The Ministry of Urban Development & Construction (MoUDC) is planning to partner with real estate developers to construct houses for sale.
In this Public Private Partnership (PPP) project, the government will subsidise the lease price of the land and private developers will bring in the investment and technology to construct residential houses, Fortune learnt. It is one of nine modalities devised to increase urban housing supply, which the MoUDC has included in its new urban housing policy strategic document.
The MoUDC, which had long been criticised for not including an integrated urban housing policy, presented a draft strategic document for consultation on October 31, 2012. This document initially consisted of eight modalities, including the widely publicised 40/60 and 10/90 housing schemes, as well as the initial government condominium housing scheme, which started earlier in 2005.
The government was the sole executor of five of the eight modalities presented in the strategic document. The private sector could only participate through three options, either by constructing houses for private use; through home owners' associations; or as an investor in the real estate sector. None of these three modalities were presented as options for low and middle incomers, which had led those in the private sector to comment that they should be included in the government's scheme to supply low and middle income housing.
The MOUDC added PPC as a modality after these discussions, with the calculation that real estate developers could save on costs if the government subsidises land, which in turn would enable them to deliver houses at an affordable price for low and middle incomers.
The new scheme is still in its early stages, and the benefits and obligations of both the government and private sector will be detailed in the future through a directive, according to sources working closely on the issue.
Private real estate investors that Fortune talked with admit that provision of land from the government will be beneficial, although their assessment of the extent of the benefits varies.
"Since real estate investors currently have to acquire land through lease auctions or by purchasing houses from private individuals, both of which are costly, it will be of great help" Eskinder Desta, chief executive officer of Habesha Construction Materials & Development (HCMD) told Fortune.
To encourage the sector, a directive issued by former Mayor Arkebe Ekubai, availed 50sqm of land to be provided for free and made way for additional plots to be leased at low prices to real estate developers willing to build more than 50 houses. However, the provision did not last long, according to sources at the Urban Land Management Office.
The new lease proclamation of 2011 restricts real estate developers from acquiring land through negotiations with the government, leaving them to turn to participating in plot auctions. Although the floor price for these plots only range from 190 Br for a square metre to 1,080 Br a square metre for preferred areas, prices offered are much higher. On average, a one square metre plot gets an offer of 6,000 Br to 7,000 Br in Addis Abeba, according to data from the Urban Land Management Office.
More than the price of land, it is the accessibility of choice plots that makes the current scheme attractive for Tsedeke Yehune, chief executive officer of Flintstone Real Estate, which provides low cost housing.
The new government, however, goes beyond subsidising land lease prices. The government may also assist in securing financing from banks, according to a housing expert inside MoUDC, although this is yet to be decided. Delivery restrictions may also be set when details are drafted.
In the mean time, delivery of houses has been a problem for the real estate sector. Of the 125 real estate firms given 151ha of land only 14pc have started construction, according to a 2010 study by the city administration. Access to land and finance are mentioned as major bottlenecks, producing lags in the delivery schedule.
"Investors interested in entering this scheme must first look at the details carefully," advices Dereje Tadesse, who was involved in the real estate development sector before venturing into logistics and setting up Axis Consultancy, five years ago.
"The price of land can reach up to 20pc of the total cost of building real estates. However developers should be clear on what their obligations will be, before entering into such an agreement," he stated.
While additional perks such as access to finance can make the deal attractive, delivery deadlines can be tough to keep, according to him.
The MoUDC has already approved of the scheme and will be working on the details in the coming months.