Ethiopia: Can Ethiopia’s New Property Bill Fix Industry Scandals, Close Regulatory Gaps in Growing Market?
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Ethiopia: Can Ethiopia’s New Property Bill Fix Industry Scandals, Close Regulatory Gaps in Growing Market?

Kaneb0

Ethiopia’s real estate sector has experienced significant growth over the past decade, fueled by urban expansion and rising housing demand in cities such as Addis Ababa. Developers have responded with ambitious housing projects targeting middle- and high-income buyers, as well as diaspora returnees.

However, this rapid growth has not kept pace with the widening gap between supply and demand, which particularly affects low- and middle-income earners. The annual demand for housing in Ethiopia is projected to reach 486,000 units by 2025, but actual supply is estimated to be only around 165,000 units annually. With most developers targeting higher-income buyers, many urban families remain struggling to secure suitable housing.

The sector has also faced significant vulnerabilities over the years. Without a cohesive regulatory framework, issues such as disputes over undelivered housing, stalled projects and unfulfilled promises have become commonplace, eroding trust between developers and customers. Some companies have misappropriated buyer deposits, while others have failed to meet deadlines, leading to protracted legal battles over compensation.

The collapse of Access Real Estate in the early 2010s was one of the industry’s most prominent failures. The company raised 1.3 billion birr from 2,700 buyers, promising homes in important neighborhoods such as Bole and CMC. But many of these projects stalled, leaving buyers without homes and forcing them into lengthy legal battles to recover their investments. Some buyers received bounced checks instead of refunds and construction sites were abandoned mid-project. The company’s CEO, Ermias Amelga, eventually fled abroad, further complicating efforts to resolve disputes and recover assets.

More recently, the Purpose Black SC appeared as another alert story. Launched with ambitious plans, the company raised 1.5 billion birr through share sales linked to large-scale real estate projects. However, investigations revealed that the company had overstated its progress and misled investors. On August 30, 2024, authorities arrested four top executives, including CEO Ermias Birhanu, on charges of fraud and misleading marketing. The arrests, along with frozen accounts and suspended operations, left the company’s 1,750 shareholders unsure of where their investments would go.

It is to address these challenges that Parliament tabled the Bill for Proclamation, Real Estate Development and Real Estate Marketing and Valuation, on 10 October 2024. The bill, which aims to increase accountability among developers and protect the interests of consumers, was debated and subsequently referred to the Standing Committee of Urban and Transport Affairs for further review.

Long-awaited regulatory review for the real estate market

Among the key changes in the new draft proclamation is a revised property valuation system, which requires properties to be valued every five years or as needed for taxes, sales, loans, insurance or inheritance. The valuation will rely on market comparisons, replacement costs and income capitalization methods to adjust for current market trends.

Developers must also provide buyers with transparent project details, including pricing, delivery schedules and the status of land leases and title deeds.

For potential buyers like Addis Ababa resident Temesgen Asfaw, these changes come at an opportune time. “The new rules will give me more transparency and security in my transactions,” he said, adding that the move to legally-based frameworks offers much-needed clarity. While buyer protections have been slow to materialize, Temesgen believes these measures will provide relief in a market often marked by uncertainty.

Haile Bayisa, a business lawyer and adjunct lecturer at Addis Ababa University’s School of Law, agreed that the sector has long needed clearer regulations. “The gaps in the real estate market have been calling for attention for years,” he noted. “If approved, the draft will create a more predictable environment for both developers and buyers.”

Haile explained that property prices have traditionally been set through private negotiations, often mediated by brokers, leading to unpredictability. “This system made pricing unreliable,” he said, adding that the new rules will bring greater consistency and confidence in transactions.

Biruk Shimelis, associate director at Flintstone Homes, echoed those sentiments, describing the draft as overdue. “This represents a significant step forward for our sector, which we have been advocating for regulation for the past decade,” he remarked. “Regulation is important not only to protect customers but also to promote a better understanding of how real estate companies operate.”

The announcement also introduces stricter entry requirements for developers, requiring a minimum delivery of 50 homes to qualify for a property licence. For companies seeking government land allocation, the requirement is even higher, with projects of 500 to 5,000 units and 40% designated as affordable housing.

Balancing opportunity with oversight

While acknowledging the need for regulation, Biruk expressed concern about the 50-unit threshold, suggesting it could limit flexibility. “Projects should not be judged by size alone. Whether it is 10 units or 50, if the project meets standards, it should be allowed to proceed,” he argued.

However, Haile believes that the minimum unit requirement raises the industry standard by filtering out smaller, undercapitalized players. “Previously, anyone could enter the market without delivering significant projects. This change ensures that only developers with the capacity to complete meaningful projects will remain,” he explained.

However, Haile expressed concern about the lack of clarity about how the announcement will target existing businesses that do not meet these new requirements. “Some companies are currently operating without reaching the 50-unit threshold,” he pointed out. “Although the draft mentions a transitional provision, it does not specify how these companies will be regulated.”

Biruk also highlighted potential challenges in the government’s partnership program, which requires developers to build 500 to 5,000 units, with 40% allocated to lower- and middle-income buyers. “The idea is promising, but the definition of affordable housing is unclear,” he said. “Without proper guidelines, implementation of the program can become problematic.”

The draft regulations also contain a key provision requiring developers to complete at least 80% of a project before handing over units to buyers. This measure aims to protect buyers by ensuring they receive near-complete homes, and addresses long-standing concerns about incomplete handovers on the market.

Biruk acknowledged that this change could present challenges for developers, given the industry’s reliance on semi-finished devices. “This is a new concept for us,” he noted. “Handing over partially completed homes has been standard practice.”

Haile, on the other hand, emphasized the provision’s potential to curb fraudulent practices in the industry. He pointed out that some developers transfer ownership before they have even completed the basic structure of houses. “This rule forces developers to reach meaningful design milestones before selling units,” he explained.

Haile further noted that previous regulatory loopholes allowed companies to operate without owning land or completing projects, creating significant problems. “Now developers have to hold land, build the house and get a license,” he said. “This closes a critical loophole that previously allowed companies to secure resale licenses without completing construction.”

Another change the draft announcement aims to introduce is joint account management for pre-sale deposits to protect buyer funds. Under this measure, developers must deposit payments into escrow accounts, accessible only with government approval, ensuring greater financial security and preventing abuse.

However, Temesgen, a would-be home buyer, expressed skepticism about how developers would react to the move. “I doubt real estate companies will embrace it,” he said. “Even if it’s a viable idea, it could discourage developers from expanding or offering affordable options.” At the same time, he acknowledged that the abuse of pre-purchase deposits has been a persistent issue. “Some companies use the buyer’s funds for unrelated activities. Blocking access to these deposits will prevent such misuse,” he added.