Rent Regulation Law Sparks Mixed Reactions

Jun 15 , 2024. By AKSAH ITALO ( FORTUNE STAFF WRITER )

Last week saw the registration of residential properties following the tenancy legislation. With minimum lease lengths, government-controlled rent increases, and taxes on vacant properties introduced, landlords worry about restrictions on evictions and rising costs, while tenants welcome stable rent prices for two years, finds AKSAH ITALO, FORTUNE STAFF WRITER.

On a rainy afternoon last week, property owner Tenaye Zewde, 60, stared in dismay at the new contract she was expected to sign with her tenant. She had come to the wereda 04 Qirkos District offices after hearing about mandatory registrations of rent agreements. She had not thought much of it initially until the official began to explain the requirments.

"I can't request evictions for two years?" she exclaimed.

Tenaye's apprehension stemmed from past experiences with "difficult" tenants she decided to evict. She recalled two sisters who rented her 360Sqm home and fought daily, disrupting her peace of mind.

"I had to kick them out," she told Fortune. "It was impossible to sit with my thoughts."

Tenaye is a retired homeowner. She lives off a 5,000 Br monthly rent income and occasional stipends from her son. Restrictions on raising rent for two years amid rising costs of utilities and essentials have made her apprehensive about the two-month-old law.

"Will the price of Teff also stop increasing?" she said.

Last week saw the re-registration of residential properties with a month deadline, following the tenancy legislation. It introduced two-year minimum lease agreements, state-approved annual rent increases, and additional levies on property taxes for unrented homes. The law outlined the imminent registration of current lease agreements, which began last week, serving as a baseline for future increases.

Confusion and mixed feelings pervaded the housing bureaus of the 119 weredas in the capital as dozens of people signed new contracts daily. Around 4,515 agreements were signed in five days after mandatory registrations began.

Demise Welkaba, housing assistant and team leader at Tenaye's wereda, registered 40 agreements last week. He noted that most people arrived uninformed. He said inadequate human resources were one of the main issues derailing the registration process for the 1,200 condominiums and 480 homes in the jurisdiction.

"It takes a while to explain the rules," he told Fortune.

The proclamation was crafted by officials at the Ministry of Urban & Infrastructure and the Ministry of Justice, with hopes of instating affordable housing by regulating tenant-landlord relationships.

Abera Amente, head of Housing Information & Administration at the Ministry of Urban & Infrastructure, believes the new regulation can slow housing rent increases and decrease "inappropriate" evictions.

"The government had to intervene," he told Fortune.

Abera noted that housing costs have started taking up entire monthly incomes when they should not exceed 30pc of earnings. He also pointed to brokers' roles in fueling rent increases. He believes brokers influence how long tenants stay by luring landlords with exorbitant rent income.

"There is distorted bargaining power," he said.

Officials expect the increased regulation to improve rent tax implementation, decrease the number of informal actors, and enhance dispute resolution between tenants and landlords. However, brokers who profit from the business are not as optimistic.

Degu Tesfa, a broker who takes a 10pc commission from down payments, is anxious about the new rent regulation. He fears brokers who only connect landlords and tenants will be marginalised under the new law.

"Thousands of livelihoods depend on this," Degu told Fortune.

Tenants feel otherwise.

In wereda 15 of the Nifas Silk Laphto District, 34-year-old Mihret Eshetu eagerly awaited her turn at registration with her landlord. The mother of four was ready to sign on to the 15,000 Br a month condominium, hoping to avoid potential rent increases over the next two years.

"At least I will pay the same amount for two years," Mihret told Fortune.

Data from the Ministry of Urban & Infrastructure indicates that 60pc of urbanites live in rented homes out of nearly half a million available units. Average rent hovers around 8,000 Br, with nearly 70,000 housing units remaining vacant.

The rent regulation law discourages homeowners from keeping properties vacant through increased property tax levies, which could go as high as 25pc.

However, loose regulation compounded by inadequate human resources has left a loophole. Some landlords opted to underreport their tenants with hopes of potentially reducing the tax burden.

The law requires all payments to be made digitally for better tracking and mandates a six-month notice before evictions, except in cases of severe property damage, repeated non-payment, or illegal activities. About 886 property owners at the Woreda 15 Revenues Bureau reported their rent income last year, garnering 7.1 million Br. Tsege Ayele, Customer Revenue Coordinator, says rent income is often underreported, leading to decreased tax revenue.

"Accurate collection is nearly impossible," Tsege told Fortune.

Officials are optimistic about improved dynamics between tenants and landlords under the new legal framework.

Kassahun Tadesse, Head of the Woreda 15 Housing Administration Bureau, is overwhelmed by the number of disputes he handles daily between tenants and landlords. He deals with an average of around 400 disputes annually, from unlawful rent hikes to sudden eviction notices across 4,800 condominiums and 400 private homes in Woreda.

"Housing is in constant crisis," Kassahun told Fortune. "It's a giant mess."

Despite intermittent bans on rental fee increases by the city administration following the COVID-19 pandemic, rent prices have remained high. A report by the Center for Affordable Housing Finance in Africa estimated that Ethiopia's housing demand requires nearly 486,000 new urban homes annually. The capital's housing development and administration bureau manages around 350,000 condominiums and 150,000 Qebele homes. It plans to enforce the new law by setting administrative penalties and issuing directives to improve regulatory oversight.

Muleneh Feyisa, deputy head of Housing Development & Administration, says the lack of regulation has disproportionately impacted tenants. He cites international practices showing that rent regulation laws help keep prices in check.

"The fixed-price asset price regulation will further fortify our regulatory capacity," Muluneh told Fortune.

The Ministry is reviewing a regulation to set fixed-price evaluation metrics, laying the foundation for rent laws and property taxes. Meanwhile, plans to broaden the tax base by introducing property taxes, expanded VAT levies, and excise stamps to improve domestic revenue mobilisation are rolling.

Rent tax revenues amounted to 5.2 billion Br last year from 143,900 taxpayers. Heyru Hassen, the Bureau's tax assessment leader, believes the amount should be significantly higher if property owners reported accurate data. He claims many falsify their income to evade taxes.

"We are losing revenues," Heyru told Fortune. He added that assessments are conducted when there's suspicion of false reporting. "They will be forced to pay under our valuations."

Addressing both immediate issues like rent control and long-term solutions like increasing housing availability through financing options is recommended by experts.

Lema Tizazu, a real estate consultant, see transparency issues, lack of regulation, and market disruptions as major causes of the housing crisis. He said previous laws during the pandemic failed to reduce rent costs and only worsened landlord-tenant relationships.

"It all comes down to implementation," Lema told Fortune.

He emphasised that inflationary pressures on homeowners are passed down to tenants and called for adequate legal protection to prevent unlawful evictions and tenant misconduct. Lema pointed out that the real estate developers build around 30,000 homes annually, while state-led projects often take years to materialise despite the capital's growing population. He recommends implementing mortgage financing arrangements as a long-term solution to the housing crisis.

"The underlying issue is a shortage of affordable housing," he said.

PUBLISHED ON Jun 15,2024 [ VOL 25 , NO 1259]

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