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Old November 15th, 2011, 08:12 AM   #1
Ethio_faranje
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is a property and banking crash likely ?

IN addis there are various area identified for high density development so the government says at least 5 storey , 7 storey or even 14 storey must be built in particular areas.

This is probably sensible in line with proper city planning ........but it appears that the government is pushing people to build the building before genuine demand appears.

The normal cycle of things would be that if you have a site which is designated for high rise development and there is obvious demand in the area you will either build it or sell it to someone who will ..and if you own the land you are encouraged to sell by the price offered.

In ethiopia the kebeles are telling people they have to build building of 5/7/14 storey or they will take the land ..i this will create a lot of unviable building projects. (is this also an opportunity for the party cadres )

I think the city is already full of half finished buildings so i think they are going to create a total oversupply of building for an economy that is not ready for it and this may lead to big problems for the banks here ...

Having seen the property boom and crash in europe ethiopia looks like it could be creating an even worse scenario ?

How much of the growth of the last 5 years is property related ... Could this be the issue that brings down this government ?
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Old November 15th, 2011, 08:07 PM   #2
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There is demand, yes, but the demand is lower-middle class rather than upper class, as is being built. There undeniably is a bubble- they're averages sized houses that cost $300K- the same as in the US in many places! Another major problem is that the government is constantly withholding land from the lessees, which holds up development. I wouldn't be surprised if they've forgotten that they've done that and are demanding more construction. I do agree however in not building low-rise buildings, it stimulates sprawl.

Anyways, in Addis at least, the master plan is a joke. The buildings look terrible, and there is no order to the city. Call it heartless, but if I were in charge, I'd place a moratorium in all new construction, tear down most of the slums, and build stuff like the below on the sites, though I would make it more walkable, more in line with New Urbanism, and probably a bit more dense and shorter. Then, I'd prohibit single-family development within a certain limit of the city center, along which would eventually be a middle ring road, and in which would be dense development.





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Old November 17th, 2011, 08:37 AM   #3
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Quote:
Originally Posted by Ethio_faranje View Post
How much of the growth of the last 5 years is property related ... Could this be the issue that brings down this government ?


Economic growth triggering a revolution....& Zenawi - Azeb Gola facing the international court for the 8% growth / or Azeb trying to escape NATO's no fly zone....classic!

btw, faranje....
Everyone is out there to occupy some city corner or a street. I am thinking to occupy Lady Gaga, declare a revolution and pull down Ginbot 7 - are you with me?

....?Where is Lady Gaga anyways.
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Old November 17th, 2011, 12:14 PM   #4
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Economic growth triggering a revolution....& Zenawi - Azeb Gola facing the international court for the 8% growth / or Azeb trying to escape NATO's no fly zone....classic!

btw, faranje....
Everyone is out there to occupy some city corner or a street. I am thinking to occupy Lady Gaga, declare a revolution and pull down Ginbot 7 - are you with me?

....?Where is Lady Gaga anyways.
If you look at what has happened in europe recently economies who had a lot of false growth based on domestic property/construction such as spain and ireland the economy crashed. If this happens in ethiopia on top of the 40% inflation surely could cause crisis /

When i talk to ordinary ethiopians here on the ground they think things are increasingly tough but the government has done a good job in frightening the people and there is no obvious opposition.

how much more foreign currency is ethiopia actually earning (not receiving as aid ) than it was 10 years ago ?

If you are party cadre don't feel it is funny that the prime ministers wife seems to be an increasing presence in the "private" sector ?
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Old November 17th, 2011, 09:04 PM   #5
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Quote:
Originally Posted by Ethio_faranje View Post
Having seen the property boom and crash in europe ethiopia looks like it could be creating an even worse scenario ?

How much of the growth of the last 5 years is property related ... Could this be the issue that brings down this government ?
Are you seriously comparing the european and ethiopian property markets?? Either you absolutely have no idea on the realities in Ethiopia, or you're doing this intentionally for your own agenda (whatever that is). Anyways, Ethiopia is decades away from overbuilding due to easy access of financing (which was the case in Europe). Try getting a loan to build a house in Ethio, and then we can talk.
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Old November 17th, 2011, 10:04 PM   #6
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I actually live in addis for the last 3 years so i see a lot of development happening that only seems to get half completed in a lot of cases or certainly very elongated projects ..you just have to look at kanzanchis.

I assume the banks are lending to the property developers and there are a lot of big building being built but is there the market to support expensive shops and office buildings ?
A lot of these building are built and the owners expect/need european/us rental income ..who will be the clients ?

how many people in ethiopia earn even a 1000 dollars + a month ?

Who can afford a 4 million birr villa in ethiopia ..i would say very few people are legitamately earning money to pay for that within the country.

Ethiopia needs a lot of buildings , but does it have the economy to support it ?

there are a lot of government official earning 4000 birr a month , can they pay 2million for a condominium .

i have no agenda ..the observation i have made is one that a lot of people coming from the west make ..and also local ethiopians

On top of what is already happening the governmnent are pushing for more multistorey building in the city based on location of land but not related to demand and i dont think there is the genuine economy to support it yet.

As regards commercial/residential property market maybe 95%+ of the population do not have the economic means to participate.

i am highlighting a risk that i believe is growing ...maybe i am just a pessimist having seen the european experience.
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Old November 18th, 2011, 05:57 PM   #7
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Well, there appears to be a lot of demand for residential property. Most developers we see advertising on their websites apper to do well. For example look at Access realestate. Majority of their properties are sold out (not sure wheather it is real or a marketing stunt). The price for residential property is ridiculous, however there is not that much leverage on it. Most are sold on a cash transactions.

One thing I think will destroy the value of these expensive homes is the goverment's policy of constructing condos for the masses outside of the local development plan. The city government is now building these condos behind a planned development, high value residential areas. These will drop the value of houses within the planned development. This mass condos may create "ghettoes" as we see here in the west.

The city goverment may be trying to create communities that are somewhat blended between the have and have nots. However I am not sure how much professional advise they got from people who have done it in the past and have some experiences to share. I think they will end up destroying the value of these already overpriced properties. And that may be where the bubble is.

Just my humble opinion.
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Old November 21st, 2011, 07:29 PM   #8
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on the residential ..maybe they are not building unless they have customers and payment ..i still wonder where the money comes from ..it must be mostly sourced outside ?

Access really seemed to be churning out the commercial and residential developments,look professional but i don't know much beyond that.

On the commercial buildings is where i see the risk ..in my uninformed mind ..

I think this will be further extended by the kebele telling people to build 5 storey and upwards buildings or hand the property to the kebele ..i am wondering if this will drive a range of speculative building ..but maybe the banks are not lending to speculative developers , if not who do the commercial banks lend to and for what purpose ?

I believe a few famous business men committed suicide after their bank debts got out of control ..maybe this is only rumour ... ?

i know a lot of flower farms went bankrupt/liquidation and were being sold off by the development bank.

If the economy keep growing at up to 10% maybe all will be ok.

I am happy to be educated on the matter.
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Old November 22nd, 2011, 12:08 AM   #9
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On the commercial side; I share your concern. Again my take is that business owners rather put their money in real property to hedge against devaluation. I read that several foreign companies are shifting east africa operations to Addis. That may also be a factor in the increased commercial development.

When I was planning to develop a certain tract, I went to the district office and I was able to get the local area zoning plan for 100 birr. That shows what the area is zoned for; like buiding height, use, so on. I am not sure if what is on paper is actually what is implemented since I have not taken on the project. Some pepole advised me to start on a foundation and first storey and use that as a collateral to get financing for the rest. So that tells me the banks are not all out when they lend money. The investor will also have some money in the play.

In an environment where the market is not heavily dictating investor's behavior, I think it makes it a little muddy to understand trends and rational decisions related to market-need-based commercial development.

At the end of the day, you are there and I am not. Hence you have a better, relevant, first hand info so please continue to share.
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Old November 22nd, 2011, 05:54 AM   #10
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Quote:
Originally Posted by kyohann View Post
At the end of the day, you are there and I am not. Hence you have a better, relevant, first hand info so please continue to share.
Interesting. Why are you so quick to defer to Ethio Faranje? Because he's a Faranje living in Addis? I'm sure if that was your fellow Ethiopian writing from Addis, you wouldn't be as nice or welcoming of his/her opinion (No offense Ethio Faranje). I notice such colonial mentality in most Ethiopians even though we are literraly the only people not just in Africa but in the whole world to have NEVER been colonized ...YES I SAID IT.

Last edited by yosiast; November 22nd, 2011 at 05:56 AM. Reason: grammar mistake
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Old November 22nd, 2011, 07:34 AM   #11
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Interesting. Why are you so quick to defer to Ethio Faranje? Because he's a Faranje living in Addis? I'm sure if that was your fellow Ethiopian writing from Addis, you wouldn't be as nice or welcoming of his/her opinion (No offense Ethio Faranje). I notice such colonial mentality in most Ethiopians even though we are literraly the only people not just in Africa but in the whole world to have NEVER been colonized ...YES I SAID IT.
You are not noticing anything. You are simply projecting your own internalized insecurity.

Your whole premise for making this accusation rests on a baseless hypothetical assumption. He referenced nothing more than his place of residence...and you just ran with it.
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Old November 22nd, 2011, 12:58 PM   #12
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I think he was simply saying i might have more info as i am on the ground ..so that gives me some advantage but i don't speak amharic well so i am only giving my opinions and i am not at the heart of the business community.

The insecurity of the currency here also encourages people to buy real assets too.

I think there is also a lack of transparency in the property market here ( but maybe there is always a lack of transparency in reality as Europe and the states missed the problems).



i come from a european country that was colonised and while we delighted to kick out our colonizers ...many times our leaders have let us down badly ..and often they played the nationalist card to facilitate this.

The issue of colonization in ethiopia is complex ..the borders of ethiopia contain 80 ethnic groups and it appears to have been dominated by tigray and amhara ..and a lot of other groups could consider themselves colonised by the highlanders/northerners ..i have heard terrible things said by ethiopians about other groups that you would hang a faranji for saying.

i am relatively informed as i live here ..but with limited information
the point of me being in the discussion is to learn more by saying what i think i see ...even if i am wrong i am happy to get more accurate information,but i understand it can be irritating if a foreigner appears to criticise.
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Old November 22nd, 2011, 02:56 PM   #13
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Quote:
Originally Posted by Hersh View Post
You are not noticing anything. You are simply projecting your own internalized insecurity.

Your whole premise for making this accusation rests on a baseless hypothetical assumption. He referenced nothing more than his place of residence...and you just ran with it.
Hersh, there is no issue of insecurity here. I made an innate oberservation and dared to say something about it. If you can't deal with the truth, too bad. I respect your opinion but I also have a right to call it as I see it. Don't get so damn defensive buddy!!!
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Old November 22nd, 2011, 02:59 PM   #14
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Old November 22nd, 2011, 05:16 PM   #15
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Yosias, All I was saying is he resides in Addis and has better first hand, real time info than I do. If you have something to add to this thread please chime in. Let's not even try to get off topic and talk about other garbage.

I just had an interesting conversation with a relative that just came here to the states from Addis for Thanksgiving. The topic was related to commericial development. Her assessment on commercial real estate in Addis is that it rents quite fast. The demand is there that people are willing to rent their houses for commercial purposes. So, I think investors see the demand and are rushing to fill the gap. Last time I was in addis (four years ago), I have not noticed a vacant commerical property that has been completed.

Maybe we have not still reached an equilibrium between supply and demand hence less risk of a commercial real estate bubble at this time. However, I do not have hard data to back up my claim.
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Old November 22nd, 2011, 11:15 PM   #16
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Quote:
Originally Posted by Ethio_faranje View Post
I think he was simply saying i might have more info as i am on the ground ..so that gives me some advantage but i don't speak amharic well so i am only giving my opinions and i am not at the heart of the business community.

The insecurity of the currency here also encourages people to buy real assets too.

I think there is also a lack of transparency in the property market here ( but maybe there is always a lack of transparency in reality as Europe and the states missed the problems).



i come from a european country that was colonised and while we delighted to kick out our colonizers ...many times our leaders have let us down badly ..and often they played the nationalist card to facilitate this.

The issue of colonization in ethiopia is complex ..the borders of ethiopia contain 80 ethnic groups and it appears to have been dominated by tigray and amhara ..and a lot of other groups could consider themselves colonised by the highlanders/northerners ..i have heard terrible things said by ethiopians about other groups that you would hang a faranji for saying.

i am relatively informed as i live here ..but with limited information
the point of me being in the discussion is to learn more by saying what i think i see ...even if i am wrong i am happy to get more accurate information,but i understand it can be irritating if a foreigner appears to criticise.
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Old December 13th, 2011, 12:49 AM   #17
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My perception of it is that a bubble may be building only for those building/buying in the high-end market. There's no real demand for dozens of real estate developers to build $300,000 homes. There just isn't. Most people who buy, buy it as an investment in the hope of renting it out or reselling it at a higher price. The rest buy it as a retirement investment but will rent it in the meantime. The problem is, what kind of rent will they charge once they pay $300,000 to have it built? They're not going to ask rental prices that average city-dwellers will pay. So in essence, those who are buying those houses are the same ones who will be the target market for rental - how is that going to work out?

For now there is definitely pent-up demand since there is a shortage of quality housing in the city for the growing number of expats, returnee Ethiopians and those in the rising upper middle class. Plus the construction pace is so slow that even more demand builds will they take 5 years to build a 10-story condominium building. But once all these units are built and ownership is transfered, I think there's a chance we'll see a lot of upscale housing go empty.

The problem with the developers is that they all want to target the diaspora and the super rich of Addis. The REAL demand for housing however, is found in the slums of the city where the true middle class has been languishing, hoping for someone to target their needs. The first developer that builds housing that an average Addis Ababa doctor, teacher, nurse, small business owner, etc, can afford to pay, will see a massive ROI. The current mentality is too much of a "get rich quick" scheme, which is why I worry about the sustainability of it.

With that said, there's absolutely no danger of a bubble in commercial real estate. There are countless businesses running out of crowded single family homes instead of proper offices. Most commercial space is rented out even before the building is completed. I think the demand will only grow from here, so there's a lot of room for new developments.

So in other words, if there's any overbuilding at all, it's only due to targeting the wrong end of the market. It's a flaw in the business models of property developers.

The idle construction sites are due to very high prices for construction materials. Living in Addis I'm sure you've noticed the alarming inflation rate, and building materials have not been spared. Eventually they'll start up again when the price of cement, etc, reduces. That should be right around the corner since Derba Midroc is to start production this month or next, and will hopefully relieve the pressure on cement prices.

Last edited by abesha; December 13th, 2011 at 12:55 AM.
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Old December 13th, 2011, 10:38 PM   #18
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A lot of good information and opinions given ...i am probably premature in my initial opinions ..there are a lot of commercial operations based in House/villas that can move to offices.

One issue in the commercial building is that very few seem to include parking which will cause increasing problems in future i think.

an article in the latest fortune seems to indicate the new property law has brought uncertainty and building has slowed down (seems a very quick impact) and that cement price is dropping.

http://www.addisfortune.com/View_From_Arada.htm

These young men used to work as assistants for skilled craftsmen working in the construction industry. For Tesfaye, the scene signifies the paralysis in the private construction sector resulting from the uncertainty caused by the recent and lease proclamation.

“Have you noticed the recent downturn in the construction industry, even under the price slump of cement?” he asks. “I wonder how much the price of cement will go down in the market when the new cement factory owned by that billionaire starts production in the not too distant future.”

This state of affairs surely poses a serious question in the minds of private investors. Indeed, of what good would accumulating wealth be if it cannot be used for investment in one form or another?

People do not live only to spend their money today. They also live for the destiny of their offspring of tomorrow. Investment is nothing but a wise decision to use one’s money with the assumption of a better tomorrow.
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