talking of steel construction,
Real Estate Firm Makes Bold Promises to Finish Apartments in a Year’s Time
by the way, I personally know couple friends who have been victimized by this corruption, and don't seem to know what to do.
For any curious observer of Addis Ababa’s real estate market, the promise made by managers of Access Capital Services SC, to hand over flats in two five-storey buildings within a year’s time, is indeed unique. Yet, what took the industry by surprise is their pledge to pay back homebuyers the full amount they pay upfront with 15pc annual interest, an amount above the rate banks charge borrowers, when and if the company fails to complete the apartments within a year.
In cases where homebuyers are reluctant to get their money back and want the flats they pay for, Access’s managers promise to pay monthly rental fees of up to 5,000 Br, until the time they hand over these flats to their buyers. The company has been selling these offers, running full-page ads in the newspapers in town, and inserting colorful supplements, with three-dimensional illustrations of the different types of flats.
Managers at Access will deliver the houses on time, they are confident; albeit theirs is a unique commitment. But what attracted many buyers, more than the time in which the developers promised to complete the construction, was the irresistible prices tagged on the different types of flats. The apartments include studios at 365,000 Br, one bedroom units at 495,000 Br, two bedroom units 649,000 Br, and three bedroom units 750,000 Br, including value-added tax (VAT). Many people, over 23, according to some sources, have already bought these houses; in some cases, there are buyers who bought two or three flats.
One such buyer is a businesswoman in her early 30s. Married and a mother of two, she aspires to move out from a rented house in the Kotebe area. Last week, she was at Access Real Estate’s comfortable, posh office on the third floor of Mentewab Building, behind Bambis Supermarket, signing a contract to buy a three bedroom apartment. She paid 12pc of the total value, close to a 100,000 Birr.
“I wanted to buy a flat from this company because I like the location,” she told Fortune, requesting to remain anonymous.
Hers is a reasonable choice, judging by a study conducted by Access’s research department. CMC, Ayat, and Summit areas are considered to be places for middle-income group homeowners, whether it is for rent or sale. On the high-end are areas such as Bole Japan and Bole Medhanealem as opposed to low-end homeowners in areas of Lafto, Alem Bank, and Betel Hospital.
For instance, a three bedroom (one storey) house in Bole Japan could fetch up to four million Birr when sold as opposed to 1.5 million Br in areas such as Betel and Alem Bank. In the CMC area, the same type of house could earn two million Birr, according to research. Prices are highest in Bole and Old Airport neighborhoods; roughly in the middle are areas such as CMC, Ayat, Summit, and Imperial-Gerji; and towards the lower end are neighborhoods such as Lafto, Lebu, Alem Bank, and Betel, the study finds.
The rental pattern is similar. A medium sized house (a four bedroom, one storey villa) will get up to 45,000 Br in monthly rent if it is in the Bole Japan or Old Airport area. A similar house will fetch 2,000 Br in Alem Bank and Betel areas, as opposed to 5,000 Br in CMC, Ayat, and Summit areas. Having such appeal to buyers of middle-income levels, Access is trying to introduce a pioneering way of marketing housing in an otherwise same but highly competitive real estate industry.
Much of the real estate operators are competing based on location and the type of housing they plan to erect. In terms of price, almost all of them offer a one storey house on a 250sqm plot (small size) for up to two million Birr, on a 500sqm plot for up to four million Br, and on a 1,000sqm plot for over six million Birr. Almost all commit to complete and hand over homes within 24 months, although hardly any of them have managed to do so.
Ethiopia’s flourishing real estate industry has fundamentally three categories, public financed low-income condominiums, middle-income self financed residential villas, and upscale modern housing built by real estate developers. The last of these, since the pioneering undertakings of Ayat Real Estate, has seen remarkable growth, both in the number of firms involved and in the size of the plots they claim.
Access Capital Services and its subsidiary Access Real Estate are two of the over 400 real estate firms licensed over the past decade. Of these, 125 of them have leased plots from the city administration, with a total area of 2.7 million square metres in the three years beginning in 2004, according to surveys conducted by the research wing of Access Capital Services.
The largest plot size of 291,628sqm (in Luki - in front of CMC – Gerji, and Bole Beshale areas) was taken by Sunshine Construction, followed by Habitat New Flower Homes with 120,000sqm (also in Luki), and Ambassador Real Estate with 75,000sqm. Ayat, whose leading initiative earned it a vast plot of land at a place now bearing its name, has leased an additional 35,000sqm plot in the Kazanchis area, while Trancon Real Estate’s 50,000sqm is located in Nefas Silk-Lafto District.
Neither Access Capital Homes nor its subsidiary, Access Real Estate, has leased any plot directly from the City Government. They are rather known for an apartment building under construction adjacent to Nyala Motors. The plot once belonged to an individual who sold his lease rights to Access Real Estate, a public company established two years ago with over 600 shareholders, where Access Capital Services is one of the major shareholders. The apartment near Megenagna is halfway through the construction phase, but all of the flats are sold out, according to reliable sources.
The second project bearing the name Access and with two blocks comprising 160 flats is planned to be constructed on a 8,233sqm plot, located in Yeka District, in front of the CMC compound. Developers promise to complete the construction work within a year, owing to the construction technology they plan to introduce for the first time in the local housing market. The use of steel structures (as opposed to concrete) and prefabricated magnesium oxide board (instead of bricks or shallow blocks) will drive prices down, for the benefit of homebuyers, they also believe.
Whether or not magnesium oxide board is cheaper than blocks is challenged by engineers in the industry. But, its strength (material used to manufacture pull balls) and the speed in which it is manufactured for assembly is unchallenged. Ethiopia has a bigger deposit of magnesium oxide, in the Adolla area, Oromia Regional State, than the United States and China have, experts believe.
Access Capital Services has entered into a contract with two local sister companies, Living Steel Construction Plc and Ybel Industrial Plc, to be supplied with both steel structures and magnesium oxide boards. Using these materials will make it a pioneering firm in the real estate industry.
The two companies, whose plant is in a huge warehouse inside La Gare Railway Station in Addis Ababa, rented from the Ethio-Djibouti Railway Enterprise, has hired four foreign experts with similar construction experience in Qatar. These experts, from Belgium, the United Kingdom, and South Africa, will train and supervise local employees who will assemble the prefabricated houses at Access’s site in the CMC area, says Yonas Tadesse, general manager of Living Steel Construction Plc.
The building type offers quality, durability and faster and more efficient installation for low-rise residential and non-residential construction, according to Befekadu Asefa, project manager of Living Steel Construction Plc. The boards use materials that can absorb heat and sound, according to Albert Van Tonder, the contracted Belgian. It is also resistant to fire and extreme weather conditions, the managers claim.
The local construction industry is a stranger to this. It is, instead, very familiar with concrete structures and shallow blocks. Both consume huge quantities of cement, whose price has escalated by over 300pc since 2005. And it takes time to put them together.
It is this new technology that will be used for the first time that Access’s managers are banking on to back their promises with. The technology will use less cement than conventional steel and shallow block structures, they believe, leading to reduced overall construction costs, and taking half the time needed for assembly.
“It is great to be a pioneer,” said a real estate developer who will hand over homes in the Lebu area to buyers in a few weeks. “But I would not dare to take that risk.” The man behind the real estate project and general manager of Access Capital Services, Ermias T. Amelga, is known for his daring initiatives.
Ever since he came back from the United States in the mid-1990s, where he has just been over the past couple of weeks selling his new initiatives, he took over an edible oil mill from the state and turned it into the first water bottling plant, paving the way for the emergence of a new industry that is thriving now. Ermias pushed the limits to re-establish a share dealing group, once operational during the Emperor’s time, but with little success. Although his dreams of forming the first private equity firm may not have taken off in the way he originally planned it, has today’s Access Capital Services SC led the birth of the embryonic share companies market that has flourished.
Ermias was the promoter of what came to be Zemen Bank and is now its board chairman. It is a bank known for introducing bold moves in the banking industry, such as lending based on the viability of projects (away from traditional collateral based loans) and a commercial bank operating with a one branch concept but relying on much technology.
Many bankers in the industry are skeptical about whether these initiatives will work, such as advancing loans without collateralizing assets. Yet, they cannot stop admiring his guts and daring moves.
“He thinks of business in the mindset of a US businessperson,” said a businessman resettled from the US in the real estate market. That mindset is the desire and ability to take risks.
Access Capital Services is taking this kind of risk in its latest venture with the construction of the apartments on the road to Ayat. It is very unlikely that they will be completed within the time Access said they will be completed in, according to experts in the industry.
Steel structure construction has the advantage of fast assembly and little use of concrete (only in its foundation). The companies involved in these projects have applied for certification standards from the Ethiopian Quality and Standards Authority (EQSA). But this is not a mandatory requirement. They can go ahead with their assembly of prefabricated boards, although standard certification would help in assuring buyers of the quality and safety of the products, according to experts.
Nonetheless, obtaining a construction license from the Ministry of Works and Urban Development (MoWUD) and a construction permit from the district office where the project is located is a legal requirement. They have submitted their application to MoWUD and plan to submit to the district, after the structural design is finalized, according to sources.
Both companies have applied to EQSA for approval of the South African Standard, according to Fekeremariyam Arego, director for standards development. How long the government agencies will take to respond is not clear. However, the EQSA will take at least six months before it certifies or denies standards, Fekeremariyam told Fortune. Access’s managers, however, plan to launch construction before the end of this month, June 2010, according to reliable sources.
Nonetheless, the daunting challenge and the possibility of taking longer than one year could likely come from a different front. The manner in which Access obtained the plot and the company’s intended use of the property compared to what it was originally leased for will likely be a cause for dispute with city authorities.
Hardly publicized in any of the promotional materials produced by Access’s managers is a company known as Meri Real Estate Plc, a company originally formed by Star Business Group (SBG) and Mengistu Mekonnen, with a capital of 2.4 million Br. Following Access Capital Services in joining the company, buying 70pc of the shares, the shares were redistributed. Access now has 7.2 million Br in shares, SBG has 2.38 million Br, and Mengistu has 20,000 Br, bringing Meri’s share to 9.6 million Br.
The plot where Access promises to build these apartment blocks was originally given to Tis Abay Plc, another subsidiary company formed in the mid-1990s by shareholders of SBG, Abebaw Desta, and Menweyelet Atnafu, with a 50-year lease term by the Addis Ababa City Administration, in 2006. The plot was leased for the purpose of building commercial real estate.
It was not clear how the ownership was transferred to SBG, which took it over at a price of close to 2.4 million Br, in preparation to move it to Meri. Neither is it clear how the company intends to transfer a plot taken for commercial purposes to real estate construction in the absence of a directive from the City Government. Ermias, who is general manager to both Access Capital Services and Meri and signs on the home sales contracts on behalf of both companies, was not available for comment.
However, Access is not the only real estate company with such issues. Several of the well-established firms have acquired plots from third parties, whether or not the city administration allows this. The issue has grown to be overwhelming. The land administration board of the City Government is discussing how to respond to the issue, Fortune learnt.
Until such a decision comes from the authorities, thus granting construction permits, Access may be compelled to hold its pioneering plans of launching construction this month.