3 June 2012

Ethiopia: New Bill in Process for Real Estate Developers

A bill that obliges real estate developers to deliver homes on time, fulfilling the agreed upon quality, is being drafted by the Ministry of Urban Development and Construction (MOUDC).

The bill currently labelled as Real Estate Home Developers Proclamation, will also deal with issuance of licenses for real estate developers and the transfer of finished homes in addition to detailing the responsibilities of the developer and how a contract between real estate developers and their customers should be framed.

Talk of such a bill was first mentioned by Mekuria Haile, minister of MoUDC, during an annual Diaspora discussion held in April 2012 at the Civil Service college, in answering complaints lodged by Ethio-American investors about poor quality delivery.

The Ministry has since been working on the bill, although initially it was drafted as a regulation, according to officials at the Ministry who wanted to remain anonymous.

To date, no meeting has been organised with stakeholders to discuss the bill, but a questionnaire that seeks to identifying the problems of the sector and indicate solutions has been produced. This questionnaire has been delivered to Ayat and Access Real Estate firms, according to Tadesse Gebregiorgis, deputy bureau head at the Housing Development Strategy and Legal Affairs Directorate.

"Currently we are only taking a sample; however, we will call a meeting with developers and other stakeholders concerned once the bill is fully developed," Tadesse said.

The questionnaire tries to identify problems during the home buying process and the transfer of homes, and suggest core points that should be included within a legal framework provided by the Ministry.

Problems with delivery and price irregularity are indeed a problem among real estate developers, according to their customers. In February 2010, the Addis Abeba City Administration Land Allocation Authority found a dismal performance of 14pc while investigating the progress made by the 125 real estate developers existing at the time who had taken around 550ht of land.

Access Real Estate is one of those real estate firms that are having problems in keeping promised delivery dates. Despite starting with an ambitious plan to deliver homes within a year, it has yet to hand over a single unit of the 1,200 residences it had sold at 40 project sites since 2010.

Its Chief Operating Officer (COO), Melaku Sahelu, says that he is not aware of any questionnaire sent to his company from the MoUDC but stresses that the sector has a lot challenges.

"It is not appropriate to comment on the bill without knowing its contents," he said, "however, it should put into consideration the difficulties faced by the sector including lack of financing and price and availability of construction materials and labour."

Indeed, the problems faced by the real estate sector are numerous, according to an article published in the Journal of African Real Estate Research in 2008. Although real estate requires a lot of investment, not a lot of it is available in the country.

Alternative financing for the sector is unavailable, which will lead to too much borrowing from weakly supervised banks, the article, written by Abraham Tesfaye, a staff of the Commercial Bank of Ethiopia, argued. Other problems the article mentioned included high tax rate for real estate investment, inefficient real estate supply and pricing, an underdeveloped construction material production sector and poor infrastructure and services, all contributing to high cost and delays.

"We will have to see if the proclamation will add anything new to the already existing laws that govern our contractual agreements," Melaku stated.

Despite the availability of a civil code to handle suits where a breach of contract occurs, it is good that a regulatory body is coming up with a law specifically geared for real estate developers which will hold them responsible for their promises, according to Tilahun Teshome, professor of contract law at Addis Abeba University (AAU).

He argues that most customers that have made a deal with real estate developers do not persue legal recourse when there is breach of contract both in terms of delivery and pricing because legal recourse can be protracted. The details of real estate agreements should be left to the contracting parties themselves, according to him, but it would be useful if the proclamation can include a model real estate contract, and included articles for the revocation of licences given to developers in cases where they fail to keep their promises.

A customer who has made a partial payment of three million Birr, for four houses, over the past three years, to Access Real Estate but received none said that it would be good if a clear punishment would be included in the bill and if the contract between the developers and the buyers was required to be registered by the Documents Registration and Authentication Authority.

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