13 January 2013

Ethiopia: Land Lease Auctions Attract Slightly Lower Offers

The second round land lease auction, by the Addis Abeba City Administration, held last week, resulted in slightly lower bid prices, when compared to two months ago.

The City has managed to attract around 2,371 bidders for the auction of 138 residential, apartment and mixed use plots; in Bole, Nefas Silk and Kolfe Keranio districts. These plots are located in Bole Bulbula, Nifas Silk Industrial Zone and Alem Bank areas. All but 10 of the plots were concentrated in the Bole district and they received the highest offers.

The land in Bole is classified as third and fourth grade plots, with the eight plots in Nifas Silk graded as third and second; whilst the two plots in Kolfe Keranio are grade three. The plots in Bole and Kolfe Keranio have floor prices of 191 Br and 217 Br, whilst the higher graded Nifas Silk plots had a floor price of 299 Br. The prices were set according to the City's newly revised price rates, which were first implemented in the first auction, held in November, 2011.

Most of the plots auctioned for residential units have fetched prices ranging from 6,000 Br to 9,000 Br; whilst the highest offer of 12,000 Br was for a 175sqm plot in Yerer area, within the Bole District.

There has been a slight reduction in prices from the last auction, two months ago, when most of the residential units fetched above 10,000 Br, according the city administration. The highest price offered for residential units was 14,000 Br, for a 200sqm, grade three/four plot in Lebu area.

"The prices in the last auction were higher, because it was floated after a long hiatus," an auction committee member claimed.

The first auction was indeed floated after an eight-month gap. This is because the city administration was in the process of centralising its land lease auction, which was previously floated by all the 10 districts, whilst at the same time revising the benchmark price.

Now, a newly formed agency, called Land Bank and Transfer Agency, is in charge of handling auctions and arranging plots for development, under its land bank system. It is also tasked with the transfer process, as well as collecting lease payments, and the controlling of the launch of construction activities, according to the lease agreements.

Although officials at the agency seem to be happy with the slight price reduction, they are surprised to see that plots auctioned for apartment purposes are not attracting bidders, and hence fetched the least price.

Although the City has auctioned a total of five plots, in the Bole District, for the construction of apartments, it is only one plot that has so far managed to draw the legally required number of offers. This single 175sqm plot earned 260 Birr for a square meter.

"This is a paradox, that a plot that could bring the highest investment return is fetching the least price for the second time in a row," Kasim Fite told Fortune.

During the last auction, the City put forward six plots for the construction of apartments, and only one attracted an offer - 460 Br for a square metre.

"We were astonished at the very low offer last time, but this one is worse," a committee member said.

Kasim took the lack of promotion for the auction as one of the reasons for the low offers on the plots, which the committee member also agreed with.

An urban planning expert that worked for 12 years as a consultant argued, however, that it is not about promotion. Plots for apartments usually attract real estate developers, rather than individuals, since it requires a higher capital investment. But since the plots auctioned are not large enough, it will deter the developers from investing, according to this expert. Affordability also limited offers from individuals to a minimum.

The City, however, received better offers for the plots auctioned for mixed purpose use. A 420sqm plot of land in Alem Bank area, Kolfe Keranio, fetched 13,000 Br, and most of the plots fetched prices in the range of 6,000 Br to 9,000 Br. In the last auction, however, the highest price that a plot with the same grade received was 11,000 Br.

The Agency, which is preparing to float the third tender after two months, is expecting even lower offers for residential units.

The expert also agreed with the Agency's expectation. Since most people in the City are expecting to benefit from the recently launched housing projects, the prices may indeed go down.

The city administration has launched a plan to build low and middle-income houses to address the deep-seated housing problem in the city. People can get saving and loan schemes, in order to be able to afford the houses. The 40/60 scheme provides housing for middle-income earners, and requires those interested to save 40pc of the cost of the house, through a five year period, and then gain access to a 60pc loan from the Commercial Bank of Ethiopia (CBE).

The government plans to build 10,000 houses, using the 40/60 scheme, and 14,000 houses, for the 10/90 scheme.

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