News Analysis: Skyrocketing land prices soar to unprecedented heights, leaving homebuyers, investors astounded

Addis Abeba – The recent land lease auction in Addis Abeba has caused quite a stir as property prices skyrocketed to unimaginable heights. A square meter of land in the city was sold at a mind-boggling 187 times the threshold price set by municipal authorities. The news has sent shock waves throughout the capital, leaving residents and investors astounded by the exorbitant prices.

The plot with the highest price, reaching 414,963 birr per square meter, is located in Woreda 09 of Arada District. Ibrahim Buser, the buyer, agreed to pay 40% of the total payment of 170 million birr upfront for the 410 square meters of land. However, despite this, it was not the highest-bid property. Nabil Fuad shocked everyone with an offer of 695,000 birr per square meter for a plot in the Sar Bet area of Kirkos District. Nonetheless, Nibyou Dawed emerged as the winner for the plot by offering 401,000 birr per square meter and agreeing to pay the full amount upfront, as published in the city’s ‘Addis Lesan‘ newspaper.

As Addis Abeba undergoes rapid urbanization and economic growth, the demand for land has surged to unprecedented levels, leading to intense competition among buyers. The exorbitant prices raise concerns about the accessibility and affordability of land within the city, thereby questioning sustainability and equitable development. For instance, even the plot in the Lemi Kura district, which received the lowest offer of 20,000 birr per square meter in the latest auction, is 27 times higher than the minimum price.

In the past 17 years, Akalu Tassew has worked as a land and house broker in the Sarbet neighborhood. He says while some of the offers during the auctioning process were surprisingly high, the majority of bids were in line with the current market prices. Akalu is currently trying to sell two 3,000-square-meter plots in the Bisrate Gebriel and Mexico areas on behalf of his clients. He is asking for approximately 300 million birr for both sites, though the price is open to negotiation. This amounts to roughly 100,000 birr per square meter.

Akalu believes that the offers made during the auction process will influence the pricing of the secondary market, where land leasing rights are traded. He mentioned that he may adjust the asking price based on consultations with his clients.

This trend showcases the eagerness to buy land in Ethiopia, despite the arbitrary price hikes. In some cases, even vacant plots are valued higher than developed properties. Currently, real estate developers are selling apartments in the city at an average price of 85,000 birr ($1,545) per square meter. On the other hand, empty plots can cost over 400,000 birr ($7,272) per square meter. This surge in land prices extends beyond the capital city, as even cities like Hawassa and Bahir Dar witness land sales at rates as high as 40,000 birr per square meter.

Land is considered a real asset, and its scarcity as a finite and tangible resource contributes to its value. Consequently, investing in real estate, especially land, remains popular worldwide due to its stability even in varying economic conditions. Frew Mengistu (PhD), an associate professor of urban policy at Addis Abeba University, offers a unique perspective on Ethiopia’s land market, saying it is unlike anything that is observed globally. According to him, the existing market distortion within the nation is responsible for the exorbitant prices experienced. Frew argues that prices naturally rise when the demand for land exceeds the supply—an economic principle that works every time and anywhere.

It has been more than five years since the Addis Abeba City Administration discontinued regular land lease auctions in an effort to combat illicit transfers and speculation. Prior to 2018, the administration had conducted 29 rounds of land lease auctions. However, the 30th round of bidding, scheduled for 2021, was canceled by Takele Uma, a former deputy mayor of the capital, shortly after participants had started purchasing bid documents.

With a limited number of plots available for lease, the price of land in the city has been steadily increasing. Frew emphasized the need for the administration to transfer land through transparent and efficient auction processes.

As part of the government’s anti-corruption campaign, the Addis Abeba police reported in November 2022 that 37 individuals accused of transferring land illegally had been detained. However, five senior members of the Lemi Kura District’s land management office implicated in the case were still at large. Two months after the crackdown, Addis Abeba’s mayor, Adanech Abiebie, acknowledged that the administration was aware of the broader issue at the national level. She expressed concern that not only regular brokers but also government workers, who are supposed to serve the public interest, have been extensively involved in these illicit land dealings as an easy way to accumulate wealth.

Last year, the administration, led by Mayor Adanech, announced its plan to offer land through an auction system, making plots available on the market. In the latest land auction, a total of 14.3 hectares of land were divided into 297 plots for potential buyers in the city. The majority of these plots were located in the districts of Lemi Kura and Akaki Kality, which are primarily characterized by farmland and limited infrastructure.

The auctioned plots have been designated for various purposes, including residential, commercial, and mixed-business use. The floor price for level one plots situated in the city center has been set at 2,213 birr per square meter, while outside the city limits, the starting price for a plot of land stands at 748 birr.

The supply is not the only reason for the soaring price. The quantity and regularity of land transfers by the government are another factor. “Buyers often make unreasonable offers because they are unsure of when and how much land will be available in the future,” observed Frew.

Akalu says that the price of a plot of land might occasionally increase by more than 10% within a month. “The hike is strongly correlated with inflation,” said the broker.

Soaring inflation is undoubtedly a factor in the equation, according to the expert. The annual average inflation rate has been galloping upward since January 2019, hitting 33.7% last year. According to the Central Statistical Service, year-on-year inflation reached 30.8% last May as compared to the one observed in May 2022.

Despite the existence of numerous contributing factors, Frew emphasizes that the imbalance between supply and demand stands out as one of the primary causes of the distorted market. To support his assertion, the expert cites the fact that 21,636 bid documents were purchased over a 10-day period during the latest auction as proof of the increase in demand.

In order to reach a more reasonable pricing level, Frew argues the market ought to be sufficiently competitive. “The government may think about using a public-private partnership to avail more land to the public.”

While briefing the Prosperity Party’s central committee members three weeks ago, Prime Minister Abiy Ahmed (PhD) hinted at the necessity of liberalizing the urban land holding system as a means to address the land issue and to make more land available to the public. AS