), which is usually purchased from farmers even though this is considered as an illegal offense based on the constitution that prohibits transfer of land,” added Tiruneh, who believes buying properties proved to be the best venture to invest in, higher than what any industry pays, be it the banking industry or retail trade.

Real estate companies are also aware of the change in the housing market. Developers with over a decade of experience in the market can little contribute to stabilize the market.

Flintstone Homes is one of them. Its deputy general manager, Biruk Shimelis, believes the spike is beyond what real estate companies can do, as “it is linked with the shortage of construction input. From cement to rebar, price of inputs skyrocketed at an unprecedented rate.”

His justification makes sense, given the dearth in supply of building raw materials and price upshot seen in the last three years. The price of cement alone more than doubled in the last two years, reaching over 1,200 birr per quintal. In case of rebar, the change is almost the same, with a kilogram of rebar being sold as high as 110 birr and even goes higher based on the type of the metal.

“Such factors have led to a drastic upsurge in cost of building houses, which is higher than ever,” said Biruk.

Market insiders say a budget of 100,000 birr per square meter is needed to build a house. That is excluding overhead cost, including transportation to bring items and tax paid to authorities to get a permit, which brings the total to almost 150,000 birr, at least.

Biruk believes the high cost of construction is also playing a big role for the recent changes witnessed in the housing market. “The sellers know how difficult building a house is. So, charging a higher price is expected.”

Surprisingly, buyers’ responses, according to market insiders, were a little slow. Already, speculations are brewing. “Two factors might have played in a big role. First is the injection of money by unidentified sources, even may be in the form of embezzlement from the coffers of the government. This is not small money,” said a private consultant.

Abraham thinks the other way. “Bankers and Diasporas might have played the lion’s share for the inflationary pressure witnessed recently,” he said. “Mortgage loan approval to bankers have increased drastically and employees of NGOs are also benefiting, given they are the only profession with a privilege to get such access because of the high amount of forex their employers contributes.”  

Despite the conflicting opinions over the soaring cost of housing, the price is still rising and becoming more out of reach than before, making it challenging for the resident of the capital like Abraham to find the ideal home while waiting for tomorrow to bring about a new change.

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