Explaining Ethiopian Soaring Real Estate and Property Prices By Seid Hassan- Murray State University

February 2nd, 2016 Print Print Email Email


Admittedly, in all countries of the world, Ethiopia included, the reasons behind rising property prices could be many. In the Ethiopian case, these factors include, among others, demand for and supply of real (estate) assets, rising population and urbanization, the existence of a large number of tenants working for donor communities (NGOs) and multinational institutions, huge influx of money that the diaspora community sends back home (remittances) that largely is poured onto the housing and real estate markets. This commentary, however, focuses on government policy-driven (infrastructure and service sector-focused) and the corruption fueled aspect of the fast-rising real estate and related property prices.

A Short Context

For generations, land has been a pivotal resource and power in Ethiopia and this power is exclusively in the hands of the government and cadre elites who can expropriate land at will. It has been a highly lucrative sector for both the central government, party-affiliated parastatals, top-party elites and individuals and businesses with deep political connections. The lucrative business does not only emanate from a mere possession of land and real estate but also from the shoddy deals and access to lucrative bank loans.

Corruption as a Major Cause for the Roaring Real Estate Prices

The ruling party effectively owns all of the country’s land, coupled with the “ownership” of the commanding heights of the countries productive resources by the numerous party-owned conglomerates subsumed under EFFORT. Currently, a significant portion of popular anger coming out of the private investors happens to be directed towards the state owned military industrial complex (Metals & Engineering Corp. -MetEC) as a result of its deep entrenchment with corruption. Thanks to the monopolistic ownership of both the rural and urban land by the state, the rising real estate market and property prices have been vital sources for both the central government and corrupt cadre elites. The monopolistic ownership of land by local officials is also manifested by self-dealing (the sellers and appraisers being one and the same) which in turn has led to skyrocketing real estate and rental prices, making Addis Ababa one of the most expensive cities in the world to buy property. From time to time, the same local officials are observed in raiding and bulldozing of entire villages (in and around the capital and elsewhere), uprooting thousands of residents at time. A greater proportion of the evictions are in the form of forced methods, even though a limited of them seem to be “induced” ones. Local corrupt cadres and officials then sell the confiscated real estate properties piece-by-piece at inflated prices to both local brokers and real estate developers (“housing cooperatives”), thereby making unbelievably high level profits. As captors of the lands, city administrators and members of parliament at times toss around land proclamations until they get their royalties and rents from land grabbers. Using their power to access cheap bank loans, the highly connected real estate developers and brokers convert the same illegally demolished neighborhoods to hotels, condominiums, shopping centers, etc. Local officials, many of them municipal appointees get their cut both in kind and monetary rewards.

In its chapter dealing with the land sector corruption, the World Bank (Diagnosing Corruption in Ethiopia…) tells us that the corruption conundrum is manifested in the form of “officials and intermediaries collect[ing] multiple transaction and service fees” (page 303), through the use of “…weak policy and legal framework and poor systems to implement existing policies and laws… fraudulent actions to allocate land to themselves in both urban and rural areas and to housing associations and developers in urban areas” (page 305), by fraudulently forging land documents and illegally selling record rights (page 303), creating opportunities for officials for profiteering (page 307), etc.

What I am describing here are the same folks that the late Prime Minister Zenawi, in his February and March 2012 parliamentary addresses called “elephant owners of corruption,” “thieves within the government” and “robbers within the people,” analogous to eating one’s body like a wounded hyena. These are the same cadres and real estate owners that, again, the late Zenawi, in one of his public addresses which included many private business owners, chastised as corrupt. Raising his voice in a threatening manner, he told his audience that he happened to know that many of them own several real estate properties, registered under their names, their spouses, their small children and even under their dogs’ names. These are the same folks, in mid-2011, that Mr. Zenawi accused stashing $2 billion in overseas banks and/or real estate assets. These are the same cadres that government communication spokesman Getachew Reda, now tells us are involved in ‘massive corruption,” albeit stating the obvious in his attempt to mollify the discontented and implicate the wavering and betraying cadres and perhaps preparing the ground to purge them out of party leadership.

The land and real estate property capture has a vicious circle: Administrators conspire which part of city land to be taken away and which village to be demolished; brokers connect party hacks and local administrators with real estate developers (so-called housing cooperatives) and members of the diaspora; political party-owned firms and party loyalists, in collaboration with banks (whose large portion of business activity is in the real-estate sector), allow their folks to borrow funds at negative real interest rates. Each one of these interconnected groups get their cuts, while those evicted, after crying foul for a while, just “disappear!”

The Diaspora and Remittances Exacerbate the Corruption Conundrum

One can list a number factors, both positive and negative (theoretical and practical) regarding the role of remittances (i.e. funds sent by the diaspora community back home). Here, we focus only on the issue at hand- illustrating some of the observed factors for the rapidly rising property values in Addis Ababa and, to some extent, other regional cities.

Mystified observers repeatedly ask me why property values in Ethiopia not only are already so high but absurdly skyrocket on a continuous basis. Their next question is: “Isn’t this phenomenon a bubble and when do you think it will burst?” Then, they wonder why the Ethiopian Diaspora is so oblivious to corruption and why the same folks are largely in real estate investment (and not in establishing sustainable factories, extraction of mineral deposits, provision of electricity and telephone services, etc.). They are mystified because, under normal circumstances, real estate investors are supposed to weigh in the returns and risks associated with land-related investments (evaluate the fair-cash-on-cash flow of their investments). That is, the returns of the cash-flow rights to the acquired real estate (expected rate of return) should be one of the major considerations. Secondly, in addition to seriously weighing in the riskiness of an illiquid asset (i.e., real-estate), one has to be concerned with getting involved with the ongoing corruption conundrum. Such a calculation should reveal to them the future flows that the buildings and land are expected to generate, enabling them to compare the returns and risks of their real estate related investments to alternative ones- i.e., liquid financial assets such as stocks, bonds, and CDs which are available to them in the countries they migrated into. Thirdly, in an attempt to minimize the cost associated with attending the acquired properties, proximity to the property must be factored in. Under normal conditions, real estate prices and investments are also driven by the cost of credit.

As it turns out, what is transpiring in Ethiopia happens to be anything but normal or rational. For one, a good portion of the money “invested,” particularly the portion spent on residential structures is ill-gotten, thereby making real estate the home of laundered cash and as a means to cleanse money collected illegitimately. Secondly, the door for other avenues of investment requiring private entrepreneurial endeavors are closed by the Developmental State economic mantra and practice. This fact makes investing in real estate the only option available to citizens. Consider also the real estate “investment” made by a good portion of the diaspora: As indicated above, one of the factors that the “investor” should seriously consider is minimizing the amount of time and money that he/she would spend for attending the property. Our anecdotal but repeated observations of diaspora “investor” behavior (which includes several close friends and relatives) indicate that such thoughts never occur to them. They never consider the thousands of dollars they repeatedly spend every time they travel to the country to attend “their” property, pay taxes and submit their fingerprints. If this is not enough, many of these same folks end up being defrauded by the government agencies (a cunning plan also applied in many parts of Sub-Saharan Africa, such as Zimbabwe), by their investment advisors, real estate brokers and even the sellers. The scamming of home buyers by the real estate developers is indeed an astoundingly common practice in the country. Even though many of them regretted after the fact, my anecdotal findings and extensive review of the popular version of the literature indicate that a good deal of the diaspora’s engagement in residential real estate investment is largely for its sentimental values, not financial gains. Even though a select few have found ways to enrich themselves, most happen to be building/acquiring residential (“retirement”) structures that they will never use (nor would it make any sense to do so).

Role of Negative Interest Rates and Rising Inflation Rates

Two other factors which have played a big role in driving up real estate and property values are negative real interest rates and rising inflation rates (both of the ruling party’s own making). In addition to discouraging saving, negative real interest rates encourage borrowing and, as a result, have been a means of transferring income from savers to borrowers. As it turns out, many of the borrowers happen to be political party-owned companies and those involved in real estate and related illiquid assets. Rising inflation rates also encourage speculation and the desires for holding commodities and precious metals. Since neither commodities and precious metals nor stocks are available in the Ethiopian case, speculation is largely on land and related assets. Real estate holdings also serve as hedges against rising inflation. For, inflation in general does not erode the (intrinsic) values of real assets such as real estate and precious metals. In general, the prices of precious metals and resale values as well as the rental rates of properties rise in tandem under such circumstances. At a time of rising inflation, land, bricks and mortar are considered safe investments.

Cornered Market

Monopoly position of land ownership by the government has enabled government officials and party-affiliated individuals to effectively corner the real estate market. The cornering emanates not only from the monopolistic access and ownership of land, but also from low interest loans and the funneling of diaspora funds to a certain investment groups who happen to be loyal to the ruling party. As it turns out, such a cornering activity also involves transnational diasporic finance. It is an open secret that, when it comes to the Ethiopian situation, nearly all major remittance intermediary business agencies are either directly or indirectly owned by the ruling party, elite cadres and persons with close ties with the government, which funnel the diaspora funds to kin and party affiliated investments back home. As practiced, the local authorities evict citizens out their lands, forcing them to leave their country of birth to seek for employment abroad. This act is a concerted policy of the government to sell people to enhance remittance flows. Their collaborators residing outside of the country funnel remittances towards certain preferred routs which are owned by individuals and firms highly connected to the ruling party. As Professor Minga Negash and myself have illustrated elsewhere, a large portion of the human traffickers happen to be individuals who have close ties with the ruling party. The process is effectively a vicious circle: The government policies directly or indirectly force citizens to leave their country in drones; human traffickers, a good portion of them licensed and very close to the ruling party, facilitate the migration process; business intermediaries facilitate and direct remittances to favored coffers- all designed to remain in power and make money. This disdainful and mafia type of practice has been revealed by the practices of Ethiopian authorities and consulate representatives during 165,000 plus Ethiopian migrants from Saudi Arabia and the aftermath of slaughtered Ethiopian Christians by Libyan religious fanatics. When outraged Ethiopians turned the government sanctioned demonstrations for protest against the killings of Ethiopian Christians in Libya, the ruling party used force against the outraged demonstrators, the beatings resulting in several injuries). It is interesting to note that the failure of the ruling party to demand the Saudi authorities to be accountable for their mistreatment and slaughtering of Ethiopian migrants even seem to confounded its loyal supporters and apologists.


Economic activity under the current Ethiopian government has largely focused on infrastructure building and the service sector (which include real estate development). Building infrastructure is indeed vital, especially for a developing country like Ethiopia. Unfortunately, undue emphasis on the aforementioned sectors not only will be unable to lead to prosperity, this writer believes that the policy has led to macroeconomic imbalances and is the cause for the ongoing skyrocketing real estate and property prices. The rise in property values and rental rates have resulted in the pricing and driving out of a huge majority of residents of Addis Ababa and other major regional cities. No doubt these have resulted in the transfer of wealth from the poor to the rich, thereby increasing the income gaps and public discontents. It is imperative, therefore, for the ruling party to address these serious issues. This writer believes the solution lies in designing land and urban policies, which should include changing the constitution that dramatically affects the ownership of land.

  1. Moges
  2. Bantu
    | #2

    Before 25 years they came to Menelik palace with only gun and no other expertise.Then they control the money supply and the land.They print cheap money or phony money with out bound to control the economy.Now they control every thing.They displaced Ethiopians in urban and rural.
    If they stay in power longer for another 5 or 10 0r 20 years Ethiopians will be out of their mother land.We are in colony under TPLF and Tigre peoples.For TPLF land and phony money is the only means to control the economy.

  3. Freedom
    | #3

    Excellent article:

    What a messed up economy in general and a disastrous REAL STATE MONOPOLY in particular. The TPLF and its cadre are running the mother of all PONZI SCHEMES. It is very sad to see my Addis Abeba turn into THE HOMELESS CAPITAL FO THE WORLD.

    My recommendation:

    1. Expedite the removal of TPLF and company from power AS SOON AS POSSIBLE. Time is of the essence. Our people are being robbed, looted, raped, killed, starved and deprived of the basic necessities of life. These requires the full participation of all PATRIOTIC ETHIOPIANS ALL OVER THE GLOBE. The diaspora folks can best be utilized as CASH COW for the heroic opposition force under GINBOT 7 LEADERSHIP, as cyber warriors by fully participating in social media like this one in order to disseminate the DEMOCRATIC OPPOSITION FORCE MESSAGE and counter the TPLF and company propaganda and as intellectuals participate in the writing of new constitution (CURRENT FAKE CONSTITUTION BELONGS IN THE TOILET), land laws, banking rules, business rule, health care issue, foreign affair issues etc etc. Under the new democratic government there will be freedom, NO CORRUPTION WHATSOEVER, level playing field, meritocracy (only the best will rise), real JOBS JOBS and JOBS so that our people do not have to die in the ocean/desert or get killed by criminals in their attempt to reach other countries in search of dignity, food, shelter and/or freedom.

    2. All DIASPORA should immediately stop buying land/house in ETHIOPIA.

    3. Foreign residents should SUE the MAFIA/CRIMINAL/TERRORIST TPLF government for over charging them for years by a factor of about 50-100x. It is better if it is a class action suit. The amount of money the mafia gov will have to cough up will be upwards of 5-10 billion dollar.

  4. Moges
    | #4

    Only symptoms written.
    The cause is as follows.

    Wednesday, 03 February 2016 07:24

    As we always say, ‘fractional reserve banking/fiat currency is the worst non-violent crime of the millennium.’ As a dominant, dreaded and despised enterprise of the modern world system, banking must be continuously reexamined and reconstructed, given its tendency to devastate ordinary life within days. The so-called Great Financial Crisis (GFC) has thrown some light on the potential damage deep financial crisis can cause. Iceland, Ireland, Portugal, Spain, Cyprus, Greece, Italy, etc., of the OECD (rich countries) and the commodity exporting countries of Russia, Brazil, Venezuela, Argentina, South Africa, etc., are all facing difficulties, mostly because of protracted mispricing of goods and services, compliment of phony money based financial system. Even China is now in the thickest of this problem! African countries, once again, are looking at impending disasters!
    Banks have always been core members of the ‘deep state’. For our purpose, we have defined the prevailing ‘deep state’ of the usually strong states (but not exclusively confined to them) as the military-intelligence-industrial-banking-media-complex, which run the show behind the elected formal state! As a result, it has become difficult to have democratic and enlightened debates on the existing global financial architecture, even in the universities. That is why we have chosen the phrase ‘indoctrination institutions’ to describe the current orientation/status of these once centers of learning, teaching and reflection. Nonetheless, because of the gross inequity of the global system, there is now a critical number of the global sheeple (human mass) willing to take matters in its own hand, particularly in regards to the fraudulent creation of phony money that is substantively funneled to the global oligarchs at the expense of the global masses. The rise of alternative currencies, (crypto-currencies, coupons, points, etc.) as means of exchange is just one option that is gaining traction. We sincerely advise the power that be (TPTB) to drastically change its ways before the s@#$ starts hitting the fan!
    May be it is wise to listen to more versed/prominent personalities than us when it comes to modern banking. Here is the former governor of the Bank of England and president of the Rothschild Bank. ‘The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin. Bankers own the Earth. Take it away from them but leave them the power to create money, and with a flick of a pen, they will create enough money to buy it back again. Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. But if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.” Sir Josiah Stamp, the second richest man in UK (1927). ‘The creation of fiat currency should be a government monopoly.’ Milton Friedman. J.P. Morgan’s words to Congress in 1912: “Gold is money. Everything else is credit.” ‘There can be few fields of human endeavor in which history counts for so little as in the world of finance. Past experience, to the extent that it is part of memory at all, is dismissed as the primitive refuge of those who do not have insight to appreciate the incredible wonders of the present’. John Kenneth Galbraith. Let us contextualize the fraudulent system’s operation by referencing it to our own country.
    Ethiopia’s working stiff (entrepreneurs and workers) are dropping out like flies from genuine economic activities opening up more space to the ascending feudal lords (rent seekers), mostly comprising of Ethiopia’s newly minted financial and landed aristocracy! This fused aristocracy is now at the forefront of Ethiopia’s fledging land lordism! We will look at one of the most ridiculous sector that is absolutely wallowing in pyramidal scheme. Ethiopia’s private banks now pay dividend, ranging from 20% to 90% per annum! Theoretically, banks are presumed to be intermediaries, i.e., they are supposed to mobilize finance capital to lend out to the productive sector. But Ethiopia’s productive sector that is supposed to utilize banks’ credit/loan cannot make a return of 20 to 90% on a yearly basis. Then how are banks to pay such incredible dividends, when their supposed profit largely comes from interests and other fees, which are regulated and modest, if not nominal? Most importantly, this sends a dangerous signal to a would be business operator. Why engage in difficult and risky productive activities when banking (which is protected by the state, at least to a large extent) is giving such a return? We can only say; ‘Eat your heart out Charles Ponzi’!
    In a system that is overarched by greed, the desire to beat regulation can be overwhelming to many and overpowering to the chronically selfish. Ethiopia’s (current) lucrative banking sector is closed to outsiders, including the Ethiopian diaspora. Of course, given such returns, (which hardly exist in normal business operations anywhere) all and sundry are eager to get in the game. To this end, ‘next to kin’ or fronting lackeys are employed to access this lucrative business or financial rent, to use a more appropriate phrase. Such regulation beating arrangements are quite common in other sectors as well, supposedly restricted to the poor natives, including retail, hospitality (small hotels/motels/guesthouses, restaurants, etc.) land, real estate, import, etc. Phony money, imported or not, is systemically and aggressively disfranchising the settled from their homes, businesses, etc. Frightening disempowerment and unfair uprooting of citizens has become the order of the day. Don’t forget; ‘printing money out of thin air does not increase wealth, it only increases claims on existing wealth.’ (Charles Hugh Smith) This is exactly how Ethiopians are getting dispossessed, under various pretexts, like privatization, open tenders/competition, blah, blah. The ultimate objective behind these charades is to allow oligarchs (both domestic & foreign) secure long-term stream of income and real assets, by utilizing phony/bank money (only available to them, via cross shareholding of banks, etc.) before the jig is up. This is dispossession by stealth par excellence! See Ellen’s article next column, Whitney’s, Bonner’s and Smiths’ on page 38, 39 and 46.
    Sooner than later, popular reaction against such fraud and injustice is bound to appear on the horizon, with a potential to undermine peace and stability in this diverse country (think Somalia, Libya, even Nigeria, etc.)! Unfortunately, a good portion of Ethiopia’s intellectual elite seems to have lost its honesty and professional integrity, all to the ‘good life’ facilitated by easy & unearned money. It is not inclined to critiquing the ongoing criminal accumulation and its potential consequences. In fact, it seems to have become part and parcel of the wholesome scheming; materially, morally, spiritually, emotionally and culturally. Under all sorts of ploys, the connected few (not excluding degenerate top officials) are looting as if there is no tomorrow! But we believe tomorrow, when it comes (coming days, months, years, etc.) might not be all that forgiving! As the young Spanish leader recently proved: “Populism Rises from Failures of the Elite.” Pablo Iglesias (PODEMOS.) Good Day!


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