Excerpt from Africa Housing Finance Yearbook 2014


Over the past decade, Ethiopia has been one of the world’s fastest growing economies. Africa’s oldest independent country (existing since about 800 B.C.) has been undergoing a successful restructuring of its economy from the beginning of the 1990s (after the fall of the Marxist Derg regime). Ethiopia has enjoyed sustained economic growth across several sectors – with rain-fed agriculture accounting for nearly 50 percent of GDP, and coffee accounting for more than 15 percent of exports.

The government has undertaken an ambitious, state-led, five-year (2010-2015) economic plan, known as the Growth and Transformation Plan (GTP) that is largely financed domestically. According to the EIU (2014), the GTP is likely to be followed by another similar programme, and it is questionable whether domestic financing will be able to fulfil its requirements. Growth is expected to average 6.7 percent in 2013/14, and remain between 6.9 percent and 7.3 percent in the short to medium term. Agriculture and the agro-processing industry will benefit from the movement of subsistence farmers into commercial farming, helped by the expansion of road, power and market

Read More »

Excerpt from Africa Housing Finance Yearbook 2014


Over the past decade, Ethiopia has been one of the world’s fastest growing economies. Africa’s oldest independent country (existing since about 800 B.C.) has been undergoing a successful restructuring of its economy from the beginning of the 1990s (after the fall of the Marxist Derg regime). Ethiopia has enjoyed sustained economic growth across several sectors – with rain-fed agriculture accounting for nearly 50 percent of GDP, and coffee accounting for more than 15 percent of exports.

The government has undertaken an ambitious, state-led, five-year (2010-2015) economic plan, known as the Growth and Transformation Plan (GTP) that is largely financed domestically. According to the EIU (2014), the GTP is likely to be followed by another similar programme, and it is questionable whether domestic financing will be able to fulfil its requirements. Growth is expected to average 6.7 percent in 2013/14, and remain between 6.9 percent and 7.3 percent in the short to medium term. Agriculture and the agro-processing industry will benefit from the movement of subsistence farmers into commercial farming, helped by the expansion of road, power and market networks.

Ethiopia has battled with high inflation rates. Inflation slowed to an average of 8.1 percent in 2013, from 22.9 percent in 2012, in part because a solid primary harvest helped to exert downward pressure on domestic prices. Inflation is expected to average 7.9 percent per year over the short to medium term. The cost of living across Ethiopia is high, especially in its capital, Addis Ababa and many people struggle to afford the basic necessities. Just under a third of the population in Ethiopia live below the poverty line, and the government has committed itself to reducing poverty to 22.2 percent by 2015.

In September 2010, the central bank devalued the Ethiopian Birr by 20 percent. This was intended to boost the competitiveness of Ethiopia’s exports. It had a positive effect on remittances, but on the flipside made the price of imported building materials more expensive. A threat to devalue the currency again at the end of 2011 did not materialise. The Birr will continue to be managed closely by the central bank, which maintains a policy of gradual depreciation punctuated by sharper downward adjustments so as to maintain export competitiveness and thus drive economic growth.

In recent years the scope and scale of real estate activity has been driven by multiple factors. Foremost among these has been: (1) overall economic growth; (2) demographics (the urban population is rising by 240 000 per year, assuming the national population growth of 2.3 percent); (3) a long-standing backlog of unmet housing demand. One revealing indicator of the scale of unmet demand can be seen from the recent Government condominium lottery of April 2010. A total of 485 000 individuals (almost one-seventh of Addis residents) applied for condominium units though only 10 700 were made available (2.2 percent of total demand); (4) the expansion of city roads and infrastructure (such as the construction of the Addis Ababa Ring Road and other major roadways, the improvement of numerous neighbourhood roads, and the wider reach of electricity and water services to the edges of the city); and (5) tax and investment schemes, involving a broadening of investment areas, extended lease periods, and reduced income tax incentives.

Access to finance

In 2014, Ethiopia was ranked 109th out of 189 countries by the World Bank’s 2014 Doing Business Report for ‘ease of getting credit’. In Ethiopia, the financial system is dominated by the banking system, and yet it is amongst the major under-banked economies in the world. The Banking industry can be characterised as highly profitable, concentrated and moderately competitive. Traditionally the banking sector has been dominated by the state. Comparative statistics such as the number of bank branches per number of individuals show the sector performing poorly, even by Sub-Saharan country standards. Nevertheless Ethiopia’s banks are highly profitable, and have managed to pay dividends of more than 30 percent on share prices. There is no stock market in Ethiopia, and treasury bills are the only active primary securities.

The National Bank of Ethiopia (NBE) reports that at the end of September 2012, there were 18 banks, of which 16 were privately owned. Ethiopia’s banking sector has managed to thrive despite the ban on foreign ownership and the extended reach of the state. The largest bank is the government-owned Commercial Bank of Ethiopia (CBE), the largest of the three state-owned banks, which accounts for 37.5 percent of the total capital of the banking system and has grown in recent years since the introduction of the new housing project in Addis Ababa. Over the past three years CBE opened 298 new branches to a total of 700 at the end of June 2013. Together the Development Bank of Ethiopia and the Construction Bank of Ethiopia account for 15.6 percent of the total capital of the banking system. However, private sector banking has grown rapidly as high economic growth and large profit margins have served to attract investment – despite government-imposed lending caps aimed at reducing inflation and foreign exchange shortages that limit trade financing.

In an effort to increase financial inclusion in the country, Kifiya, a leading information and communications technology company in Ethiopia, has partnered with the Ministry of Communication and Information Technology to develop a mobile financial services platform, which will deliver mobile money and enable branchless banking, thus placing financial services within reach of the majority of the population.

Overall, the banking sector is well capitalised, and the capital adequacy ratio for the sector has remained well above the eight percent regulatory minimum (standing at 14.6 percent in March 2013). However, private banks do continue to face some liquidity challenges in part because of the September 2011 directive by the NBE that private banks must purchase NBE bills equivalent to 27 percent of any new loans. The indirect impacts of this directive are substantial, but there are limited direct impacts on liquidity (since liquidity is absorbed through the issue of NBE bills re-injected into the system via the Development Bank of Ethiopia). The average ratio of non-performing loans to gross loans stood at 2.4 percent in 2013.

Access to credit information in Ethiopia is low. In August 2011, a credit bureau and credit information system was launched, paving the way for improved financial infrastructure. By the publication of the World Bank’s 2014 Doing Business Report, almost 53 810 individuals and 13 452 firms were recorded on the public credit registry (more than double the previous year), representing just 0.1 percent of the population.

Microfinance is an important source of financing, and there are 31 registered microfinance institutions (MFIs) in Ethiopia, serving an estimated 2.7 million low income individuals. In 2013, some 25 MFIs were listed on the Mix Market, an online source of microfinance performance data and analysis, with a total of 881 113 active borrowers and US$182.8 million worth of loans distributed. The average loan is US$218. Amhara Credit & Savings Institution (ACSI) offers credit, savings and micro insurance, but no housing-specific loan products.

Historically, lending for housing (both development and mortgage finance) was carried out by a specialist lender, the Housing and Savings Bank (HSB). It was formed in 1975 through the merger of two financial institutions, the Imperial Savings and Home Ownership Association, and the Savings and Mortgage Corporation of Ethiopia. For about 20 years, the HSB granted long-term loans at a subsidised rate for residential housing and commercial building construction, purchase and renovation, time deposits and long-term borrowings. It was succeeded by the Construction and Business Bank, a wholly government owned public enterprise which has the additional mandate of universal banking. Since its establishment, the former HSB and now the CBB has extended mortgage loans for the construction of just more than 30 000 residential units. For the 2011/12 financial year, 73.4 percent of CBB lending went to business loans, and 26.6 percent went to the construction of residential and commercial properties. CBB offers a variety of products: working capital loans; residential loans for non-resident Ethiopians, salaried workers and businesses; and business construction loans. Mortgage loans offered by CBB require a 30 percent deposit and borrowers must be formally employed.

The other major mortgage lender in the country, the CBE, disbursed 1 022 mortgage loans in 2010/11. For the 2010/11 financial year, CBE had Birr3.48 billion (US$175 million) loans outstanding for building and construction.

UN-Habitat (2011) argues that investment in the housing sector is limited due to the low level of domestic savings and a shortage of external resources. Occasional government bonds are issued to fund short-term budgetary deficits, which have been readily taken up by the banking sector. International remittances represent a huge potential finance resource for housing in the country.



A key challenge to housing affordability is the absence of a diversified and flexible housing finance sector. Further, a high percentage of households depend on informal incomes, making them ineligible for formal finance. As a result, it is only the upper income groups and members of the diaspora who can afford newly constructed housing built by the private sector in Ethiopia. Although mortgage lending is growing, cash is still the predominant form for purchasing formal housing. Houses tend to be constructed progressively on an instalment basis. Loan-to-value ratios are moderate: a loan by the CBB, for instance, requires that a deposit of 30 percent is made up front. Loan terms are short – generally five years.

Traditional construction techniques in Ethiopia—involving the heavy use of bricks, blockets and cement in virtually every stage of the construction process—are expensive, inefficient, and time consuming. As mentioned, rising building material costs have negatively affected affordability. There are few factories in Ethiopia producing construction materials, and inputs that are locally available (such as sandstone, gravel and crushed stone) are in short supply due to the construction boom. The development of the Derba Cement Factory has, however, reduced the cost of cement by more than half of the prices charged during the cement shortage. Derba announced that it would offer three months of credit to contractors who made a 50 percent payment and provided a bank guarantee. Bulk orders at the reduced price are placed through the Commercial Bank of Ethiopia and Dashen Bank, given their extensive branch network, as a way to avoid middlemen and protect affordability. Cement production was given a further boost with investments by South Africa’s Industrial Development Corporation and Pretoria Portland Cement (PPC) into the Habesha Cement Share Company. The company, which will have a yearly production capacity of 1.4 million tonnes of cement, is expected begin production in November 2015.


Housing supply

According to Deribie (2014), the housing sector in Ethiopia, particularly Addis Ababa, can be described as being of poor quality (due to old age), having massive shortages, and being congested, unsecured and unplanned. It is estimated that only 30 percent of Ethiopia’s total housing stock is in fair condition, while the remaining 70 percent is in need of total replacement.

According to a UN-Habitat report, Ethiopia’s housing deficit is between 900 000 and one million units in urban areas, and an estimated 225 000 housing units a year are required to meet the Millennium Development Goals by the 2015 deadline. The relative youth of Ethiopia’s population, with more than 50 percent under the age of 18, coupled with a population growth rate that could see Ethiopia’s population reach 100 million by 2020, are putting considerable pressure on the demand for housing.

According to Access Capital (2010), there are currently four categories of new residential developments taking place in the sector: (a) government-initiated condominium buildings; (b) residential neighbourhoods initiated by developers; (c) owner-built housing dwellings; and (d) new home activity driven by housing cooperatives. In addition to these four categories of new developments, there are two other major categories of housing units in Addis Ababa: kebele-rented homes, mainly to those on low incomes, and informal housing settlements. Although these two categories comprise a large share of the existing stock of homes, they do not represent a significant source of new developments in the years ahead.

Government-built Condominiums: In an effort to address the severe housing shortage evident in Addis Ababa, the government has constructed more than 78 000 condominium units throughout the city. About two-thirds of these units are currently completed and occupied by residents, with the remaining still in need of various kinds of finishing work. Launched extensively in 2005/06, this initiative is part of a grand Housing Development Programme involving the eventual construction of 400 000 condominiums in Addis Ababa and other cities across the nation. Once completed, and assuming an average of four persons per unit, Addis Ababa‘s already constructed condominiums alone may house a total of around 315 000 inhabitants—more than 10  percent of the city population. This has had a substantial impact on housing affordability for this target market. Within Addis Ababa, the programme delivers housing at a cost of about Birr3 000 (US$150) per square meter, versus Birr5 500 (US$276) per square metre in the private sector. A 100m² house delivered as part of the Integrated Housing Development Programme (IHDP) would therefore cost in the region of Birr30 000 (US$1 508). The IHDP, implemented in 56 municipalities across the country, delivers condominium housing – multi-storeyed housing units for several households, where communal areas are jointly owned and managed. The programme uses a labour-intensive delivery method and has created an estimated 176 000 jobs.

Residential neighbourhoods initiated by Real Estate Developers: Residential homes and neighbourhoods built by real estate developers are now becoming increasingly common ever since the first large-scale development was initiated by the pioneer in this sector, namely Ayat Real Estate. At present, there are approximately 50 real estate companies currently operating in Ethiopia, however the dominant real estate developers for residential villa homes include: Ayat Real Estate, Sunshine Real Estate, Habitat New Flower Homes, Ropack International, Ambassador Real Estate, Trancon Real Estate, Gift Real Estate, Enyi Real Estate, Country Club Developers, Akakas Real Estate, Boran Real Estate, Flintstones Homes, and Zenebe Frew Real Estate. Many more are also operational, though with more limited activities. For apartment developments, some of the most active developers include Ayat, Sunshine, Access Real Estate, and Flintstones Homes. The developments of these private developers range from very luxurious, high-end communities that sell multi-million Birr homes (e.g. Country Club Developers and Akakas Real Estate) to sellers of more moderately priced homes (such as those of Enyi Real Estate, Sunshine, and Access Real Estate).

Owner-built housing construction: Housing units built by owners were by far the most common type of new residences before the advent of government-built condominiums and real estate developers within the past decade. Though relatively limited now, this portion of the real estate market is still active in older, more established residential neighbourhoods. Owner-built residences are also becoming increasingly common in some of the outlying neighbourhoods that were initially popularised by real estate developers but have subsequently attracted individual home builders. Costs for owner-built construction are, of course, generally higher and this segment of the market thus tends to include the full range of housing units from modest homes constructed over extended periods to large and luxurious homes often built by razing or replacing older properties.

Home construction by Housing Cooperatives: Cooperative housing developments, organised by groups that share a common employer or membership, have been a long-standing feature of the residential real estate market going back to the days of the previous government. At present, the city administration has registered more than 500 housing cooperatives. The minimum membership in a housing cooperative is 14 while the maximum number is 24. A good number of these cooperatives members are in the middle-income group, typically based on employer associations such as Ethiopian Airlines or other state-owned companies. Many cooperatives have already finalised the construction of their group homes, but many more are still on waiting lists for land allocations and this segment of the market will thus continue to be significant share of the overall real estate market in the years ahead.

According to Deribie (2014), in 2011, the government implemented a new housing project in Addis Ababa which is divided into four different groups based on payment modalities: 10/90, 20/80, 40/60 and housing association. The payment modality for the last one necessitates a hundred percent upfront settlements, while the others incorporate 10 percent, 20 percent and 40 percent down payment mixed with a long-term mortgage plan. In line with this, the 10/90 scheme is designed for people who are in the lower income bracket, in the 1 200 Birr (US$ 60) and less monthly income. This group is expected to save 187 Birr (US$9) every month. Meanwhile, the 20/80 scheme is designed to incorporate those registered previously, in 2005, and the new ones who earn more than the lower income bracket. The amount of money expected to be saved by this group on a monthly basis varies according to the type of house. Starting from a studio apartment, which entails 151 Birr (US$8) monthly saving, the range goes up to 685 Birr (US$34).

The other programmes are the 40/60 and housing association which started in August 2013. For the 40/60 housing programme, the amount of saving varies from 1 033 Birr (US$52) for one bedroom up to 2 453 Birr (US$123) for three bedrooms. A large number of people are signing up for the housing programme that the CBE agreed to finance since it will allow the bank to increase the number of account holders in the bank and hence savings. The Addis Ababa Housing Development Enterprise (AAHDE) and CBE already signed a deal to realise the 40/60 housing scheme. If city residents are able to save 40 percent of the total cost of the planned house they will be eligible for the programme that has the remaining 60 percent covered by the state owned bank through a loan that will be paid within 17 years. According to the Mayor of Addis Ababa, site selection and other preconditions have been completed and construction has already been started to build 10 000 houses. The cheapest price is 128 590 Birr (US$6 463) for a house with one bedroom (55sqm total area) while the two bedroom homes cost 200 475 Birr (US$10 075) and lays on 75sqm. The biggest house is planned to cost 320 000 Birr (US$16 083) with three bedrooms (100sqm areas). However, if a potential resident can save the 40 percent within a short period of time, they will be able to obtain their home sooner than those applicants who will save the first down payment according to the schedule. Though affordable, these houses are expected to be of higher quality and more spacious than the currently being undertaken low cost condominium housing projects.

One of the consequences of this programme is that individuals who maintain accounts in private banks are required to withdraw and deposit the down payments into the branches of the CBE. This in turn, is expected to create a significant loss of deposits from private banks.

In August 2012, the Addis Ababa City Administration transferred 7 300 condominium housing units to beneficiaries. More than 72 000 condominium houses have been built and transferred to beneficiaries since the start of the project in 2005.

In June 2013, Chinese Geo-Engineering Corporation started construction of a real estate complex which will include 21 high-rise buildings of between 12 and 15 storeys. The target market for this development has not yet been disclosed, but the entire investment is estimated at Birr 3 billion (almost US$151 million) and is expected to be completed by 2015. While this level of supply is interesting, other ambitious plans have seen delays. The Tedros Abebe Construction company was planning to develop 83 895 condominiums by the end of 2011. As of February 2013, however, only 20 000 units had been completed.


Property markets

In the World Bank’s 2014 Doing Business Report, Ethiopia ranks 125th out of 189 countries overall. Registering a property in Ethiopia requires 10 procedures, takes 41 days and costs 2.1 percent of the property value – for this, Ethiopia ranks 113th globally. With more procedures, Ethiopia’s property registration process is still faster than the Sub-Saharan African average, by 17 days. It is also cheaper at just over a quarter of what it costs in the rest of the region.

However, according to Access Capital (2010), key obstacles facing the housing sector include land policies, the scarcity and cost of construction material, the lack of provision of basic supporting infrastructure and the lack of long-term financing.

In Ethiopia all land is owned by the state. Land administration is divided between municipalities (for urban land) and regional governments (for rural land). In urban areas there is a system of leasehold tenure; in rural and peri-urban areas a permit system (based on use rights) applies. In urban areas individuals ‘own’ land through leasing it from the government for up to 99 years. The lease may be transferred between private individuals. However, this can be done only on the basis of the lease being used as surety or collateral; the lease cannot be traded to a third party. The government has the right to take the land back, on payment of compensation for improvements made on the land, such as buildings. Compensation is not paid for the value of the land itself. It is government policy to convert the permits to leases when a land transfer transaction is being carried out.

In urban areas, formal land delivery is through planning and public auction by the city government. New parcels of land are leased on an annual lease rent, with a fixed lease period and conditions according to a land use plan. Purchasers must be older than 18 years, not own any other plot in the city and should deposit a significant amount of money into a blocked bank account as surety, to be released when the house foundation is complete. Alongside this land delivery system a cash land market operates in which people exchange leases or permits through sale agreements. The buyers pay property transfer taxes and commissions to middlemen. Within the city boundary, new parcels of land come onto the market through an informal system without any planning or documentation. The exchange is usually among personal connections, and a simple sale agreement confirms the transaction. About 90 percent of these parcels are subdivisions of land with ‘permission to occupy’ rather than titles.

The recent growth in the property market has led to a surge in building activity. Manufacturing related to the construction industry, including the cement, lime, plaster, structural clay and glass industries, constitutes one of the largest and fastest growing industries in Ethiopia. CBB reports that in 2011/12, 73.4 percent of long-term loans were disbursed towards the construction of residential and commercial buildings.


Policy and regulation

The Addis Ababa Land Development and Urban Renewal Agency was established in 2001 to renew Addis Ababa through developing old parts of the city. Their mandate was to help establish an effective land provision system by 2012. The Agency has transferred 453 hectares of land for micro and small enterprises, condominium construction and other housing schemes since September 2012. In Addis Ababa there have been three phases of the programme: infill, expansion and urban renewal. During the first two phases, condominium sites were developed on vacant plots – in the first phase, in the city, and in the second phase, on the urban periphery. In the third phase, the emphasis of the programme has shifted to urban renewal, and is being used to clear inner-city slum areas and develop these for condominium housing, private sector developments, social infrastructure and other land uses.

In June 2013 it was reported that a bill to regulate the rental sector was under consideration. Of the estimated 600 000 families living in rental accommodation, 373 000 rent from the government. Some 70 percent of government rental housing is made from mud and wood. The new bill would regulate housing standards as well as rental relationships. Two other pieces of legislation are also under consideration: a real estate law and a law that penalises those who unlawfully register or take a house.



Ethiopia clearly has a great need for affordable housing delivery – and this promises to continue well into the future as its young population becomes of house-seeking age. To create even greater opportunities in the formal housing sector, Ethiopia needs to continue with ongoing reforms to modernise its finance and land markets. These reforms should resolve the problems of an inadequately responsive banking sector, undeveloped capital markets and the high inflationary environment that has discouraged lending, as well as those facing the system of land registration.

As mentioned, housing finance markets are destined for growth at virtually all income levels, but particularly within the lower to middle income ranges. Real estate developments in the past decade have tended to focus on the high end of the market, which was only to be expected given strong demand from diaspora buyers, pent-up demand for larger homes (given restrictions on such homes under the previous government), and limited credit options that favoured well-to-do buyers who could afford to purchase homes with full upfront financing. On the contrary, there is considerable unmet demand for less expensive homes that can be afforded by professionals and middle-income households more generally, to the extent that supply can be expanded for homes in the price range of Birr 400 000 (US$20 103) to Birr 1 000 000 (US$50 258). The unsatisfied demand is exceptionally high, particularly if the financing to facilitate such purchases is also available.

Due to the expensive and inefficient building materials most Ethiopians use, there is a huge requirement for cost-effective housing at a substantially faster speed and larger scale. Given this state of affairs, developers with cheaper and unconventional construction materials are bound to have significant advantages over competitors with respect to cost, efficiency, and delivery times. Promising prospects in these regard include the use of pre-fabricated boards (such as drywall and gypsum), steel-based construction of high rise buildings, and locally available environmentally friendly building materials.

Finally, an asset that warrants further development and exploration is Ethiopia’s microfinance industry – one of the largest on the continent. Given relative tenure security, this creates enormous potential for the development of housing microfinance products which are more appropriate for low income earners. Formal encouragement of this form of housing delivery is required, especially through regulatory reform around building standards and greater product innovation by banks



Access Capital Research (2010). Sector Report-Real Estate, May 2010.

Ayenew, M. (2009). Access to Housing Finance in Africa: Exploring the Issues (No. 9) Ethiopia. Report Commissioned by the FinMark Trust with support from Habitat for Humanity.

BMI (2014). Industry Brief – Ethiopian Bank Profitability Could Drop On Lower Deposits, Lending, 17   January 2012.

Construction and Business Bank (2008). Annual Report 2007/2008.

Deribie, E (2014). Impacts of the Grand Housing Programs of the Government of Ethiopia on Private Banks, January 2014. Scholarly Journal of Business Administration, Vol. 4(1) pp 26-33.

Eshete, Z.S., Tesome, K.W., Abebe, T.K. (2013). Competition in Ethiopian Banking Industry, December 2013. African Journal of Economics, Vol. 1 (5), pp. 176-190.

EIU (2014). Country Risk Service: Ethiopia, June 2014.

Federal Democratic Republic of Ethiopia (2010). Ministry of Works and Urban Development. Housing Development Programme: 2006-2010 Plan Implementation Report.

Federal Democratic Republic of Ethiopia (2011). Federal Negarit Gazeta of the 18th Year, Number 4, Addis Ababa, 28 November 2011.

Habitat for Humanity Ethiopia (2011). Key Housing Issues in Ethiopia: Challenges of the Housing Situation in Ethiopia & HfH Ethiopia’s approach in providing housing for low income families, 5 April 2011. Presented at the First Housing Forum Europe and Central Asia

Marcopolis (2014). Developing the real estate market in Addis Ababa- GIFT Real Estate, 29 January.

National Bank of Ethiopia (2010). Monthly Macroeconomic Indicators for March.

UN-Habitat (2011). Condominium Housing in Ethiopia: The Integrated Housing Development Programme.

Urban LandMark (2011). Urban Land Markets in East Africa, March 2011.

Worku, G. (2010). Electronic Banking in Ethiopia, Journal of Internet Banking and Commerce.

World Bank (2013). Doing Business 2014: Ethiopia.




*Exchange rate of US$: ETB is 1:19.9