Officials at the Addis Abeba City Administration have rolled back a house valuation increase set in place less than a year ago, hoping to stimulate activities in a sluggish real estate market. The initial upsurge in valuations led to a substantial downturn in customer traffic, as many residents found themselves discouraged by the ensuing hefty fees associated with land transfer services.

The decision articulated through a directive signed by Sisay Getachew, head of the Land Management & Administration Bureau, and Gifawossen Desisa, CEO of the Land Holdings & Registration Agency, marks a pullback in the city's land management and taxation approach.

"We want to alleviate the financial burden on citizens," said a senior city official.

The revised directive issued last week instructs District officials to adopt updated rates that will reduce fees and stamp taxes by as much as 34pc. The adjustment comes in the wake of a comprehensive study conducted three months ago, which attributed a halving in the number of customers seeking service to the increased rates established under the tenure of the Bureau's former head, Kenea Yadeta (PhD), in June last year. Kenea has been appointed since to serve as a national security advisor to Prime Minister Abiy Ahmed (PhD).

Elias Ibrahim, the Agency's senior expert and one of the study's contributors, noted that while the initial revisions did increase revenues by 400 million Br from the same period last year, they also resulted in a substantial rise in customer complaints and a dramatic decline in service uptake. The number of customers visiting the Agency administering 340,000 landholding files plummeted by as much as half, while those going to the Bureau dropped by 36pc after the rates imposed in June.

"It needed to be revised," Elias told Fortune.

According to Elias, the previous rates did not consider the double-digit inflation rates reported by the Ethiopia Statistical Services (ESS), reflecting bloated valuations, with condominium units located on the outskirts valued at 47,769 Br a square metre now dropping to 25,080 Br.

"It's still tough to say whether the new rates reflect market conditions," Elias said.

The land valuation system is crucial for determining property taxes, collateral values, and the transactional value of real estate properties. However, the limitations in obtaining accurate valuations in emerging economies are well-documented. The International Monetary Fund (IMF) discovered the scarcity of published information and the difficulties in accessing transactional data essential for proper valuations.

Ethiopian experts echo these concerns, pointing to the frequent complaints arising from what they describe as poorly structured and unprofessional valuations.

Melkam Ayalew, head of the property evaluation department at Debre Markos University, criticises the existing valuation process, observing that data from the Ethiopian Statistical Services does not accurately reflect the country's economic situation.

"I doubt if data from ESS reflects the country's reality," he told Fortune.

He advocates for establishing an appraisal institute, bringing together experts and academics to develop structured valuation procedures that could be applied nationwide. He emphasised the importance of comprehensive research in setting valuations due to their wide-ranging implications.

"The entire approach is wrong," he said.

Addis Abeba's land valuation system, involving four land grades and 18 subsections with different square meter values, adds to the confusion. The process multiplies these values by the property's total size to determine the six percent transfer fees, capital gain and stamp taxes. The consequent fees can vary significantly, depending on whether the transacting parties' reported value or the Bureau's experts' estimates are higher.

The recent valuations hike markedly impacted the city's revenues from landholding services and title deed transfers.

Cherenet Abebe, head of Bole District's Land Development & Administration Bureau, disclosed that only half of the year's plan was met. The half-year report of Bole District revealed that with 19,000 digitised landholding registrations, the city earned 240 million Br, including the four-month suspension of services.

Despite this, Tesfaye Chane, deputy head of the Bureau, observed that the city had seen increased revenue from fewer title deed transfers this year. He noted a trend where more properties, especially those owned by real estate companies, were sold without conducting a title deed transfer through the Bureau.

"The rates were applied without sufficient public feedback," Tesfaye told Fortune.

In September, the Deputy Head wrote a letter instructing Districts to use older valuation rates for title deeds transfer for inherited landholding deeds, as the number of complaints had markedly increased.

According to people familiar with the issue, the valuation increase's unintended consequences prompt a reevaluation of the policy. Real estate professionals, particularly brokers and agents, have responded positively to the City Administration's decision to revise the valuation rates.

Melat Tesfaye, a real estate agent at Live Ethio Property Management Company, missed out on three potential apartment sales over the past year due to the prohibitive transfer fees.

"Transfer fees and the credit squeeze have made it tough for the housing market," she said.

It is an experience Tegegn Tamrat shared. A General Manager of the 500-member network of brokers under Gugu General Broker Plc, he felt the disproportionate impact of transfer fees on buyers of condominiums and lower-value properties. He observed that buyers of high-end properties are less sensitive to transfer fees, while those who are purchasing property but strapped for cash get pushed off easily.

"More than 15 condominium buyers have backed out on me," Tegegn told Fortune.

PUBLISHED ON Apr 06,2024 [ VOL 25 , NO 1249]

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