Real Estate Faces Sweeping Regulatory Overhaul

Jun 21 , 2025. By BEZAWIT HULUAGER ( FORTUNE STAFF WRITER )

Officials of the Ministry of Urban & Infrastructure have tabled a draft regulation they believe will restore public trust and tighten fiscal discipline.

Unveiled at the “2025 Ethio Real Estate Summit” on June 14, 2025, at the Sheraton Addis, the draft comes amid a storm of pent-up demand, rising costs, and widespread financing dysfunction. It coincides with the launch of the Ethiopian Real Estate Developers Association (EREDA), now positioning itself as both a stakeholder and a pressure group in the evolving regulatory landscape.

The regulation, if approved, will be a sweeping move to rein in an opaque and underregulated real estate market. It is a presale-tiered finance framework designed to restrain the speculative use of buyer advances.

Developers who secure more than 80pc of project costs from presales will be compelled to provide a 20pc loan guarantee. Those with presale receipts between 50pc and 80pc will be required to present a bank guarantee and commit one-fourth of the total project cost as a disbursed loan.

For underfunded projects below the 50pc mark, the draft imposes the heaviest restrictions, including CFO-backed guarantees and stringent disbursement limits. Only 30pc of the construction funds may be accessed, with half of which is withheld until 20pc of the construction is verified.

The regulation mandates escrow accounts co-managed by developers and buyer representatives, echoing international practices that insulate buyers’ funds from potential misuse. Disbursements tied to construction milestones should be reported to banks within two weeks, while project infractions, ranging from unauthorised presales to misleading marketing, could invite stiff penalties, including fines of up to one million Birr and permanent license revocation.

However,  the rollout is already encountering industry headwinds.

Alemayehu Ketema, president of the newly formed Association and a veteran developer, warned that the proposed financial guarantees risk inflating housing costs rather than curbing developer risk.

He criticised the draft for lacking flexibility in its treatment of fluctuating input costs, VAT computations, and cost pass-throughs in partially completed housing units.

"Without government backing to lower operational costs, especially land lease fees and the price of imported materials, housing will remain unaffordable," Alemayehu told Fortune, on the sidelines of the draft’s presentation at the Summit.

Alemayehu also lobbied for exemptions for smaller-scale projects under 6,000Sqm, along with revised procedures for modifying site maps in near-completed projects.

The Association is not merely pushing back. It is also actively repositioning. Its Secretary General, Kedir Seid, announced plans to establish a headquarters and engage the state-owned Ethiopian Investment Holdings in bulk-import arrangements to lower input prices and sidestep foreign exchange bottlenecks.

Letters of credit, long seen as a choke point, have become a primary industry grievance.

"Bulk importing will give us stronger negotiation power," Alemayehu said.

Officials appear receptive but cautious. Tsegaye Moshe, an advisor at the Ministry, disclosed that eligibility for discounted land leases in Addis Abeba has been relaxed, from a 10,000-unit threshold to 2,500 units, in a bid to attract affordable housing projects. Areas under the Industrial Parks Development Corporation (IPDC) are now obliged to build a minimum of 500 units, and presales for joint and fractional ownership structures have received formal sanction.

A liberalisation move permits foreign investors to own up to 49pc of real estate projects through joint ventures, conditional on capital inflows being denominated in foreign currency. These arrangements are expected to support technology transfer and skills development, while fully compliant domestic developers are expected to benefit from land grants and duty-free status, even outside public-led housing initiatives.

The regulatory recalibration arrives amid a profound urban housing shortfall. Ethiopia’s urban population has surged by 160pc over the past 15 years, with Addis Abeba alone needing nearly 1.2 million housing units. While the World Bank projects a national need for 486,000 homes annually, completions hover around 165,000. Private developers have contributed only 21,000 units over a decade, dwarfed by the government’s condominium scheme, which has registered over one million units but handed over only 384,000.

Soaring prices and limited mortgage access unveil this undersupply.

A one-bedroom condominium now commands 1.1 million Br, while two- to three-bedroom units fetch as high as nine million Birr. Compounding the problem is the exponential growth in construction costs, which are now 43 times higher than they were 25 years ago, far outpacing the fivefold increase in public salaries. With only four percent of private housing financed through formal bank loans, informal credit continues to dominate.

Stakeholders like Meseret Mekonen, CEO of NMC Real Estate, bemoan a credit environment steeped in aversion. Despite delivering 1,000 homes, Meseret failed to secure a two billion Birr loan for an 11.5 billion Br project.

“I approached 10 banks,” she said. “None were confident enough to lend. I’m building entirely using my own resources.”

Others echo her frustration. Zinabu Tebeje of Africon Group dismissed assumptions of 300pc profit margins, attributing pricing pressures to rising input costs rather than developer profiteering.

Zinabu estimated that land and labour alone account for half of a project’s cost structure, further squeezing margins.

"Housing prices have remained stable for the past three years despite rising construction costs," Zinabu said.

In an environment where soft loan facilities are scarce and long-term mortgages remain commercially unviable, many developers are calling for bolder policy intervention. These include subsidised interest rates, free land allocations, and duty-free import status, particularly for developers meeting affordability benchmarks and sustainability metrics.

Yet, regulatory opacity remains a concern. The rules surrounding fractional ownership are still ill-defined, and developers fear double taxation under certain private partnership structures.

For Leul Dereje, a veteran consultant, the proposed presale collection threshold needs a clear definition, especially in a market increasingly oriented toward semi-finished units. He also warned that a looming 10pc fuel price hike could further erode already thin margins.

"Long-term mortgages are unprofitable, and real estate loans are widely abused," he told Fortune, citing banks’ reluctance to extend tenors.

The draft’s strict disciplinary measures, he argued, should be matched with reforms that promote liquidity and clarify contract enforcement.

“The blocked account mandate benefits banks more than builders,” Leul said. “We need fund release schedules better aligned with real construction milestones.”

Still, the Ministry remains firm on its long-term objectives, localising 70pc of construction inputs within a decade and drafting a separate housing finance proclamation to build out the moribund mortgage sector. The broader goal, according to Tsegaye, is to root out speculative excess while enabling a robust, transparent, and scalable housing market.

Debebe Seifu serves as the finance director of the Association and the general manager of Jambo Real Estate & Construction. He wants to see the upcoming regulation to target the legal uncertainties that enable fraud under rigid compliance regimes. He urged more straightforward guidelines on fractional ownership and private partnerships to enable “a level playing field.”

However, as the regulation winds its way through consultations and revisions, the balancing act between protection and productivity has only just begun.

PUBLISHED ON Jun 21,2025 [ VOL 26 , NO 1312]