27 January 2013

Ethiopia: Cash-Strapped Economy Behind Land Lease Price Drop

The second round land lease auction, by the Addis Abeba City Administration, last week, saw plots going for considerably less money, as a result of a cash shortage in the economy.

The average lease price for the plots was 4,690 Br a square metre, whilst the highest offer of 12,307 Br was for a 162.5sqm plot. The least lease price, 250 Br, was offered for 337sqm.

Plots for apartments in the Bole District were leased from 250 Br up to 12,300 Br, both lower than the 6,000 Br to 14,000 Br offers in the first round, three months ago. The range in August 2011, when inflation was 38.1pc, was even higher, at 10,200 Br to 26,800 Br a square metre.

In this second round, 2,371 bidders showed up to bid on the 150 plots that the administration had prepared to lease, at a 191 Br floor price, whilst 135 bidders were on hand to bid for 138 plots at a 2,000 Br floor price, back in August 2011.

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

Although the Administration attributes the decline in land lease prices to the growing awareness of the buyers, regarding the quality of land they are bidding on, experts argue otherwise.

More money is out of circulation in a government bid to bring inflation down to single digits, according to a macroeconomist who did not wish to be named, which subsequently resulted in less purchasing power. An importer supported this argument, saying that the shortage of money in businesses was the major cause for the decline in land lease prices.

"Buying a plot of land in the centre is a luxury for the business people right now, that is why you do not see a business person participating in the auction," he added.

A decreased supply of money is creating a cash strapped economy, which is slowing the growth of businesses and leaving them fighting for survival, the macroeconomists argued.

"The government is trying to increase its revenue by using this system, but it expects the bidder to pay for it out of nowhere," said an urban architect who has been working closely with the government.

The Administration has earned total revenues of 335.7 million Br from the lease of 71,578sqm of land, after announcing winners for the auction at Hager Fikir Theatre, two weeks ago.

The lease price will continue to go down, unless the economy strengthens once and for all, said an expert.

Officials from the city administration are also hopeful that the lease price will decrease in the future, as more and more houses are being built by the government.

The city administration has launched a plan to build low and middle-income houses to address the deep-seated housing problems in the city. 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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