Jimma Institute of Technology

Department of Civil and Environmental Engineering

Postgraduate Program: construction Engineering &

Management

Organizational HRM
Assignment one

Prepared by:-

FuadJemal --------- RM/7544/11

Submitted to: AlemuMosisa (Assistant Professor)

Director for Grant, Consultancy and Center of Excellence

June 14, 2019

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Contents
1. Regulation of Real Estate Business in Ethiopia.......................................................................3
2. Real Estate Sector challenge would create a win-win situation: Study (Ethiopia)..................7
3. Risks in residential, commercial and industrial real estate development projects (Study
(Ethiopia).........................................................................................................................................9
Risks in residential real estate......................................................................................................9
Risks in commercial real estate.................................................................................................12
Risks in industrial real estate.....................................................................................................13

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1. Regulation of Real Estate Business in Ethiopia
I am starting by criticizing our legal system because it’s not clearly stipulated real estate/real
property separately.
The business of real estate development is a recent phenomenon in Ethiopia. It flourished in the
beginning of the 1990’s after the privatization of the market. This business has been seen to
contribute to the development of the Ethiopian economy significantly; it has also provided
housing for the middle and high income generating families. However, even though it had its
own contribution to the economy, the non-regulation of this business has been seen to create
undesirable result to the market in general. Lack of laws on how a good working condition can
bring sustainable development to the real estate market hasn’t been given the attention it
deserves. For this reason, this sector has shown numerous fraud and created mistrust upon
potential clients. Hence this paper has tried to study on the need of having a regulatory legal
framework and institution so as to have a peaceful real estate developing business in Ethiopia.
[MenenAbebeAbera/june 2010]

In our civil law system, there is a division between movable and immovable property. Movable
property roughly corresponds to personal property, while immovable property corresponds to
real estate or real property, and the associated rights and obligations thereon.
Code on Immovable Property: Land Law in Prospect
Presently Ethiopian general immovable property legislation is found in different titles and parts
of the civil code. For example, the definition for immovable property is found in Title VI, some
rights in rem, i.e. real property such as usufruct, servitude, in Title VIII, public domain,
expropriation, association of land owners, and town planning in Title IX, register of immovable
property in Title X, and contracts relating to immovable properties such as sale, lease and
mortgage in XVIII of the Civil Code. [Land Law Teaching Material 2009]

Art 40/1/ of the FDRE Constitution which guarantees the right to property provides that Property
right includes, unless restricted by law for public purposes, the rights to acquire, use, and transfer
things/ tangible or intangible/ of financial value.

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The registration and descriptions should be in conformity with the indications and measurements
of the immovable in the cadastral survey plan. It shall also contain a brief description of all acts,
which are required to be registered. See arts 1575-1582.

One of the major unregulated areas of the real estate business sector is that most of such
companies pre-sell the properties before building them, and at the end fail to deliver such houses
as per the contract they concluded.
The non-regulation of real estate companies has brought a lot of mess not only on the home
buyers but also on the government and on the court system. The mishap of Access Real Estate
S.C is one indication for the spillover effect the failure of the developer had over such organs.
Attorney General Office, which was then Ministry of Justice, has written a letter for Federal
Supreme Court, Ministry of Trade, Document Authentication and Registration Authority, and to
the Addis Ababa City Administration Land Development and Management office on January
29/2014 (Tir 21/2006 EC).
In the process of development, it can be seen that there are numerous possible requirements a
developer should adhere to before commencing the business. Looking at the Ethiopian situation,
the law has recognized real estate developers as traders. The Commercial Code of Ethiopia under
Article 5(1) states that a person who professionally and for gain purchases movables or
immovable with a view to reselling them either as they are or after alteration or adoption is
considered as a trader.
One critical area of Land Law that requires an active legal regime is registration of real property.
Cadastre and land register are two important systems of effective administration of immovable
properties. The problem is that in Ethiopia such laws generally do not exist or if they exist, they
are rendered inapplicable. As we shall see in great detail, the Civil Code provisions on the
registration of real properties are not activated and the recent rural land registration laws are not
only inadequate but also have started to be applied only in few parts of the country (Amhara,
Tigray and Oromia) in varying degrees.[ Daniel W/Gebriel&MelkamuBelachew]
Other
Urban land lease holding, and (c) the level of land information and governance.Particular
attention is given to the Unban Land Lease Proclamation No.721/2011, Urban Landholding

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Registration Proclamation No. 818/2014, DraftUrban Land Lease Model Regulations (2004 EC),
Urban Land Lease
Regulations No. 49/2004 EC issued by Addis Ababa City Administration, andother relevant
regulations and directives.

Registration of Company and Project

A real estate company after deciding on the form of business organization it adapts as to fulfill
other requirements. It has to be being registered within the appropriate government organ. The
Commercial Registration and Licensing Proclamation No. 980/2016 is applicable on business
persons, sectorial associations, commercial representatives and any other persons engaged in
commercial activities, except on some business activities which are regulated with a different
government organ and by a special law relevant to its nature of business such as banking, mining
and air transport.
Real estate development business because of it being a commercial activity and not falling under
the exclusion of Art 21(4) of the Proclamation, it falls within the ambit of the Registration and
Licensing Proclamation. Developers pursuant to Art 22 of the Proclamation are obliged to obtain
a business license before engaging into its business activity
Capacity to Performance
In the Ethiopian legal system since ownership of rural and urban land is conferred on the state
and nations, nationalities and people of Ethiopia; and because land is not available for sale81,
real estate companies acquire land through lease from the government. Before the coming in to
force of the Urban Lands Lease Holding Proclamation No 721/2011, provision of land for real
estates in Addis Ababa was regulated by the Addis Ababa City Government Regulations Issued
to Provide Land for Real Estate Regulation Number 20/2005.
The lease Proclamation has a scope of application on all urban lands all over Ethiopia. It applies
to real estate developers that wish to acquire land from the government. In order to get land, the
private sector which includes real estate developers are expected to go through tender, that
results in leasing the land with the maximum amount of money offered for a given plot of land.

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Difficulties due to not having special regulation for real estate
When such cases arise, the court will resolve the conflict using the contract of the parties,
Ethiopian general contract law, and using the provisions of the Civil Code under Art 3019 and
the following articles which deals with contract of work and labor related with immovable.
However, the part of the Civil Code that deal with contract of work and labor related with
immovable property is only appropriate to cases that arise between the contractor and a client.
The Socialist government (1975-1991) had directly involvedin the supply of real estates and set
cooperatives housingdelivery system. The government used to provide land,building materials,
and housing finance on a subsidizedmanner. And, it issued real estate proclamation
number47/1974, by which the government nationalized all urbanlands and extra houses, hence
the role of the private sector inreal estate development was limited, but the public sectorwas
gloomy.
After the overthrown of the socialist regime in 1991, the current government has introduced a
more of market oriented approach that rehabilitates the private sector’s role in real estate
development. A series of policies were also enacted on a gradual basis in which it removed
subsidies on housing materials and setting interest rate on housing loans at market rate, the
government has thus drawn the urban and leases holding proclamation in 1993, which clearly
delineate holding permit provision; with a maximum duration of 99 years and a minimum of 50
years. In 2002, the government issued a new proclamation (proclamation No. 272/02) that
repealed the former and introduced new articles that were not incorporated before. (proclamation
No. 272/02)

According to Council of Ministers Building Regulation No. 243/2011 “real estate” means a
building built for the purpose of sale, rent or lease services;

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2. Real Estate Sector challenge would create a win-win situation: Study
(Ethiopia)
It’s obvious their no clear cut for win-win situation in our case for real estate law or regulation
because by referring a win-win situation meaning and consideration.(as stated on above
statements).

But in pre-construction stage there is a system in ascertaining a land or compensation for land
owner so that it enhances a win-win situation, because it assures both parties benefits.

However win –win situation can occurred between firms/developers rather than home buyer and
real estate developer.

Today, legal practitioners in Ethiopia actually find it difficult to apply the legal provisions in the
Civil Code. In fact, it is not unusual to find a judge who even is not well aware of the meaning
and existence of some provisions such as those on town planning and registration. No doubt, lack
of adequate curriculum addressing real property has been one major factor for this. However, the
location of those economically significant laws at different parts and contexts in the Civil Code
is even more important contributing factor for the problem.

When such cases arise, the court will resolve the conflict using the contract of the parties,
Ethiopian general contract law, and using the provisions of the Civil Code under Art 3019 and
the following articles which deals with contract of work and labor related with immovable.
However, the part of the Civil Code that deal with contract of work and labor related with
immovable property is only appropriate to cases that arise between the contractor and a client

 In rare case there may be win-win situation occurred just like a case below

According to Noah’s unique approach to home construction pays off By Staff Reporter - June 3,
2019 0237 stated

The dominant and extraordinary property developer Noah Real Estate is expanding its
domination of the sector by acquiring even more real estate properties under its scheme. The
latest deal features Ambassador Real Estate that has transferred its property to Noah.

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Noah also inaugurated 200 residential apartments at a site called Noah Garden Residential
Apartment around commonly known as Gurd Shola in east Addis Ababa.

The real estate developer have also secured and started swift development on the property of
Ambassador Real Estate.A source close to the company told Capital that Noah, one of the most
reliable real estate developers, has secured an over 30,000 square meter plot of the Ambassador
Real Estate to accelerate its business.

“The plot is located around Ayat north east of Addis and we have already started using 16 blocks
to build a G+5 structure on the site,” a source at the company said. The source added that the
structure work is completed in 3 months and now the project is transforming to the next level.

Noah has implemented a similar approach in the past. They have also managed other company’s
real estate sites and defused some of the disputes between those companies and home buyers.

Ethiopia’s real estate industry is known for untrustworthiness, because most of the developers
have delayed projects for much longer than the agreed period in contracts or projects have been
completely undone and buyers have never gotten their homes.

The seven- year-old Noah Real Estate is different because they build the homes before they are
sold. This allows them to get homes transferred to buyers consistently and on time.

Even though they are late to join the game than other developers they have transferred about
4,000 houses to customers in the past seven years.

AbiyHailemariam, who works for Noah, told Capital that the company is currently constructing
3,000 houses that will be transferred to customers using different arrangements.

According to sources, in the past the company has managed the sites of other real estate
companies and has even transferred houses without further charge to those who paid the original
developers but were unable to get their homes and were waiting for several years.

A few months ago, the company leaders told journalists that they use other real estate
developers’ plots to construct houses for individuals that have a contract with the original
developers. Noah sees this as a win/win situation.

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3. Risks in residential, commercial and industrial real estate
development projects (Study (Ethiopia).
Real Estate development is considered as one of the sectors with transaction of billions of birr in
the market. However, researches concerning real estates in Ethiopia mainly in Addis Ababa
showthe real estate development sector faces different problems and challenges.
Eshete and Teshome (2015) examined the performance, challenges and prospects of real
estatefinancing in Addis Ababa with a micro and macro outlook. The result of their research
showsproblems of land management, inadequate infrastructure, low construction capacity of
developersor contractors hired for construction, poor borrowing capacity, price escalation, and
lowaffordability are some of the challenges and shortcomings of real estate development in
AddisAbaba.
Kiros (2009) also assessed and described the factors affecting the real estate market andshares
similar results with Eshete and Teshome. Kiros stated there exists a slow and insufficientsupply
of land, foreign currency shortage, shortage and price escalation of housing
constructionmaterials. In addition, inflation amd non-existence of long term housing finance was
factorswhich affected the real estate sector. He outlined there is a considerable decline in sales
and andthat housing prices are less affordable in the market.

Risks in residential real estate

Similarly, research done by Paulos (2011) on private residential real estate developers shows
price escalation and devaluation of birr are major challenges.
Non-delivery of housing projects on time is one of the major problems affecting
trustworthinessof real estate developers (Bewket, 13 January 2014; Muluken, 15 April 2013 ).
Only 15 of themhave completed the houses and transferred houses to the hands of their clients
and four of themwere kicked out while the rest are still with incomplete houses for up to ten
years (Bewket, 13January 2014).

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As per the report of Land Administration and Building Permit Authority of the
CityAdministration, the usual excuses mentioned as major challenges by developers are delay

inhanding over the site on the part of the City Administration, delay in provision of
infrastructure,price escalation of building materials and lack of loan finance (Truneh, 2013).

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Risks in commercial real estate

With respect to the commercial market, we find that rental rates for office space in Addis Ababa
average around Birr 100 per square meter, though sometimes approach Birr 200 per square meter
for prime, city-center locations. Based on the city-wide average, these square meter costs
translate into rental rates of around Birr 5,000 per month for a small one-room office in a city-
center location. For businesses seeking to rent half-a-floor or a full floor in a commercial
building, average monthly rents are Birr 20,000 and 40,000 respectively.

 Regarding the outlook, we see both challenges and opportunities. On the former, key
obstacles facing the sector include
 land policies,
 The scarcity and cost of construction material,
 infrastructure, and
 Financing.

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In addition to the above listed risks on the residential real estate

Interest Rates

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. 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.

The Economy

Another key factor that affects the value of real estate is the overall health of the economy. For
example, if an “x” has a larger percentage of its investments in hotels, they would typically be
more affected by an economic downturn than an “x” that had invested in office buildings.
Hotels are a form of property that is very sensitive to economic activity due to the type of lease
structure inherent in the business.

Lack of getting buyer

Know a day more of the population needs residential houses than commercial places ,so that it
can affect the developer in investing aspects.

Location

Unsuitability of the site location giving for commercial by land administration.

Taxes

Be wary of property taxes stated in your analysis or given to you by the broker. Brokers who
present property data rarely have the new property taxes in their spreadsheets.

Look at the parking ratio

The parking ratio for your retail center is more important than you think.

Risks in industrial real estate

In addition to the above risks
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 Environmental aspect

Expenses to investigate environmental impact assessment wascosty.

Lack of investor involved in project

Need for advertizing take a time and need create awareness

Reference

1. Analysis of Risks in Residential Real Estate Development Projects of Addis Ababa By

MilkaHagos
2. Sector Report—Real Estate May 2010 Access Capital Research
3. Property Rights Protection and Private Sector Development in Ethiopia{ December 2013,
Addis Ababa
4. Regulation of Real Estate Business in Ethiopia{By: MenenAbebeAbera ,June, 2010
5. Land Law Teaching Material,2009
6. Land Rights And Expropriation In Ethiopia ,by Daniel WeldegebrielAmbaye

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