Excerpt from Africa Housing Finance Yearbook 2015


The International Monetary Fund (IMF) ranks Ethiopia as among the five fastest growing economies in the world. The Ethiopian government’s investment in agriculture and public services has resulted in a decade of high economic growth resulting in a decrease in the national poverty rate from 56 percent in 2000 to under 30 percent in 2014—­this is the second fastest rate of poverty reduction on the continent.  The Ministry of Urban Development, Housing and Construction received the 2015 UN Public Service Award for the Integrated Housing Development Programme. With a population of approximately 96 million people, Ethiopia is also the second most populous country in Africa and is growing rapidly at 2.52 percent per year.­

Despite having one of the lowest proportions of urban population in the world at only 19 percent, Ethiopia is now one of the most rapidly urbanizing countries in the world. According to recent UN estimates, the urban population of Ethiopia is expected to triple between 2010 and 2040, growing at an average rate of 3.5 percent per year. The combination

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Excerpt from Africa Housing Finance Yearbook 2015


The International Monetary Fund (IMF) ranks Ethiopia as among the five fastest growing economies in the world. The Ethiopian government’s investment in agriculture and public services has resulted in a decade of high economic growth resulting in a decrease in the national poverty rate from 56 percent in 2000 to under 30 percent in 2014—­this is the second fastest rate of poverty reduction on the continent.  The Ministry of Urban Development, Housing and Construction received the 2015 UN Public Service Award for the Integrated Housing Development Programme. With a population of approximately 96 million people, Ethiopia is also the second most populous country in Africa and is growing rapidly at 2.52 percent per year.­

Despite having one of the lowest proportions of urban population in the world at only 19 percent, Ethiopia is now one of the most rapidly urbanizing countries in the world. According to recent UN estimates, the urban population of Ethiopia is expected to triple between 2010 and 2040, growing at an average rate of 3.5 percent per year. The combination of high population and urban growth rates, coupled with a high prevalence of urban poverty has placed enormous strain on Ethiopian cities and the economy’s ability to create sufficient employment opportunities.

The Growth and Transformation Plan (GTP2) (the successor economic development program to the government’s ambitious 2010 to 2015 GTP) will run from 2015 to 2020. This will continue to target infrastructural development including power projects, transport, urban housing, as well as poverty reduction.  Full details have not yet been published but the government is reportedly planning to spend some ETB11 billion (US$53 million) on urban infrastructure. Economic growth is officially forecast to reach 11.4 percent in 2014/2015 (EIU, 2015).

Curbing inflation has been the government’s key economic policy focus for the last few years. As a result the rate of headline inflation has dropped to 7.1 percent in December 2014, from a peak of     39.2 percent in November 2011. The average interest rate on deposits remained unchanged at          5.09 percent between 1995 and 2014. On a number of occasions inflation outstripped interest paid on deposits, thereby limiting the ability of monetary policy to manage demand and savings.

Access to finance 

Ethiopia is amongst the major under-banked economies in the world. The banking industry is highly profitable, concentrated and moderately competitive. Traditionally it has been dominated by the state but performs relatively poorly. There is no stock market and treasury bills are the only active primary securities.

Ethiopia has 19 banks – 16 of which are privately owned. Ethiopia’s banking sector has managed to thrive despite the ban on foreign ownership and the extended reach of the state. The total capital of the banking system is ETB 25.6 billion (US$ 1.28 billion), of which private banks account for 53.9 percent. The largest bank is the government-owned Commercial Bank of Ethiopia (CBE), which accounts for 34.2 percent of the total capital of the banking system. CBE has grown since the introduction of the Integrated Housing Development Programme’s current project in Addis Ababa, in which it plays an important role in the provision of mortgage finance.  Over the past three years CBE opened 298 new branches to a total of 700 in June 2013. In general, access to financial services has been improving and the total number of bank branches reached 2 208 in 2014 – 34 percent of which are located in Addis Ababa. This increase has brought down the ratio of bank branches to population from 49 675 to 39 834 (AEO, 2015).

Ethiopia’s banking sector is stable and sound. According to the IMF, the system-wide capital adequacy ratio stood at a comfortable 17.5 percent, (well over the 8 percent requirement). Returns on assets and equity showed solid performance, at 3.1 percent and 44.6 percent, respectively. The NBE regularly monitors adherence to Basel I capital adequacy requirements, and almost all commercial banks have risk adjusted capital adequacy ratios well above the minimum requirement. The ratio of non-performing debt is currently way below the 10 percent target at about 2.1 percent. Growth in deposits has been robust and the share of savings within the banking sector has risen (AEO, 2015). As of 2015, there are 24 MFIs registered microfinance institutions (MFIs) listed on the Mix Market and US$657 million worth of loans distributed.

However, the financial sector remains shallow with a limited range of services. The financial sector remains closed to foreign participation and capital markets are non-existent. Lending is mainly collateral based. According to the 2014/15 Global Competitiveness Report, Ethiopia scored 3.3 out of 10 and ranked 120th out of 144 countries in financial market development, lower than the average of “factor driven economies”. In Doing Business 2015, Ethiopia continues to underperform with respect to Getting Credit (165th out of 189 countries).

Ethiopia lacks a public credit registry or private credit bureau, making it hard for financial institutions to assess the creditworthiness of borrowers.  The World Bank’s 2015 Doing Business Report showed that almost 70 000 individuals and 20 000 firms were recorded on the public credit registry (an increase from the previous year), but representing just 0.2 percent of the population.

Historically, lending for housing (both development and mortgage finance) was carried out by a specialist lender, the Housing and Savings Bank (HSB).  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 (CBB), a wholly government owned public enterprise which has the additional mandate of universal banking.  Mortgage loans require a 30 percent deposit and borrowers must be formally employed. The other major mortgage lender in the country, CBE, disbursed 1 022 mortgage loans in 2010/11. For the 2010/11 financial year, CBE had ETB3.48 billion (US$168 million) loans outstanding for building and construction. Mortgage rates appear to average 11.7 percent in 2015.

While private sector investment in real estate is very high, investment in the housing sector is limited.  This has to do with low domestic savings and a shortage of external resources, as well as a shift in government policy that no longer provides land for developers of residential real estate, and higher perceived profitability in non-residential real estate.  International remittances represent a huge potential finance resource for housing.


A key challenge to housing affordability is the absence of a diversified and flexible housing finance sector.  A high percentage of households depend on informal incomes, making them ineligible for formal finance.  As a result, only upper income groups and members of the diaspora can afford newly constructed housing built by the private sector.  Although mortgage lending is growing, cash is 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 requires a deposit of 30 percent up front.  Loan terms are short, generally five years.

Traditional construction techniques involving the heavy use of bricks, blockets and cement are expensive, inefficient, and time consuming. There are few factories producing construction materials, and locally available inputs are in short supply. The development of the Derba Cement Factory reduced the cost of cement by more than half.  Derba announced that it would offer three months 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 to avoid middlemen and protect affordability.  Cement production was given a further boost with investments by Dangote Cement as well as South Africa’s Industrial Development Corporation and Pretoria Portland Cement (PPC), such that Ethiopia is now able to export cement. Dangote commissioned a US$500 million cement plant in Ethiopia in June of this year. Located in the industrial centre just outside Addis Ababa, the cement plant will initially produce 2.5 million metric tonnes per year to meet rising demand within the Ethiopian market but is expected to double its production in the near future. The Habesha Cement Share Company, which has been established by South Africans will have a yearly production capacity of 1.4 million tonnes of cement, is expected begin production in November 2015.

Housing supply

The existing housing stock, particularly in Addis Ababa, is generally of poor quality, with many settlements congested and unplanned. Using the UN-HABITAT slum definition, 80 percent of Addis Ababa is a slum with 70 percent of this comprising government owned rental housing.  Only 30 percent of total housing stock is in fair condition, while the remaining 70 percent is in need of total replacement or significant upgrading. Ethiopia’s housing deficit is between 900 000 and one million units in urban areas, and about 300 000 housing units are required in Addis Ababa alone every year in order to meet the projected demand of 1.5 million new homes by 2025.

There are 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, there are two other major categories of housing units in Addis Ababa: kebele-rental housing (very old stock), mainly for those on low incomes, and informal settlements.

  1. Government-built Condominiums: Since 2005 Ethiopia has been implementing the Integrated Housing Development Programme (IHDP), an ambitious government-led low and middle income housing programme. This programme was implemented in Addis Ababa and 55 other cities. The first phase of the IHDP has been successful in many respects and has built 171 000 housing units. There were, however, a number of unanticipated challenges facing the program. The most pressing is the affordability of the units for low-income households, with the cost increases in the price of condominium houses deeming them no longer an option for many low-income households. The inability to pay the monthly mortgage and service payments forces many households to move out of their unit and rent it out rather than risk losing it through bank foreclosure.

In order to address these challenges, a new and enhanced second phase of the IHDP was launched in 2011. This phase involved a new housing project in Addis Ababa divided into four different groups based on payment arrangements: 10/90 (involving a 10 percent deposit and a 90 percent CBE mortgage loan), 20/80 (80 percent LTV), 40/60 (60 percent LTV), and for housing associations, a full up-front payment is required. The 10/90 scheme is designed for people in the lower income bracket, in the ETB1 200 (US$58) and less monthly income. This group is expected to save ETB187 (US$9) every month. 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 money expected to be saved by this group varies according to the type of house. Starting from a studio apartment, which entails ETB151 (US$7) monthly saving, the range goes up to ETB 685 (US$33).

The 40/60 scheme has special conditions for buyers from the diaspora, so that they can pay in hard currency.  The saving varies from ETB 1 033(US$50) for one bedroom to ETB2 453 (US$118) for three bedrooms.  Demand has increased since CBE agreed to provide mortgage financing to prospective households. If city residents are able to save 40 percent of the total cost of the planned house they will be eligible for the program that has the remaining 60 percent covered by the state owned bank through a mortgage loan to be paid within 17 years. Site selection and other preconditions have been completed and construction of 10 000 houses has started. The cheapest price is ETB128 590 (US$6 203) for a house with one bedroom (55m² total area) while the two bedroom homes cost ETB200 475 (US$9 670) and lays on 75m². The biggest house will cost ETB320 000 (US$15 437) with three bedrooms (100m² area). Though affordable, these houses are expected to be of higher quality and more spacious than those in the low cost condominium housing projects. In 2014 alone, some 22 000 condos were handed over to beneficiaries and the government expects to transfer 76 000 houses to individuals in 2015.

The later (the housing cooperatives having 12 to 24 members) is mainly targeted for the higher income groups both for local residents and the diaspora. Members of the housing cooperatives are expected to cover 100 percent of the housing costs – 50 percent at the time of registration and the remaining 50 percent when securing the land and construction permit. Housing cooperatives are established under four categories, the first is on the basis of neighbourhoods, the second is based in work places and the third is the diaspora who live abroad. The housing modalities are G+4 apartments with one to three bed rooms with estimated price of 210 000, 280 000 and 385 000 Eth. Birr respectively for local residents.  For the diaspora the typology of the housing units are G+4 apartments and town houses with two, three and four bedrooms with estimated prices of 533 000, 720 000 and 979 000 Eth. Birr respectively.  The diaspora are expected to establish their coops in each Ethiopian embassy and councils with the help of the ministry of Foreign Affairs and the construction of the houses is expected to be implemented by either the government housing enterprises or by their own private contractors.

More recently, the Ethiopian Ministry of Urban Development, Housing and Construction recently announced plans to construct 2.45 million houses in housing schemes between 2015 and 2020. Out of the residential houses, 750 000 will be built in urban areas and 1.7 million in rural areas. This construction project is in line with the GTP2 currently underway and will be erected in the housing schemes of 10/90, 20/80 and 40/60. Out of the 150 000 ha of allocated land, 40 percent will be set aside for the construction of houses, 30 percent for its infrastructure and the remaining 30 percent for green areas.

  1. Residential neighbourhoods initiated by Real Estate Developers: There are approximately 50 private real estate companies operating in Ethiopia that are almost exclusively focused on high income groups.:
  • Arab Contractors is considering developing an affordable housing project (comprising of 7. 9 and 12 floors) in Addis Ababa (April 2015).
  • China’s Tsehay Real Estate Plc has begun work on a US$150 million upmarket complex of flats, offices, retail outlets and a hotel next to the city light rail (July, 2015).
  • 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 to be completed by 2015.
  1. Owner-built housing construction: Self-built housing was by far the most common type of housing delivery approach before the introduction of the Integrated Housing Development Programme. Though relatively limited now, this building approach is still active in older residential neighbourhoods. Costs for owner-built construction are generally higher and this segment of the market 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.
  1. 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. The city administration has registered more than 500 housing cooperatives. The minimum membership in a housing cooperative is 14 while the maximum is 24. Many cooperatives members are middle-income, based on employer associations such as Ethiopian Airlines or other state-owned companies. In recent news, Ethiopian Airlines has invited nine companies to bid to take over an employee housing project from a Chinese contractor. The project entails the construction of 2 502 housing units in two phases on a 313 300 m² plot in the Bole District.

Property markets

In the World Bank’s 2015 Doing Business Report, registering a property requires 10 procedures, takes 41 days and costs 2.1 percent of the property value; for this, Ethiopia ranks 104th globally. This is still cheaper and quicker compared to the rest of the region. However, key obstacles remain,  including land policies, the scarcity and cost of construction material, the lack of basic supporting infrastructure and the lack of long-term financing.

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, which has replaced the permit system; in rural and peri-urban areas a permit system (based on use rights) applies. In terms of the leasehold system in urban areas ,individuals lease land from the government for up to 99 years. The lease may be transferred between private individuals but 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. Compensation is not paid for the value of the land itself.  In the conversion from the permit to the lease system, government converts the permits to leases when a land transfer transaction is being carried out. Foreigners are barred from owning property in Ethiopia.

In urban areas, formal land delivery is through planning and public auction by city government. New parcels of land are leased with a fixed lease period and conditions according to a land use plan. Alongside this land delivery system a cash land market operates in which people exchange leases or permits through sale agreements. 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 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 constitutes one of the largest and fastest growing industries.

Policy and regulation

Until recently, there were few national coordination policies regarding housing and urban development. There are now a number of players in the sector that are focused in addressing the housing shortfall as well as the associated land and tenure issues. In 2005, the national Ministry of Works and Urban Development (MWUD) was established in order to guide the overall development of the country’s urban areas and conducting studies on its urbanization patterns. It has since been renamed the Ministry of Urban Development, Housing and Construction.  Cities and regional governments are responsible for preparing physical urban development plans, and the Housing Development Bureau works towards the implementation of the second phase of the IHDP in Addis Ababa, including the Micro and Small Enterprises Development Programs.

A number of policies govern the housing sector, including the following:

  • Urban Development Policy (2005): Formulated by the Council of Ministers of the Federal Democratic Republic of Ethiopia to link together the small-scale efforts made by regional governments and cities since 2000.
  • The Federal Rural Land Administration and Land Use Proclamation No. 456/2005: Enacted for the purpose of ensuring tenure security, strengthening property rights of farmers, sustainably conserving and developing natural resources, establishing land data base, and establishing an efficient land administration in the country.
  • Expropriation of Landholdings for Public Purposes and Payment of Compensation and Council of Ministers Regulation No. 135/2007: The Federal Constitution vests in the government the power to expropriate private property in the public interest, provided it pays compensation prior to acquisition and in an amount commensurate with the value of the seized property.
  • Ethiopian Building Proclamation 624/2009 formal sector: A legal document outlining the building regulations and requirements, for use by local authorities to ensure building standards are maintained in their jurisdiction. Parts of Ethiopia are located in an earthquake zone and a code exists to ensure buildings resist maximum predicted earthquake loads. The codes are only used and enforced in buildings developed in the formal sector.
  • Proclamation (number unknown): Allowed the importation of cement as the lack of locally available cement caused major construction delays for condominium projects
  • A number of proclamations exist between 2002 – 2005 deal with the lease holding of land, condominiums and land expropriation provisions.
  • Regulation No. 15/2004: Outlines the establishment of the Addis Ababa City Government Housing Development Project office and outlines its duties and responsibilities.
  • Regulation No. 12/2004: Outlines the condominium regulations for Addis Ababa city, regulating further details to Proclamation No. 370/2003.


Like many other African countries, Ethiopia has a great need for affordable housing delivery.  Housing finance markets are destined for growth at virtually all income levels, but particularly within the lower to middle income ranges.  Real estate developments have tended to focus on the high end of the market but there is considerable unmet demand for less expensive homes for professionals and middle-income households, to the extent that supply can be expanded for homes in the range of ETB400 000 (US$19 295) to ETB1 000 000 (US$48 239).

A sector that warrants further development and exploration is Ethiopia’s microfinance industry, one of the largest in Africa.  Given relative tenure security, this creates enormous potential for the development of housing microfinance products which are appropriate for low income earners. Formal encouragement of self-build construction is required, especially through regulatory reform around building standards and greater product innovation by banks.

Due to expensive and inefficient building materials, there is a huge requirement for cost-effective housing at a faster speed and larger scale. Developers with cheaper and unconventional construction materials have significant advantages over competitors. Promising prospects include the use of pre-fabricated boards, steel-based construction of high rise buildings, and locally available environmentally friendly building materials.



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