Addis Abeba — Legislators have passed a new law that prohibits real estate developers from selling unfinished homes--those with less than 80% construction progress--to buyers.
The "Real Estate Development and Real Property Marketing and Valuation Proclamation," which has been under consideration for the past eight years, was formally presented to the House of Peoples' Representatives two months ago.
On 05 December, 2024, Eshetu Temesgen (PhD), Deputy Chairperson of the Parliament's Standing Committee on Urban Infrastructure and Transport, introduced the motion to approve the draft proclamation. The proposal was subsequently endorsed by a majority vote.
One of the contentious provisions in the draft bill was the clause requiring developers to complete at least 80% of a project before transferring units to buyers.
However, the newly enacted law allows for the transfer of houses with less than 80% completion, provided there is mutual consent from the buyer.
"If buyers agree with real estate developers, houses can be transferred, for instance, at 40% or 60% completion," Eshetu explained.
In addition to this requirement, the proclamation approved by Parliament introduced a new stipulation requiring the installation of all mechanical, electrical, and sanitary infrastructure prior to the transfer of ownership.
Real estate developers have lobbied for the reduction of the 80% requirement, arguing that it exceeds their capacity. However, the government asserts that the measure is designed to protect buyers by ensuring they receive near-complete homes, addressing long-standing concerns about incomplete handovers in the market.
In a recent article published by Addis Standard, Biruk Shimelis, Deputy General Manager at Flintstone Homes, acknowledged that the shift could pose challenges for developers, given the industry's reliance on delivering semi-finished units.
"This is a new concept for us," he remarked. "Handing over partially completed homes has been standard practice."
On the other hand, Haile Bayisa, a business lawyer and adjunct lecturer at Addis Ababa University's School of Law, highlighted the provision's potential to curb fraudulent practices within the industry.
He noted that some developers transfer ownership before even completing the basic structure of houses.
"This rule compels developers to achieve meaningful construction milestones before selling units," Haile explained.
Furthermore, the new law mandates that all payments related to the buying and selling of real estate properties must be made through banks.
According to Eshatu, this measure is necessary to ensure the financial legality of transactions and to address concerns related to money laundering.
The proclamation also requires that deposit money collected from home buyers be placed in a closed bank account opened with the approval of the relevant authority.
Additionally, it stipulates that conditions for releasing funds from such accounts will be outlined in regulations to be issued in the future.
The endorsement of the proclamation comes against a backdrop of numerous legal disputes between real estate companies and their customers.
The real estate sector has struggled with timely delivery since the early 2010s. The collapse of Access Real Estate, which raised 1.3 billion birr from 2,700 buyers, promising homes in key neighborhoods such as Bole and CMC, is a prime example. Many of these projects stalled, leaving buyers without homes and embroiled in lengthy legal battles to recover their investments.
A more recent example involves Purpose Black S.C., a prominent Ethiopian real estate company. The company raised 1.5 billion birr through share sales tied to large-scale real estate projects. However, investigations revealed that the company had overstated its progress and misled investors.
On 30 August, 2024, authorities arrested four top executives, including Purpose Black CEO Ermias Birhanu, on charges of fraud and deceptive marketing.
The arrests, coupled with frozen accounts and halted operations, left the company's 1,750 shareholders uncertain about the future of their investments.
Although the provision prohibiting the transfer of houses with less than 80% construction completion has remained unchanged after the draft law was tabled to legislators two months ago, the bill has undergone significant amendments since then.
One notable change pertains to the criteria for real estate developers seeking land from the government.
Previously, the bill stipulated that developers constructing between 500 and 5,000 houses, with at least 40% designated for affordable housing, would be eligible for government land. However, this requirement has been adjusted to a range of 250 to 2,500 houses, with an affordable housing quota of 25% to 40%.
According to Eshatu, these reduced requirements aim to encourage local real estate developers and increase housing availability.
"Within the 25-40% range, cities can negotiate with real estate developers on the specific percentage of housing to be built for low- and middle-income households," the deputy chairperson of the Standing Committee explained to MPs.
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Additionally, the provision requiring developers seeking land in Addis Abeba to construct and transfer at least 5,000 housing units has been reduced to 2,500 units.
"This revision aligns the legal requirement with the capacity of real estate companies, enabling them to better cater to the needs of the majority of home seekers," stated Eshatu.
However, some MPs criticized the proclamation, arguing that it places excessive focus on the real estate sector while neglecting the needs of middle- and low-income homebuyers.
"The law does not address affordable housing schemes, such as the development of homes through housing associations," stated Desalegen Chane (PhD), an MP from the National Movement of Amhara (NaMA).
Studies show that the growing demand for housing in cities such as Addis Abeba has not been met by an adequate increase in supply, particularly affecting low- and middle-income residents.
Research conducted by TRAIDE Ethiopia projects that annual housing demand in Ethiopia will reach 486,000 units by 2025, while the actual supply is estimated at only around 165,000 units annually.
As most developers focus on catering to higher-income buyers, many urban families are left struggling to find affordable housing.
