Is there a bubble in Ethiopian property market? The answer is quite simple. Yes there is! The sky rocketing land price in Ethiopia, especially in Addis Ababa, is no longer a front-page story. The maximum-recorded lease price for a plot per square meter in Addis Ababa is USD 15,500 (307,000 birr). Presently, the average lease price of land per square meter for plots in the center of the city is USD 3,636 (80,000 birr).
A recently released report by Global Property Guide that ranks the world’s most expensive cities in terms of buying price of properties (not land) puts Geneva as the fifth most expensive city to purchase a property (real estate) with an average price of USD 15,250 per square meter. With over 13 million people, Tokyo is the most densely populated city in the world and also one of the top ten most expensive cities. Real estate prices in Tokyo are close to USD 10,000 per square meter.
According to some researchers, the maximum land lease price per square meter in Ethiopia, especially in Addis Ababa, should by no means be greater than or equal to the price of land per square meter of the most developed and more economically active metropolises such as Geneva, Tokyo and London. Hence, they argue that the unjustifiable price increase of land and housing in Addis Ababa is the act of speculators.
This price hike is making Addis Ababa one of the most expensive cities in Sub-Saharan Africa.
Apartment price per square meter in some countries
Some researchers argue that the main causes for the price increase include the government’s land policy (which is a lease system), poor government land administration and information system, and absence of a central and modern property market in Ethiopia. These loopholes create fertile ground for speculators.
If these problems are not resolved soon, the following subsequent macroeconomic slump could happen in Ethiopia as a result of the price bubbles bursting:
- Episodes of financial instability that have damaging effects on the economy.
- Financial crises, which lead to lower growth, higher unemployment and higher government debt.
- Broadening of the gap between the rich and poor.
Finally, if the Ethiopian government is not going to find a solution for the land price bubble, the economic success that has been registered for the past decade will become a thing of the past.
Dawit Tadesse is a graduate of Cranfield and Addis Ababa University, specializing in Accounting and Finance and Economics of Security Studies.
