Credibility of institutions in Addis Ababa (Ethiopia), effects of government policies on real estate developers

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ContentslistsavailableatScienceDirect

Land

Use

Policy

jou rn al h om ep a g e :w w w . e l s e v i e r . c o m / l o c a t e / l a n d u s e p o l

Credibility

of

institutions

in

Addis

Ababa

(Ethiopia),

effects

of

government

policies

on

real

estate

developers

Frew

Mengistu

a,b

_,

_Meine

_Pieter

_van

_Dijk

a,b,∗ a_Ethiopian_Civil_Service_University,_Addis_Ababa,_Ethiopia

b_ISS_of_Erasmus_University,_Rotterdam,_the_Netherlands

a

r

t

i

c

l

e

i

n

f

o

Articlehistory: Received6October2016 Receivedinrevisedform 23November2016 Accepted31December2016 Keywords:

Realestatedeveloper Institutionalanalysis Tenurerights Credibility Ethiopia

a

b

s

t

r

a

c

t

Credibilityisthemeasureofhowinstitutionsareperceivedasaresultofautonomousendogenous pat-ternsofinteractionandpowerdifferences.Itisnotthetenuresecurityinthesenseofneo-classical economicsthatmattersbuttheperceivedsecurityandwhetherdevelopershavetheassurancetoretain thefruitsoftheirinvestment.Whatmattersinperformanceofinstitutionsisnottheirformbuttheir func-tionsasitisdeterminedtemporallyandspatiallyintermsofeconomicefﬁciency,stabilityandgrowth. Againstthisbackdropthepaperanalyzeshowrelevantinstitutionsfunctionbytakingthecaseofreal estatedevelopersintransitionalrealestatemarketsofAddisAbaba.Wewilldeterminetowhatextent institutionsarefunctionalandwhetherthechangestakingplaceleadtothedevelopmentofmorecredible institutionsornot.Inthetransitionprocessthereisamplespaceforautonomousendogenouspatternsof interactionsandtransactionsamongeconomicactorsandcitizens.Weanalyzetheprocessofchanging functionalitiesstudiedtobetterunderstandtheexistingandchangingfunctionsoftherelevant institu-tions,usingtheanalyticalframeworkdevelopedbyHo(2014)anddescribethefunctioningofinstitutions, whiledrawingconclusionsontheroleandcredibilityofinstitutions.Despitetheadverseenvironment forrealestatecompaniesandagovernmentcrackdownonrealestatedeveloperstheEthiopianeconomy continuedgrowingatmorethantenpercentperyear.Insecuretenurerightsdidnotinhibiteconomic growthandrealestatedeveloperscontinuedtoinvest.

1. Introduction

Developmentwithrespecttorealestateorpropertyisa

pro-cessofconversion(developmentorredevelopment)oflandfrom

oneusetoanother(Balchinetal.,2000:320).Thedevelopermay

bedeﬁnedasanentrepreneurwhoprovidestheorganizationand

capitalrequiredtomakebuildingsavailableintheanticipationof

therequirementsofthemarketinreturnforproﬁt.Itistheartof

buildingrealestatevaluebymanagingdevelopmentrisk.Valueis

realizedbyprovidingusablespacewithassociatedservicesneeded

sothatcustomerscanenjoytheintendedbeneﬁtofthebuiltspace.

Adeveloperisapersonorﬁrmthatisactivelyinvolvedinthe

devel-opmentprocessandtakestherisksandreceivestherewardsof

development.Likeanyothereconomicactivityrealestate

develop-Abbreviations: AACA,AddisAbabaCityAdministration;EPRDF,Ethiopian Peo-ples’Revolutionary DemocraticFront;GDP,GrossDomesticProduct;ORAAMP, OfﬁcefortheRevisionoftheAddisAbabaMasterPlan;RED,RealEstate Develop-ers/realestatedevelopments;VAT,valueaddedtax.

∗ Correspondingauthorat:ISSofErasmusUniversityRotterdam,POBox29776, TheHague2502LT,theNetherlands.

E-mailaddress:mpvandijk@iss.nl(M.P.vanDijk).

mentdealswithsatisfyingneedsusingscarceresources.Thisgoes

alongwiththedeﬁnitiongivenbyMcDonaldandMcMillen(2007:

279)as;“takingaparceloflandandaddingimprovementsto

pro-duceacompleted,operationalproperty.”Realestatedevelopment

islinkedwithspecializationinthesensethatapersondevelops

landandpropertyforsaleorrent.

Enforcingpropertyrightsconsistoftwocomponents–therule

(includingcustomsandtraditionsinthecaseofcustomaryland

tenure) and itsenforcement mechanism. The high competition

among cities toattractforeign direct investments, thegrowing

rateoflocalinvestmentandtheaccompanyingrapidurbangrowth

isnecessitating themovefromstable andsecuredpropertyright

paradigm toincomplete property rights (Nicitaet al., 2005)and

asymmetric property rights (Zhang 2006).Consequently, not the

tenuresecurityinthesenseofformalorinformal’,securedor

unse-curedbuttheperceivedsecurityandwhetherdevelopershavethe

assurancetoretainthefruitsoftheirinvestmentisbecomingmore

andmoreimportant.Whatmattersinperformanceofinstitutions

isnottheirform(formal,secure,private)buttheirfunctions

(eco-nomicefﬁciency,stability,growth)asitisdeterminedtemporally

andspatially(Ho,2014).

https://doi.org/10.1016/j.landusepol.2016.12.031

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Empiricalresearchshowsthattherearecircumstancesinwhich

thesovereignpower(thegovernment)adoptsorco-optsthe

insti-tutionsdevelopedbythecommunity,whileinothercircumstances

thesovereignpowertakesmeasuresagainstsuchmoves (Frew,

2013).Wewillinvestigatetheprocessofchangingfunctionality

withrespecttorealestatedevelopersinAddisAbaba,thecapital

ofEthiopia.Datasourcesincludeasurveyofrealestatedevelopers

carriedoutbytheauthorsintheyear2009–10with14realestate

developersrespondingtoquestionnaires.Secondarydatacollected

bytheLandAdministrationandBuildingPermitAuthorityofthe

CityGovernmentofAddisAbabaandaprivateconsultantareused.

Theauthoritypursuedtwosurveysin2009/2010onactivitiesof

realestatedeveloperssince1993i.e.theyearthecity’sleasepolicy

cameintoeffect.1

2. Background

Until1974landwasprivatelyownedandlandlordswouldbuild

tenementunits.Underthesocialistorientedmilitarygovernment

thatcausedthefallofformerEthiopianEmperorHaileSelassiall

landandrentalunitswerenationalized.Noperson,familyor

orga-nizationwasallowedtoobtainincomefromurbanlandorhouse

rent.Usershavebeenlimitedonlytousufructrights.Duetothisthe

realestatedevelopmentasaneconomicactivitywasaborted.This

triggeredashifttoanewsetofactorsandnewsystemsofdelivery.

Thenewactorsoperatedasowner-occupierseitherindividuallyor

ascooperatives.Theothermainactorwasthegovernment,which

notonlyactedastheproviderofpublicinfrastructureandas

regu-lator,butwasalsothesupplierofbuiltupspaces.

WiththeoverthrowofthemilitarygovernmentbytheEthiopian

Peoples’RevolutionaryDemocratic Front(EPRDF) in May1991,

landstillremainedstateproperty,butnewactors,includingpetty

providersandrealestatedevelopers,emergedasthemainactors.

EversincetheInvestmentProclamationNo.37/1996wasissued

someinvestors showedinterestinrealestate developmentand

startedoperationsintheresidentialsubsector.Asaconsequence

ofthesepolicychangestherealestatesectorbecamethefastest

growingsegmentoftheEthiopianeconomy.

TheEthiopianInvestmentAgencyissuedlicensesto160real

estatedevelopersupto2009tooperatethroughoutthecountry.

Macroeconomicstatisticsavailablefromaprivateconsultancyﬁrm

showthattherealestateandtheconstructionsectoraccountedfor

14.9%oftheGrossDomesticProduct(GDP)in2008/09,withthe

realestatesectorcomprisingof9.1%andconstructioncomprisingof

5.8%(AccessCapital,2010).Therealestateandconstructionsector

grewbyanaverageof14.1%and10.4%peryearrespectivelyinthe

ﬁveyearsupto2008/09.Thisisabovetheaverageannualgrowth

rateofrealGDPduringthisperiodwhichis11.4%(AccessCapital,

2010).

Alsotakenoveralongerperiod(2004/05-2012/13)therateof

growthhasbeenstrongandamountedto10.9%peryear,

accord-ing to World Bank (2014), while the estimate for the period

2013–2014is10.6%.2_Nevertheless_the_Ethiopian_real_estate_market

stillremainsonecharacterizedbyamarketinwhichthe

govern-mentisthesolesupplieroflandandthemaindeveloperofland.

Institutionaldevelopment,speciﬁcallytheperiodafterthe1974

revolution,hasbeenmarkedbychangesinwhichideology,

politi-calanddoctrinalconsiderationsratherthanappreciationofculture,

1 _The_ﬁrst_round_of_{investigative}_survey_by_the_City_{Administration}_only_focused

onBoleSubCityandthesecondsurveyontheremainingsixsubcities:Yeka, Akaki-Kaliti,NifasSilk-Lafto,Kirkos,Kolfe-KeranyoandLideta(thecityofAddisAbabais dividedintotensubcities).Thefourthdatasourceisaprivateconsultantreport (N=34).

2 _{http://www.cnbcafrica.com/}_consulted_7-1-2015

traditions,societalvaluesandnormshaveplayedagreaterrole.

TheideologicalprinciplesoftheincumbentFederalGovernment

arebasedonadevelopmentalstatistview.

3. Literaturereview

Theold,neo-classicalmathematicalbaseofthecredibility

the-oryseescredibilityasthebasicparadigmunderlyingthepricingof

insuranceproducts(BuhlmannandAlois,2005;Herzog2010).In

thissensecredibilitytheoryappliestoactuarialproblemsi.e.

cal-culatingtheprobabilityofaccidents,suchasﬁre,ﬂoodorlossof

propertyandinforminginsurancecompanieshowmuchpremium

theyshouldchargefortheirinsurancepolicies.Itresidesontwo

fundamentalconcepts‘individualrisk’and‘collective’(the

hetero-geneouscollective)andtriestosolveinarigorouswaytheproblem

ofhowtoanalyzetheinformationobtainedfromthesesourcesto

arriveattheamountoftheinsurancepremium.Theexpression

“credibility”wasoriginallycoinedfortheweightgiventothe

expe-riencefromtheindividualrisk,whentheinsurerhastypicallylittle

knowledgeabouttheindividualriskbutquiteextensive

statisti-calinformationaboutthecollective(BuhlmannandAlois,2005;

Herzog2010).

Grabel (2000) criticized this neo-liberal perspective, which

suggeststhatinstitutionscanbedesignedbyintention,strongly

presentintheoriginalwritingsoncredibility.Ho(2014)uses

cred-ibleand non-credible/emptyinstitutions (new rulesthat are not

perceivedascommon),inanefforttoreinvigoratethecredibility

conceptandprovideitwithanewmeaning,makingitatoolfor

empiricalanalysis.

Thecredibilitythesisfocusesonhowinstitutionsareperceived

asjointlysharedrulesorascommonarrangements.“Credibilityis

ameasureofhowinstitutionsareformedandperceivedasaresult

ofautonomousendogenouspatternsofinteractionsandpower

dif-ferences”(Ho,2014).Therefore,credibilitycanbedeﬁnedasthe

perceivedsocialsupportatagiventimeandspace.Thusasnotedby

Bromley(1992:15)propertyrightswithregardtonaturalresources

suchaslandis...thecapacitytocalluponthecollectivetostand

behindone’sclaim toa beneﬁtstream.Hencepropertyrightas

institutionistheresultofinteractionamongthreebodies:theright

holder,thedutybearers,therightgrantorortheruleenforceras

wellastheinstitutionthatbacksthem.Therightgrantorcanbe

thecommunityinthecaseoftribalortraditionalcommunitiesor

governmentinmodern society.Rightsare“real” (credible)only

whentheruleenforcerthatisthesovereignpowerrecognizesand

iswillingtoprotectthem;andwhenthedutybearersinternalize

thelegitimacyoftheclaimsoftherightholders(Adlingtonetal.,

2000).

HoweveraccordingtoHo(2014)insecurepropertyrightsarenot

comparabletosociallycontestedornon-crediblepropertyrights.

Thecredibilitythesispositsthatwhencertaininstitutionsor

prop-ertyrightspersist,theyperformacertainfunctioninsocietyora

communityinsodoingtheyrallyagivenlevelofperceivedsupport

andaredeemedcrediblebysocialactorsoreconomicagents.

Prop-ertyrightsarecredibletotheextentthatpeoplebelievethatthey

arenotsubjecttoarbitrarychange.Accordingtotheneo-liberal

the-oryperverseinstitutions,whichmaybeinsecure,in-transparent,

authoritarianwithuncleartenureorfacilitatingrentseekingwould

inhibitgrowth.However,iftheseinstitutionsfulﬁllacertain

func-tionandtheirpersistencepointstotheircredibilitytheneconomic

growthisstillpossible.Itisnottheformthatisimportant,butthe

function.ThiswillbeinvestigatedinthecaseofAddisAbaba.

AsnotedbyHocredibilityisnotaboutlegitimacy.Itisa

mea-sure of how institutionsare formed and perceived as a result

ofautonomousendogenouspatternsofinteraction.Bysummary

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resultof endogenous interactions,common (aggregate)

percep-tion,commonexpectations(otherswillactaccordingly),perceived

social support, fulﬁlling some function in a time space bound

speciﬁccontext.OnthecontraryasexplainedbyHo(2014:16):

“empty (non-credible) institutions are formed when powerful

actorsattempttoengineersocialchangethroughthe

implemen-tationofnewrules”.However,weﬁnddifferentinstitutionsina

continuumand stateofcontinuousinﬂux. Theconsequences of

theseinteractionsdependuponthebehaviorofactorsandtherule

ofinteractionstheydevelopinpropertyrightrelationship.

4. Formalregulatorycontext

TheAddisAbaba CityAdministrationDirectiveonConditions

forLandRequestandAuthorizationServicesdeﬁnedarealestate

developerasadeveloperwhobuildshouseswhichcan

accommo-date50ormorehouseholdsthroughrentalortransferonsale.The

directiveamongothers,alsolimitedthesizeoflandtoberequested

byadevelopernottoexceed20haifitislocatedinanexpansion

zoneofthecityand5haindevelopedareas.Forthosedevelopers

requestinglandinexcessofsuchanamountithadtobedecided

bytheleaseboard.Onlycondominiumtypehousingwasallowed

inthedeveloped partof thecity, howeverifthelocal

develop-mentplan,basedonthemasterplanprovisions,allowsforvilla

typehousingthenthelatercomponentcannotexceedmorethan

30%.Realestateprojectstobeconstructedinareasexceeding5ha

neededtobephasedintotwo.Accordingtothedirectivea

devel-operisabletorequestindividuallandholdingorcondominium

ownership certiﬁcate,as thecase mightbe, onlyfor the phase

hehadcompleted.AccordingtotheCouncilofMinisters

Regula-tiononInvestmentIncentivesandInvestmentAreasReservedfor

DomesticInvestors(RegulationNo.84/2003)realestatedevelopers

aresupposedtobeneﬁtfromincentivesintheformofsimpliﬁed

andtransparentinvestmentandbusinesslicensingproceduresby

theEthiopianInvestmentAgency(EIA) ortheAddis AbabaCity

Government Investment Agency.Proposed incentives included;

communalgrounds,rightsofways,etc.withoutﬁxedupper

lim-itsbeingexemptedfromleasepayments,andtherighttobefree

fromleasepaymentofa50m2_plot_(on_which_only_land_tax_was

payable).

However,theProvisionalCityGovernmentofAddisAbabainits

RegulationNo.20/2005toprovidelandforrealestatestipulated

thattheincorporationofanexpansionareaforarealestateproject

outsideofthereservedareawouldbeentertainedbyauction.With

regardtothesizeofthevillatheregulationwasnotclear.Thiswas

lefttobedeterminedbythedeveloper.Therewerealsoprovisions

fordeterminingthepriceoflandforplotsizeswhichrangedfrom

250to2500m2_._Land_size_for_leasing_for_ﬁrst_time_request_by_an

investortodevelopwaslimitedto25,000m2_._An_investor_was_only

abletorequestanadditionalexpansionoflandaftercompletion

of75%ofthepreviousprojectbythesameregulationtheadvance

paymentofarealestateprojecthadbeenalsostatedtobe20%of

thetotalleasepayment.Alltheseprovisionswereintendedto

pro-moteeconomicuseofurbanlandandregulatesomeirregularities

observedwithintherealestatesectorandwewillanalyzehowthey

workedoutinpractice.

5. Characteristicsofrealestatedevelopers

Accordingtooursurveyresults(n=14),mostoftherealestate

developerswereestablishedafter2005,exceptforthepioneerreal

estatedeveloperAyatCompanywhich wasestablishedin1996.

Mostdevelopersareprivatelimitedcompanies(57%),followedby

sharecompanies(29%). Theregisteredcapitaloftheenterprises

variesfromBirr8.1millionthesmallest,toBirr260millionthe

biggest;withthemajority(43%)ofthemrangingfromBirr8–50

million.3_57%_of_the_real_estate_developers_have_sister_companies

toworkwith.Thesesistercompaniesareinvolvedindiversiﬁed

businessessuchasgeneralbusinesses,ﬁtnesscenters,importers,

hoteliers, furniture manufacturers,building materialssuppliers,

rentalmachinerysuppliers,andconstructioncontractingﬁrms.The

majority(43%)ofthesistercompaniesareconstructioncompanies

orcontractors.

ItisnotunusualinAddisAbabaforacontractororan

architec-turalandengineeringconsultingﬁrmtoco-ownandoperatereal

estateprojects.Thesesistercompaniesservealsoasasourceof

loanﬁnancefortheconstructionoftherealestateprojects.

Regard-ingthesourceofﬁnance78.6%ofrealestaterespondentsrelyon

customers’ periodicpayments withor withoutotheradditional

sourcestoﬁnancetheconstructionoftheirprojects.Realestate

developersusemodalitiesofpaymentswhichvaryintheamountto

bepaidatatimeanditsphasing.Respondingtothequestionon

pay-mentmodalities,responsesshowthat64%useadvancedpayment

plusperiodicpaymentsaccordingtotherateofprogressofthe

con-structionwork.Interviewswithdevelopersandcustomersshow

thattheadvancedpaymentrangesbetween20–30%andother

pay-mentswouldhavetobemadeinthreeroundsof25,25,and20%.

6. Thelandacquisitionanddevelopmentprocess

Acquisitionof land isone of themajoractivities inthe real

estatedevelopmentprocess.UrbanlandinAddisAbabaisallocated

throughleasecontracts. Thelandleasesystemhasthree

lease-holdpermitmodalities,namely:auction,negotiation,andaward.

Respondentswereaskedwhichmodalitytheyprefer.Resultsofthe

surveyshowthatthemajorityoftherespondents(42.9%)prefer

‘negotiation’,whereas28.6%ofthemprefernegotiationin

combi-nationwith‘auction’and‘award’.Thetwogroupstogetherform

71.5%ofrespondents.Realestatedevelopersbelievethat

negoti-ationallowstheformationofinnovativeprojectideasonthepart

ofthedeveloperbyselectingaspeciﬁcsite,whileshorteningland

acquisitiontime,andavoidingthroat-cuttingcompetitionin

mak-ingofferswhichmightarisefromfewernumbersofplotsavailable

fortender.InAddisaleaseauctionisexpectedtobecarriedout

onceeverymonth.However,amaximumroundofthreeauctions

wasmanageablebytheCityAdministrationincludingitssubcity

administrations.Thoughthenegotiationsareoftencriticizedon

thegroundsoflackoftransparencyandaccountability,50%ofthe

respondentsbelievethattheadvantagesoutweighits

shortcom-ings.

ThedatacollectedshowsthatrealestatedevelopersinAddis

Ababa acquireland throughvariousmeans.Theﬁrstisthrough

publicleasing.Thesecondisacquiringlandplotsthroughprivate

leasingwherealesseepotentialdevelopertransfershis/herleased

landtoanotherdeveloperwithanegotiatedamount.Thisisusually

donebysettlingtheblockedbankaccountfortheleasepayment

plus someadditional amountwhichgoes intotheseller/lessors

pocket.Amongtheseindividuallessorstherearedeveloperswho

hadacquiredlandfreeofleasepaymentoratanominallease

pay-ment.Investigativereports bytheCityAdministrationdisclosed

that15outof114(13.2%)developerstransferredtheirlandtoa

thirdparty,almostallofthemintheperiodbetweenMarch2006

andSeptember2009.Thethirdmeansofacquiringlandforreal

estateprojectsistheuseofone’sownland.Thislandcanonlyhave

beenacquiredthroughoneofthefollowingmeans:

3_Birr_is_the_Ethiopian_currency,_at_the_average_the_exchange_rate_was_8.78_Birr

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1.Landallocatedinthelaterdaysofthemilitarygovernmentfor

investmentpurpose,

2.Landleasedundertheincumbentgovernmentfornon-private

residentialinvestment

3.Landinformallypurchasedfrompeasantsorfromother

devel-opers/investorsorfromotherinhabitantswhomanagedtograb

urbanlandfollowingthe2005elections,

4.Landtransferredfromanotherresidentialrealestatedeveloper

throughprivateleasepurchase,orasharecompanywithalease

landpossessor,thoughthelatterisnotnecessarilyarealestate

developer

5.Potentialdeveloperswanting toredeveloptheirformer plots

usedforownoccupationorbusinessintoamulti-storeybuilding

(thoughtheydonotqualifyasarealestatedeveloperinthelater

senseofthemeaningi.e.onewhobuilds50housesandabove).

Exceptfortheﬁfthoption,mostoftheabovementionedmeans

ofacquiringlandwouldsomehowinvolveinformalland

transac-tions.

Itisimportanttonotethatitwasimpossibletolocatemostof

therealestatesitesonthebasemapofthecity,although87%of

therespondents’projectswerelocatedintheurbanperipheryor

thesurroundingOromiatowns.Moreover,noneofthesiteswere

initiallyplannedforresidentialrealestate.Therefore,theyrequired

achangeoflanduseandalterationoftheexistingpattern.Selling

oflandbyalesseeistakenasacriminalactbytheCity

Adminis-trationfortheobviousfactthatitcontravenestheprovisionofthe

constitutionoftheFederalDemocraticRepublicofEthiopia(1995).4

InProclamationNo.47/75(theProclamationforthe

Nationaliza-tionofUrbanLandandExtraHouses)thesizeofaplotforpersonal

residentialholdingwaslimitedtoamaximumof500m2_._The

por-tionoflandinexcessofthisamountwastobeexpropriatedand

allocatedtoanotheralloteeaslongastheplotwasdivisibleandable

toaccommodateanotherresidenceoruse.However,thismightnot

beenforcedduetovariousreasonssuchasresistancebasedona

clientelistrelationshipwiththeenforcersorbribingthem.

Additionalevidencepointstoillegallandexpansionby82real

estatedevelopers,intotal140haofland.Upto5.8millionm2_of

urbanlandhadbeenprovidedto125realestatedevelopers

accord-ingtotheformercityMayorKuma.However,only18%oftheslated

landhadbeenusedfortheintendedpurpose.Consequently1.175

millionm2 _of_land_has_been_dispossessed_in_a_campaign_of_three

daysintheﬁrstweekofNovember2010.5_Efforts_to_collect_unpaid

leasepaymentsandotherincomepayabletotheCity

Administra-tionamountingtoBirr69.9millioniscontinuing.Alsoillegalland

(180,000m2₎_by_Ayat_Real_Estate_in_Yeka_had_been_{dispossessed.}

About125,000m2_of_this_was_encroached_and_fenced_land_which

wasusedtoproducedifferentbuildingmaterials.6_Ayat_had_also

putonsaleplotswithonlytheservicequartercompleted.21outof

the27realestatedevelopersoperatinginYekaCityexpandedtheir

landholdingsillegally.7

Thisﬁndingcontradictedourassumptionthatregular

develop-erswouldcarefullyfollowtheformalproceduressincerealestate

4 _In_article_40/3_it_is_stated_that_land,_as_one_of_the_natural_resources,_is_the

com-monpropertyofthenations,nationalitiesandpeoplesofEthiopiaandtherightto ownershipoflandaswellasnaturalresourcesisexclusivelyvestedinthestate andthepeoplesofEthiopia.Landshouldnotbesubjecttosaleorothermeansof exchange.

5 _Some_developers_had_kept_the_slated_land_idle_by_fencing,_or_sold_their_slated

landwithonlystartupstructures,invadedpubliclandandhaveeventakenbank loansusingundevelopedlandascollateral.

6 _Unauthorized_land_amounting_to₅₀₀₀_m2 _where_the_real_estate_developer

startedconstructingcondominiumhousingandconstructionworkon50,000m2

oflandtransferredfromanotherdeveloperhasbeenterminatedandthelandhas alsobeendispossessed.

7 _Addis_Lissan,_Vol.₁₈_No._1633,₂₄_Tikmt₂₀₀₃_(3rd_Nov._2010),_Amharic_version.

projectsareformallyregisteredinvestmentswhichinvolvehuge

ﬁnancialresources.Ithaslaterbeenmadeknownthat

investiga-tive surveys had been carried out for a year both by the City

Administrationanda privateconsultantaspreparationsforthe

‘rectifyingmeasures’intherealestatemarket bytheCity

Gov-ernmentofAddis Ababa.FollowingthistheCityAdministration

announcedthatitalsocancelledtheagreementof34realestate

developerswhohad notstartedconstructionworkaccordingto

theiragreement.Italsodisclosedthattheperformancestatusof

thosewhostartedconstructionworkdidn’texceedmorethan16%.

Theseactionswerefollowedbymuchindignationonthepartof

therealestatedevelopersandconcernedprofessionals.The

news-paperFortuneinitseditorialcriticallycommentedontheactivities

oftheCityAdministration:“Itseemsasiftheoncethrivingreal

estateindustryisontheretreat;timidandsubduedbythe

govern-ment’scrackdown....Businessmenandwomenaremadetolose

theirproperties,whethertheyareearnedlegallyorotherwise,with

astrokeofanadministrativepen...Nonetheless,thegovernment

hasmademoneyfromthetransfersoftheseplots,whichtheyclaim

wereunconstitutional”(Fortune,Vol.11,No.550,Nov.14,2010,

Englishversion).

7. Assessmentofperformanceofrealestatedevelopers

TheLandAdministrationandBuildingPermitAuthorityofthe

CityGovernmentofAddisAbabapursuedtwosurveysin2009/2010

onactivitiesofrealestatedeveloperssince1993i.e.theyearthe

leasepolicycameintoeffect.Theﬁrstroundofinvestigativesurvey

bytheCityAdministrationonlyfocusedonBoleSubCityandthe

secondsurveyontheremainingsixsubcities:Yeka,Akaki-Kaliti,

NifasSilk-Lafto,Kirkos,Kolfe-KeranyoandLideta.Inthedocument

search,114recordsofrealestateprojectswerefoundintheseven

subcitiesofBole(60),Yeka(23),Akaki-Kaliti(2),NifasSilk-Lafto

(22),Kirkos(4),Kolfe-Keranyo(2)andLideta(1).

15realestatedevelopersoutofthe114investmentprojects

whoserecordswerelocatedhadtransferredtheirleasedlandtoa

thirdparty.14oftherealestatedevelopershadtransferred38ha

oflandintheperiodfromMarch2006toSeptember2009.

How-evertheamountpaidforthirteenofthemwasnotstatedinany

oftherespectiverecords.Somedevelopersrequestedanindividual

holdingcertiﬁcate justfollowingon-groundsubdivisionofplots

withoutcommencingtheconstructionworkoruponcompletion

ofonlytheservicequarter.Thereportalsonotedthatﬁve

devel-opershadborrowedfromfourprivatebanksbyusingtheirleased

landascollateralwithonlytwoofthemhavingconstructed8–30

villasat30–50%stageofperformance.Accordingtotheinterviews

withofﬁcialsofLandAdministrationandBuildingPermit

Author-ityoftheCityAdministration,thisisinviolationofthewarning

inscribedonthetitlecertiﬁcatethatreads:“theplotoflandinthis

certiﬁcatecannotbeusedascollateralwithoutthepriorconsentof

thelessor.”Someoftherealestatedevelopershaveevenactedas

amortgageguarantorfortheircustomers’bankloan.

Basedontheinformation fromtheLandAdministrationand

BuildingPermitAuthorityoftheCityAdministration,intotal550ha

oflandhadbeenleasedfornotlessthan120realestate

develop-ersuntil2007/8EFY.8₄₇_sites_having_119.7_ha_of_land_were_not_yet

developed.Accordingtotherespectiveleaseagreementsthe

con-structioncommencementperiod(aperiodof18months)wasover

formostofthem.Thereportnotedthateventhosewhostarted

constructionwereonlyshowinghalf-heartedattemptstogivethe

impressionthattheyhadstartedconstructionwork.

8_EFY_is_the_Ethiopian_Fiscal_Year,_which_starts_July₈_and_ends_July₇_of_the_next

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Somerealestatedeveloperswhohadbeengivenlandfreeof

leasepaymentsoratanominalrate,hadtransferredthelandtoa

thirdpartywithoutdevelopingitandsucceededtogarnerahuge

amountofmoney.Asinglerealestatedeveloperhadsoldatract

oflandwhichhewasexpectedtodevelop,forBirr 12.6million

withoutmakinganyimprovement.Oftensuchbuyersandsellers

gotothepublicnotaries(DocumentRegistrationandActsOfﬁce)

andregisterthedeal.Nevertheless,suchcontractingpartiesdonot

necessarilygototheCityAdministrationforauthorizationofthe

transfer.

Ultimatelythetransferredland goestofew (1–3)highclass

realestatedevelopers.Theissuanceofindividuallandtitlingfor

undevelopedlandisalsoanotherconcern.Accordingtothe

sur-veyresultsbytheconsultant69.5%ofthecustomers and44.1%

oftherealestaterespondentsrespondedthatlegiblecustomers

had already received title certiﬁcates. 41.2% of the real estate

respondentswerenon-respondents.Nonetheless,allthe

precau-tionswhichneededtobedonebeforeissuingindividuallandtitling

suchasthestatusoftheconstructionproject,remaininglease

pay-ments,andleaseperiodandtheaccompanyingrightsandduties

wereoverlooked.Howundevelopedlandhadbeenusedas

collat-eralwasalsoanambiguousaspectofthetransactions;assomeof

thesuretieswerehighcomparedtotheleasepriceofthelandin

thefaceoftheimpossibilityoflocatingsomeoftherealestatesites

onthecitybasemap.

Factorsusedbythesurveyoftheconsultanttoassessthe

cred-ibilityoftheutilizationoflandresourcesbyrealestatedevelopers

include:keepingitfencedforlongwithoutdevelopingit,

subdivid-ingundevelopedlandandtransferringittoathirdperson,andusing

landfornon-permitteduse.Regardingtheseindicators,responses

ofcustomersandrealestatedevelopersshowadistinctdiscrepancy

inwhichcustomerswitharesponseraterangingfrom43.7upto

47.4%responded‘yes’whiletherealestatedevelopersresponded

‘no’witharesponserateofrangingfrom58.8upto61.8%forallthe

threeindicators.

Stabilityandgrowtharegenericgoalsofpoliciesand

institu-tions.Thesecanbein termsofaccessibilityandaffordabilityof

housing,contributiontoalleviatehousingproblemsincludingfor

lowincomegroups,betteraccesstolandandincreasingthe

hous-ingstock.Regardingincreasingthetotalhousingstock,therevised

masterplanofAddisAbaba2003–2010initshousingproposal

pro-jectedthelionshareofprovisiontobefromtheprivatesectorand

only2.2%oftheprojectedamountfromthegovernment.However

anevaluationreportontheimplementationofthemasterplan

showsabout80,236condominiumhousingunitswereproducedby

thegovernmentwhichmakes53%ofthetotalhousingsupplied.The

expectationfromprivaterealestatedeveloperswasabout30,000

andwhatdeveloperspledgedtoprovidewasestimatedat25,000

housingunitsintheplanimplementationperiod.Actualoutputso

farislimitedtoabout25%ofthepledgedamountor4%ofthetotal

housingsupplied.Thisisexpressedintheresponsesofrealestate

respondentsinwhich71.4%concurredthatthegovernmentis

play-ingtheleadingroleinhousingprovisionandthegovernmentneed

notchangeitscurrentroleinhousingprovision.Asthingsstand

now,forarealestatedeveloper,whodependsverymuchonthe

buyers’ﬁnancialcapacity,providinghousingforlowincomeand

thepoormightbeunthinkable.Theeffectsofthecrackdownfor

severalrealestatedevelopershavebeendescribedinFrew(2013).

8. Credibilityanalysis

Resultsoftherealestaterespondents’assessmentofexisting

proclamations/regulationspertainingtotherealestatesectorby

theirdegreeofcontributionforthepromotion/facilitationof

pri-vatesectorrealestatedevelopmentisshowninTable1.Theresults

areshownbythefrequencycountofrespondentsonaLikertscale,

whichmeasurestheopinionsoftherealestatedevelopers(RED)in

ordinalterms.Responsesaregiveninascaleof1(indicatinghigh

satisfaction)to5(indicatingahighnegativevalue).Themeanvalue

is3indicatingqualitiesbeingacceptable.

Accordinglytheﬁrstthreerulesi.e.theurbanlease

proclama-tion;theinvestmentproclamationsandrightsofforeignnationals

ofEthiopianoriginontheircountryoforiginarecategorizedas

facil-itative.Thelateroneistakenasthemostfacilitativewithhighest

meanLikertvalueof2.1(onecanrelateittotheemergenceofthe

Diasporagroupasamajorbuyerintherealestatemarket)whilethe

valueaddedtaxproclamationistakenasthemostnon-facilitative

withlowestmeanLikertvalueof3.6.Thefactthatthereisonlyone

non-respondentperregulationintheﬁrstthreeproclamationsand

anaverageof4non-respondentsperregulationinthenon-

facili-tativegroupi.e.#4–#8,magniﬁestheunfavorableattitudetothe

latergroupofrules.Respondentsarealsoaskedinwhichareaofthe

institutionalframeworkfurtherimprovementneededtobemade.

Table2showstheprioritizedlistbasedonweightedaverages.

FromresultsshownintheaboveTable2andasascertainedby

othersurveysandstudies,theinstitutionalreform toavailloan

ﬁnanceisofhighurgencyinthedevelopmentoftherealestate

sectorinAddisAbaba.Overhaulingtheinstitutionalframeworkto

facilitateproductionand supplyof basicbuildingmaterialswas

identiﬁed asthesecond highestpriorityarea. Operationallevel

rulessuchasauthorizationproceduresandstandardstogetherwith

themaster planand land useregulationsarealso identiﬁedas

highpriorityinstitutionalimprovementareas.InTable3realestate

developershaveassessedtheroleofgovernmentintherealestate

development.

AccordingtoTable3,exceptfortheuseoflegitimateviolence,

theuseofpoliceforcetoevictanddemolishinformalsettlements,

whichwastakenasacceptableindicatedbymeanvalueof3,all

mean values indicate an unfavorable assessment toa lesseror

higherdegree.Speciﬁcallytheinstitutionalcapacityofgovernment

intermsofprofessionalmanpower,andthecapacityofgovernment

inissuingappropriate(enforceableandaffordable)rulesand

reg-ulations,thenumberofplotsandfrequencyofpublicauctionfor

landlease,andconducivenessoflegalrulesandregulationsfornew

entrantstojointherealestatesectorneedtobeconcernstodeal

with.

Accordingtothedatapresentedandtheanalysisthatfollowed

theinteractionbetweenthethreeactorsi.e.realestatedevelopers,

citygovernmentandcustomerscanbeinterpretedintermsofalack

ofcommonperceptionoftherulesofthegame.Notonlytheylack

commonperceptionbutthereisachangingviewoftheprovisions

unilaterallybytheenforcergovernmentbodyontheprovisionsof

theinstitutions.Whentheleaseproclamationswereframedbythe

governmenttherewastheintentionofexpandingtherightofthe

leaseholdpossessortoincludetransfer,providesecurityonhisright

ofleasehold,anduseitascapitalcontributiontotheamountofthe

leasepaymentthelesseehasmade.Later,theCommissionforEthics

andAnti-Corruption(2007)expressedtheopinionthat,thiscould

havebeenappliedonlytolandacquiredthroughleaseauctions

andnotbynegotiation.TheresponsefromtheCityGovernmentof

AddisAbaba(2007)admitsthatsincethemainaimofland

distri-butionthroughtheleasesystembynominalpriceistofacilitate

accesstohousing,butthetransferoflandwithoutdevelopingitis

notappropriate.However,thetransferofaleasedplottoathird

partyevenbeforestartingtheconstructionispossible.Referring

tothegovernmentinitiatedcondominiumhousingproclamation

370/1995Art.21.1thedeclarantmayconcludeacontractofsaleof

aunitbeforeoraftertheregistration.

Therearetwoinstitutionsadaptedbytherealestate

develop-ers:oneisrelatedtodevelopmentﬁnancingandtheotherwith

(6)

Table1

REDs’assessmentresultsofexistingproclamationsandregulations.

No Proclamation/Regulation Likertscale1–5 NR Meanvalues

1 2 3 4 5

1 UrbanLeaseproclamation 3 6 2 2 0 1 2.2

2 Investmentproclamation 2 8 2 1 0 1 2.2

3 RightsofforeignnationalsofEthiopianoriginontheircountryoforigin 3 6 4 0 0 1 2.1 4 Regulationtoprovidelandforrealestate(AddisAbabaCityGovernment) 1 3 0 3 2 5 3.2 5 Expropriationoflandholdingsforpublicpurposesandpaymentofcompensationproclamation 0 3 2 5 0 4 3.2

6 Proclamationtoprovideforpropertymortgagedorpledgedwithbanks 0 3 3 0 3 5 3.3

7 Valueaddedtaxproclamation 0 2 3 3 3 3 3.6

8 Incometaxproclamation 1 3 3 4 1 2 3.1

Source:Owncomputationonsurveydata(Oct.2009–Jan.2010).

Table2

PrioritizationforInstitutionalImprovement.

No Areaofinstitutionalframework Weightedaverage

1 Institutionalarrangementfavouringthedevelopmentofcreditfacilitiesandﬁnancial(capital)markets 109 2 Institutionalfacilitationforthedevelopmentofbasicbuildingmaterialslikecementandreinforcementsteelbars 55

3 Citygovernmentauthorisationprocedures&standards 41

4 Masterplanlanduseandheightregulation 40

5 Proceduresforthetransferofownershipfromthedevelopertothenewowners 39

6 Radicalchangesfromgovernmentownershipoflandtofreeholdprivateownership 38

7 Landleaseallocationthroughprivatelanddevelopmentcompanies 32

8 Compensationandvaluationregulations 25

Source:Owncomputationonﬁeldsurveydata(Oct.2009–Jan.2010).

Table3

Realestatedevelopers’assessmentofgovernment’srole.

No Aspect Likertscale NR Mean

Value

1 2 3 4 5

1 Satisfactionontheservice deliveryoftheCity Administration

1 1 7 3 1 1 3.2

2 Conducivenessoflegalrules andregulationsfornew entrantsintherealestate sector

0 1 4 6 2 1 3.7

3 Sufﬁciencyofnumberofplots andfrequencyofpublic auctionforlandlease

0 1 2 5 2 4 3.8

4 Roleofgovernmentin promotinggrowthpartnership intermsofbreadth(quantity) anddepth(strength)

0 1 6 5 1 1 3.5 5 Institutionalenforcement capacityofgovernment:in termsofprofessional manpower 0 1 2 6 3 2 3.9 6 Institutionalenforcement capacityofgovernment:in termsofissuingappropriate (enforceableandaffordable) rulesandregulations

0 0 3 6 2 3 3.9

7 Institutionalenforcement capacityofgovernment:in termsoflegitimateviolence e.g.useofpoliceforcetoevict anddemolishinformal settlements

3 1 3 3 2 2 3.0

Source:Owncomputationonﬁeldsurveydata(Oct.2009–Jan.2010).

periodicpaymentsandbyfacilitatingbankloanfinancehasbecome thestandardpractice.Thebankloanforcustomersis facilitated byrealestatedevelopersfirstbyhavingindividualholding certifi-cateissuedpre-maturelyandthenusingitascollateral.Thereal estatedeveloperprovidesaguaranteefortheloan.Such financ-ingisadaptedfromtheGovernmentinitiatedIntegratedHousing DevelopmentPrograminwhichtheguaranteeisprovidedbythe

government.Theconsequenceofsuchﬁnancingisthatcustomers duetodefaultingdevelopershavedevelopedtheperceptionthat theyarerobbedinbroaddaylight;thusquestioningtheroleof governmentinenforcingcontracts.

Regardingaccesstoland,therealestatedeveloper,aimingat avoidingtheeverincreasingleasepricespeciﬁcallywhileextending anexistingplot,resortedtonegotiatewiththeirneighboringreal

(7)

estatedevelopertopurchasethelandadjoiningtheirpossession. Thiswasconsideredasillegalpracticesinceitistakenas contra-veningtheprovisionsoftheconstitution.Latersuchextensionplots wererepossessedbythegovernment.Therewereinconsistencies andcontradictionsobservedintheformalrulesandtheir enforce-mentmethods.Suchinconsistenciesandloopholesintheformal rulesinclude:

1.ThedecisionoftheLandDevelopmentandAdministrationBoard oftheCityGovernmentontransferofrealestateplotstoathird party,whichallowedthetransferandsaleofpartiallyﬁnished housesandalsotheissuanceofindividuallandholding certiﬁ-cateseveniftheconstructionisnotcompleted(referenceismade toMinutesNo.12/2005oftheLandDevelopmentBoardofthe AddisAbabaCityAdministration(AACA)datedSeptember31st 2005).

2.Theprovisionofincentives whichprovidedlandfreeoflease paymentfordeveloperswhoproposedrealestatedevelopment projectswhichaccommodate50m2_of_condominium_per house-holdtargetinglowincomecustomers.Asaresult,somesmart developerswhoknowhowtoplayaroundwiththerulesofthe gamesubmittedsuchproposalsandtooklandwhichamounted tothousandsofm2_free_of_lease_payment_and_later_on_transferred ittootherdevelopersforsumsofmillionsofBirr.These develop-ersdidnotevenpaythenormallandrentwhichwasapplicable toallformerholdingsorholdingsexemptedfromleasepayment. ThisprovisiononincentiveswaslaterrescindedbyCity Govern-mentRegulationNo.20/2005,regulationtoprovidelandforreal estates.

3.The application of the provision of the proclamation on re-enactmentofurbanlandleaseholding(Art.in13)whichallows anyleasepossessortotransferhisrightofleaseholdorobtaina loanbasedonit,anduseitascapitalcontributiontotheamount oftheleasepaymenthehasmade.However,thiswasnot sup-portedbyclearlydetailedprocedures.Theenforcementofthis righthasfacedresistancebygovernmentownedbanksonthe groundofprioritytorepossessthelandincaseofdefault.Isthat theCityGovernment(theowneroftheland)whohaspriorityor thebank(thelender)upondefaultofthelessee/theborrower? SeeTable4forthesummaryofprovisions/loopholesinthe

for-malinstitutionalframework.

Theconﬂictingissues,accordingtocitygovernmentofﬁcials,

whichcontributedtoinefﬁcientuseofscarceurbanlandandthe

legalprovisionswhichallowtheseactivitiestobeconsideredas

malpracticesbeforethecrackdownonrealestatedevelopersare:

1.Transferringleasedlandtothirdpartywithout/partial

develop-mentmadeonland

2.UrbanLandLeaseHoldingProclamationNo.80/1993Art10/1

(SubjecttoArt.7&9.1):Anypersonwhoacquirestherightto

holdurbanlandonleasemaytransferorpledgesuchrightor

contributeitintheformofasharetotheextenttherentpaid.9

3.Issuanceofindividuallandholdingcertiﬁcate

4.MinutesNo.12/2005oftheLandDevelopmentBoardofAACA

(Sept31st2005):Alesseeoflandleasedforrealestate

devel-opmentcantransferhisrightifhewantsto,evenifthehouse

isnotconstructedandalandholdingcertiﬁcatecouldbeissued

bythesubcityadministrationinthenameofthenewpossessor.

Thisreinforcestheaboveprovisions.However,intheDirective

forLandRequestandAuthorizationConditionsforRealEstate

Developers(Nov.2004),adevelopercanonlyrequestfor

individ-9_Also_the_Re-enactment_urban_lands_lease_holding_Proc._272/2002_Art.13/1

(Sub-jecttoArt.7&4/1).

uallandholdingcertiﬁcateoracommonownershipcertiﬁcatein

caseofcondominiumforthephasehehascompleted(Art.5.7).

5.Landgrantedfreeofleasepaymentimplementation

6.TheDirectiveforLandRequestandAuthorizationConditionsfor

RealEstateDevelopers,Preamble(Nov.2004)makesreference

totheRegulationtobeissuedtoprovidelandforrealestate,

No.20/2005.Despitethefactthatthedateoftheissuanceofthe

regulationisoneyearlater,thedirectivepresumesaregulation

whichallowstograntlandfreeofleasechargefordevelopers

who wanttobe involvedin economicalcondominium

hous-ingprojectswhichallowaccesstohousingspeciﬁcallyforlow

incomepeople.However,bythetimetheregulationwasissued

itprovidednosuchprovisions.

7.Phasingandcontrolofprogress

8.ImplementationDirectiveforLandRequestandAuthorizations

ConditionsforRealEstateDevelopers(Nov.2004):The

direc-tiveinitsArt.2.6deﬁnescommencementofconstructionwhen

thesubstructurework(i.e.foundationandbackﬁll)iscompleted

accordingtothebuildingpermit.Landholdingcertiﬁcateand

buildingpermitwillbeissuedonlyfortheﬁrstphaseandliable

togetthesameforthesecondphaseonlyafterithasbeen

ascer-tainedthatconstructionworkoftheﬁrstphasehascommenced

accordingtothe[submitted]activityschedule(Art.5.3).Ifthe

developerfailstomeettheschedulehewillbeservicedanotice

threemonthsbeforetheexpiryofcompletionofthephaseand

mightlosethelandforthenextphasesifhefailstocommence

theconstruction(Art.5.6).

Regardingtheleaselandpolicy,theassessmentbytherealestate

developersasshownwithaLikertscaleof2.2indicatesacceptance.

Itisclearfromtheabovecomparisonthattherewasanapparent

conﬂictbetweenexpandingmeaningfullytheleaseright(thatit

isnomoreinferiortofreeholdexceptinitstenurebeinglimited

intime)andthedesiretoforbidthetransferoflandthrough

sell-ingorexchangewhich allowingitmightleadtocontravenethe

constitutionoftheFDRE.Therewerealsoconﬂictingprovisions

amongthedifferentlevelsofrules.Suchconﬂictingprovisionswere

observedforexamplebetweentheMinutesNo.12/2005oftheLand

DevelopmentBoardofAACA(Sept.31st2005)and

Implementa-tionDirectiveforLandRequestandAuthorizationConditionsfor

RealEstateDevelopers(Nov.2004).Thevariousprovisionsmade

bythedifferentrulesandregulationsatdifferentlevelswerealso

notconsistentwiththehierarchyoflawsandrules.Mostofthe

detaildirectiveswereissuedbeforethepromulgationofthe

regu-lationtoprovidelandforrealestate,RegulationNo.20/2005ofthe

CityGovernmentofAddisAbaba.Realestatedevelopershavealso

an(unfavorableassessment)ofthemajorityofrulespertainingto

realestatesector.

Therealestate developersalsohaveanunfavorable attitude

towardstheroleofgovernmentininstitutionaldevelopmentand

initsenforcementcapacity.Aftergoingtoconsiderablelengthin

abidingtotheprovisionsoftheformalrules(accommodating),it

seemsthattheyﬁnallyresortedtotheirownarrangementswhen

thepossibilitytoco-producebetterlawswaslacking,resultingin

competingnormsofbehavior.Theearlyandprematureissuanceof

individuallandholdingcertiﬁcatesfacilitatedbythetechnocratsin

theCityAdministrationandusingitasaguaranteetoloan,withthe

realestatedeveloperplayingtheroleofguarantorwasoneofsuch

arrangements.Theinformaldealonadjoininglandforexpansionis

anotherexample.Henceitispossibletosaythattherealestate

projects couldnot havebeen materializedwithoutthese

infor-malarrangements.Therefore,theseinstitutionalarrangementsin

thepartoftherealestatedevelopershavefulﬁlledsomefunction

(8)

Table4

Summaryofperceivedloopholesintheformalinstitutionalframework.

No Action MajorProvisionsofFormalrules/AdministrativeDecisions

Source Provision

1 Transferringleasedlandtothirdparty without/partialdevelopmentmadeonland

Urbanlandleaseholdingproclamation No.80/1993Art.10/1

(SubjecttoArt.7&9.1)Anypersonwhoacquirestheright toholdurbanlandonleasemaytransferorpledgesuch rightorcontributeitintheformofasharetotheextent therentpaid

Re-enactmenturbanlandslease holdingProc.272/2002Art.13/1

(SubjecttoArt.7&4.1)Anyleaseholdpossessormay transfer,orundertakeasuretyonhisrightofleasehold; andhemayalsouseitasacapitalcontributiontothe amountoftheleasepaymenthehasmade. 2 Issuanceofindividuallandholding

certiﬁcate

MinutesNo.12/2005oftheLand DevelopmentBoardofAACA(Sept31st 2005)

Alesseeoflandleasedforrealestatedevelopmentcan transferhisrightifhewantsto,evenifthehouseisnot constructedandalandholdingcertificatecouldbeissued bythesubcityadministrationinthenameofthenew possessor.Thisreinforcestheaboveprovisions.However intheDirectiveforLandRequestandAuthorisation ConditionsforRealEstateDevelopers(Nov.2004),a developercanonlyrequestforindividuallandholding certificateoracommonownershipcertificateincaseof condominiumforthephasehehascompleted(Art.5.7). 3 Landgrantedfreeofleasepayment ImplementationDirectiveforLand

RequestandAuthorisationConditions forRealEstateDevelopers,Preamble (Nov.2004)

MakesreferencetotheRegulationtobeissuedtoprovide landforrealestate,No.20/2005.Despitethefactthatthe dateoftheissuanceoftheregulationisoneyearlater,the directivepresumesaregulationwhichallowstograntland freeofleasechargefordeveloperswhowanttobe involvedineconomicalcondominiumhousingprojects whichallowaccesstohousingspeciﬁcallyforlowincome people.Howeverbythetimetheregulationwasissuedit providednosuchprovisions.

4 Phasingandcontrolofprogress ImplementationDirectiveforLand RequestandAuthorisationConditions forRealEstateDevelopers(Nov.2004)

ThedirectiveinitsArt.2.6definescommencementof constructionwhenthesubstructurework(i.e.foundation andbackfill)iscompletedaccordingtothebuildingpermit issued.Landholdingcertificateandbuildingpermitwillbe issuedonlyforthefirstphaseandliabletogetthesamefor thesecondphaseonlyafterithasbeenascertainedthat constructionworkofthefirstphasehascommenced accordingtothe[submitted]activityschedule(Art.5.3).If thedeveloperfailstomeettheschedulehewillbeserviced anoticethreemonthsbeforetheexpiryofcompletionof thephaseandmightlosethelandforthenextphasesifhe failstocommencetheconstruction(Art.5.6).

Source:Resultofreviewofvariousrulesandregulations.

9. Conclusions

Theprocessoferectingbuildingstoprovidespaceemploysthe following key factors: land for thesite, capital for purchase of thelandandmaterials,labortoerect/constructandmanagethe processandtheentrepreneurialtalentofthepropertydeveloper (Balchinetal.,2000).Ourresearchshowsthatrealestate

develop-ersinthecityofAddisAbabahavebeenoperatingunderwhatina

neo-classicalviewisregardedasanunfavorable,inefﬁcient

institu-tionalenvironment,withinsecure,informalandunclearproperty

rights.However,macro-economicstatisticsoftheEthiopian

econ-omydemonstrateasustained,economicgrowth.Accordingtothe

WorldBankandtheInternationalMonetaryFund(IMF),Ethiopia

wasoneofthefastestgrowingeconomiesintheworld,

register-ingover 10%economicgrowthfrom2004through2012(World

Bank,2014;IMF,2012).Animportantdriverofthisgrowthcame

fromtherealestateindustry.Figuresprovidedinourstudyhere

showthattherealestateandtheconstructionsectoraccounted

forcloseto15%oftheGDPin2008/09.Intheﬁveyearspreceding

2008/9,therealestateandconstructionsectorgrewbyanannual

averageofrespectivelyover14and10%(AccessCapital,2010).A

clearandstablelandtenuresystem,inplacesince1996,hasproven

itsfunctionality.Subsequently,thepersistenceoftheseinstitutions

contributedtotheircredibilityasindicatedintheinterviews.

Whatourresearchdemonstratesisthatinspiteofthe

informal-ityandinsecurityoftheinstitutionalcontext,realestatedevelopers

devisedwaystoaccesscriticalfactorsofproduction.Forinstance,

thiswasthecaseforbankloansbothintermsofprojectﬁnance

fordevelopersand longtermmortgages forbuyers.Real estate

developersfrequentlymadeuseofupfrontﬁnancingthrough

cus-tomers’ advance payments and periodic installment payments

phasedaccording tothe rateof progress of construction work.

Moreover,alsoaccesstolandcouldbesecuredinmanydifferent

ways.Ifanadjoininglandisnotdemarcatedorreservedforreal

estateuse,theleasepricetoexpandanexistingprojectsitetothe

adjoininglandwillbethehighestauctionpriceofthesurrounding

multipliedbyafactorof1.5upto5forplotareasrangingfrom250

to2,500m2_respectively_(Addis_Ababa_City_Government_Regulation

toProvideLandforRealEstate,No.20/2005).

However,ratherthanbeinginvolvedinsuchcostlytransactions

someoftherealestatedeveloperssuccessfullyfoundalternatives.

WiththegreenlightprovidedbytheCityAdministrationthey

man-agedtopurchaselandfromotherrealestatedevelopers.Oftensuch

buyersandsellersgotopublicnotaries(i.e.DocumentRegistration

andActsOfﬁce)andregisterthedeal,whiletheynotnecessarily

turntotheCityAdministrationforauthorizationofthetransfer.

Accordingtosurveyresultspresentedherealittleunderaquarter

ofrespondentsboughtleaserightsdirectlyfromthecity

admin-istration.Closeto65%ofthemhadsomehowemployedinformal

transactions.Itisalsonoteworthythatacertainproportionofthe

(9)

Theabove,however,isnottosaythatcredibilityisequaltoa

situationofnoconﬂictorwithoutsocialcleavages(asarguedby

Hointheintroductionofthisvolume).Undertherapidand

sus-tainedEthiopiangrowthonecanalsowitnessthepotentialsources

ofdiscontentanddistributionalconﬂict.Forone,somerealestate

developersmanagedtomakemoneyoutoflandwithout

develop-ingit.Someofthemmanagedtodeviseaninformalarrangement

forﬁnancing–e.g.throughtheuseofcustomers’ﬁnance.Others

facilitatedbankloansfortheircustomers,partlythrough

employ-inginformalmeans(i.e.theuseofprematurelyissuedindividual

landcertiﬁcates).Findingsalsoshowthatdeveloperswerekeeping

leasedlandplotsfencedforlong,whilesomesubdividedthe

unde-velopedlandandtransferredit(12%ofdeveloperstransferred38ha

oflandbetween2006and09),orusedthelandforunpermitted

use.Morethan65%ofthedevelopersexpandedtheirlandillegally,

amountingto1.4millionm2_,_while_close_to_one_ﬁfth_of_the_slated

landhadbeenusedfortheintendedpurpose.

Itshouldthuscomeasnosurprisethatthestockofhousesbuilt,

andunderconstructionbyprivaterealestatedevelopers

consti-tuteonly14%of thetarget setbytheOfﬁcefor theRevisionof

theAddisAbabaMasterPlan(ORAAMP,2002)i.e.only4162outof

30,000.Inaddition,incompletecontractsandsystematicdefaulting

orbreacheswereconcernsforcustomers.Generalopinionsof

cus-tomersincludedtheneedforacommunalforumwhichincludecity

government,developersandcustomerstoredressdamages;

insti-tutionalarrangementwhichaccommodatetheroleofrealestate

customers’cooperativegroups,theneedforcleardemarcationof

responsibilityamongthethreegroupsininfrastructureprovision.

Insum,thecredibilityofland-basedinstitutionsinAddisAbaba

expressedintermsoftheeconomicfunctionstheyperformedcould

beseenashighafter1996,correspondingwithaperiodofhighand

sustainedeconomicgrowth.Despitetheadverseenvironmentfor

realestatecompaniesandgovernmentcrackdownsonrealestate

developersthe Ethiopian economy continuedgrowing at more

than10%peryear.Insecuretenurerightsdidnotinhibiteconomic

growth.Realestatedeveloperscontinuedtoinvestshowingthat

theinformal,insecurepropertyrightswereconducivetoeconomic

growth.10_The_crackdown_has_made_the_real_estate_developers_lose

someoftheirinvestmentsand theyexpressedresentment over

arbitrarygovernmentinterventions.Thehouseowners,however,

10_The_high_level_committee_set_up_under_the_Prime_Minister_Ofﬁce_to_handle_the

caseofAccessRealEstatehintstothelongtermplansoftheTechnicalCommittee. Itincludespotentialimprovementsfortherealestatesectorincludingratifyingthe newcommercialcode,realestateproclamationandotherrelatedissues.

werepositiveabouttheinterventionoftheFederalGovernment

andeconomicgrowthandinvestmentinhousingjustcontinued.It

isillustrativeofthedouble-sidedfaceofthecredibilityof

institu-tions.

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