A real estate market can provide a lot of social and economical yields or benefits to a country if it is operated at its level best. The housing front is most vital for the national economy and human settlement. In Ethiopia, because of its dependence on the Diaspora group of clients for its demand side, and with the existing economic downturn; there is currently a considerable decline in sales of sampled companies and considerable impact on their ongoing contracts and operations. There is a slow and insufficient supply of land, currently the shortage and increased prices of housing construction materials is another factor affecting the market. The inflation and the global economic crises affected the market, materially. Housing prices are less affordable in the market and most of all, long-term housing finance is almost nonexistent. Against all these, As in many countries of the world, real estate in Ethiopia has been booming for much of this decade. In many areas, prices doubled and even tripled in a span of a few years, and the concern to the households is the lack of adequate affordable housing.
The rate of urbanization and demographics.
The rate of urbanization is directly related to the demand for houses. It is expected that as a country becomes more urban, more houses will be needed to accommodate the increasing population in urban centers. Even though there is a development recently in supply by both the government and private real estate companies, there is still a huge gap between the housing needs of Addis Ababa residents and the supply. With an estimated increase of population by 400,000 every year in Addis Ababa, the required marginal housing need will be more and more than the available supply estimated. Demographics are the data that describes the composition of a population, such as
- migration patterns
- and population growth.
These statistics are an often overlooked but significant factor that affects how real estate in Ethiopia is priced and what types of properties are in demand. Major shifts in the demographics of a nation can have a large impact on real estate trends for several decades.
The low level of income of the population / Economy In Ethiopia
Another key factor that affects the value of the real estate is the overall health of the economy. This is generally measured by economic indicators such as the
- employment data
- manufacturing activity
- the prices of goods, etc.
Broadly speaking, when the economy is sluggish, so is real estate.
Mortgage institutions customarily provide housing finance to the middle and high-income segment of the population. This does not exclude, however, cases where these institutions offer long-term loans to lower-income groups who can offer clear land title and certifiable income. This trend is outside the actual situation in developing countries including Ethiopia where the poor, low-and even middle-income majority of the population cannot afford a loan even for the least expensive, commercially built housing units. Interest rates also have a major impact on the real estate markets. If you’re considering buying a home with a mortgage it is beneficial to research interest rates using a mortgage calculator. Changes in interest rates can greatly influence a person’s ability to purchase a residential property. That is because the lower interest rates go, the lower the cost to obtain a mortgage to buy a home will be, which creates a higher demand for real estate, which again pushes prices up.
Dependency on the diasporas in Ethiopia
Almost all real estate companies in Ethiopia are based on Diaspora clients not basically on the domestic demanders; most of all, because their costs are high among other reasons. This dependency on the Diaspora may currently hit the market because of the prevailing crises all over the developed world like the US and Europe. Facts revealed that even most of the clients of some of the main competitors are these Diaspora out of most of these clients have been from the United States which is in a severe economic downturn. This can indeed affect the ability of these Diasporas in financing their payments for these real estate developers for which their employees may be endangered. A general market slowdown can be therefore expected due to this relationship and dependency of the market with these economies Diaspora in.
The government (& other important stakeholders) is required to play the role in creating a strong and efficient housing development market which is very crucial to economic development. Similarly, an offer of hospitable foreign direct investment as well as local projects would help for its development. Legislation is also another factor that can have a sizable impact on property demand and prices. Tax credits, deductions, and subsidies are some of the ways the government can temporarily boost demand for real estate for as long as they are in place. Being aware of current government incentives can help you determine changes in supply and demand and identify potentially false trends.
The scale of the real estate in Ethiopia market makes it an attractive and lucrative market for many investors. Investors can invest directly in physical real estate or choose to invest indirectly through managed funds. Investing directly in real estate involves purchasing the residential or commercial property to use as an income-producing property or for resale at a future time. Due to the higher liquidity available in the market, the lower transaction costs, and lower capital requirements, average investors prefer to indirectly invest in real estate.