Authorities have sent last week a long-overdue bill to the Council of Ministers, which regulates the real estate market, troubled by a series of legal wranglings between developers and disgruntled homebuyers. The authorities hope the bill will be instrumental in reducing disputes that often end up at the courts.

Initiated by the former Ministry of Urban Development & Construction, now the Ministry of Urban Development & Infrastructure, the proclamation has been in the making for the past six years.

The lack of a consolidated legal framework has led to a cascade of legal battles between real estate companies and their customers. Among the issues at the forefront is the timely delivery, or lack thereof, of properties. Funds raised from homebuyers are the principal source of financing for real estate developers. It is standard industry practice for homebuyers to make an upfront payment of 15pc of the property's value upon signing preliminary agreements.

The absence of laws governing project delivery has meant that courts have dealt with hundreds of cases of buyers suing developers over delays, seeking to get their money back or receive compensation.

A series of lawsuits filed against Access Real Estate, incorporated over a decade ago with 34 million Br in equity from close to 650 shareholders, is among the better-known examples. Three years after the company went operational, homebuyers demanded refunds due to delayed handover. Close to 140 homebuyers filed a lawsuit in 2013; the litigation went on for five years before judges at the Federal High Court ordered Access Real Estate and its subsidiary, Pacific Link Ethiopia Real Estate Plc, to pay 88.5 million Br in damages.

According to Arba Beyene, a legal expert who worked at the Yeka District Land Management Bureau for three years, there are times when the existing laws governing the real estate market contradict each other.

Ever since pioneers such as Ayat Real Estate began building and transferring houses two decades ago, the market has largely been governed by the country's commercial and building codes. There are around 270 real estate companies operating in Addis Abeba with a combined registered capital of 5.8 billion Br. Close to 13pc of them are foreign-owned.

The bill proposes to make it mandatory for these developers to deposit upfront payments in a closed bank account. The bill states mechanisms for the disbursement of funds deposited in the closed accounts will be determined by a forthcoming regulation, disclosed Tadesse Kebebew, head of housing development & administration at the Ministry.

Arba welcomes the proposition.

"Putting the funds in a closed account and disbursing them for the intended purposes guarantees homebuyers' investment," he told Fortune.

Industry players say it is difficult to grasp the extent to which developers will be affected by this particular requirement.

Noah Real Estate is an industry giant incorporated in 2013. It taps on its sister company, Great Abyssinia Plc, to finance the initial stages of construction projects though it also receives funds collected from homebuyers and loans from commercial banks. Founded by two brothers, Tewedros and Dawit Zerihun, Noah had delivered 4,500 residential and commercial units by the end of 2020.

“The company requires a downpayment after construction progress reaches at least 50pc,” said Rataneh Fasil, an advisor at Noah Real Estate.

Noah requires homebuyers to shell out payments of up to 15pc of the property's value and settle the balance in six subsequent instalments. However, unlike Noah, many other real estate companies depend heavily on the money collected from buyers and the credit they get from banks. Last year, commercial banks disbursed 28.6 billion Br in loans to the construction and housing sector.

For Habtamu Tekle, general manager of East African Real Estate Development Plc, disbursing money from blocked accounts based on construction progress will not be practical. Incorporated 16 years ago, East African Real Estate Development has thus far transferred 104 units to its customers.

"Loans from banks are not easily attained," he said. "Developers depend on the money collected from buyers."