Land and Real Property Economics in Ethiopia

TABLE OF CONTENTS

1. NATURE OF RIGHTS TO LAND AND REAL PROPERTY IN ETHIOPIA

2. SUPPLY OF LAND IN ETHIOPIA

3. DEMAND OF LAND IN ETHIOPIA

4. REFERENCES

1. NATURE OF RIGHTS TO LAND AND REAL PROPERTY IN ETHIOPIA

1.1 Definition and Nature of Real Property Development

Real estate development, or property development, is a business process, encompassing activities that range from the renovation and re-lease of existing buildings to the purchase of raw land and the sale of developed land or parcels to others.

Real estate development is the continual reconfiguration of the built environment to meet various needs of space of society. This means just finishing of physical construction of a building is only a single phase of development. It has to be reconfigured/ reorganized. Reconfiguration or rearrangement should be continued.

Therefore, real estate development is not a simple matter even if it is adequately financed, all serviced are provided, all approvals are given and developed space is quickly sold.

Real estate development is ideas that come to fruition and use the brick and mortar put in place by the development team (Stapleton, 1986).

At the end of a property development, a value is realized by providing usable space over the time with certain associated services needed so as consumers can enjoy the expected benefits of the building spaces. A real estate product that may be a new building or a redeveloped one is a result of the coordinated efforts of many allied professionals (Mikeet. al., 1995).

“Land is a common property of the nations, nationalities and peoples of Ethiopia and shall not be subject to sale or to other means of exchange”.

1.2 Historical Overview of Land and real Property Rights’ Nature in Ethiopia

Historically, land issues have been an important factor in Ethiopia’s political and economic development. The pre-1974imperialregime supported afeudalagrarian structure, with major inequities based on ethnic identity and social class. Exploitation of the landless peasant-tenants supported the nobility, government bureaucracy, military, and church (Ayano 2009, 10). However, there were regional differences in the level of inequality. In general, the population in Amhara and Tigray with their communal or kinship land regimes had (relatively) more egalitarian access to land in, than the population in the South. Yet, even within these systems, there were significant inequities (Woldemariam 2006). As in many other countries, Ethiopia’s land-related tensions were among the key sources of social conflict and political unrest in the early 1970s, culminating in the military coup of 1974 that overthrew the imperial regime.

TheDerggovernment that emerged from the coup abolished the feudal system of land ownership. In 1975 the new government declared that all land, whether rural or urban, isstate property, and organized agriculture along Marxist structures of collective farming and production quotas with a strict top-down approach to land-use planning.

The government that came into power in 1991 eliminated the Marxist aspects of land use and, at the same time, maintained the notion that land isstate propertyto which Ethiopians have an entitlement of access via usufruct rights.Article 40 (3) of the 1995constitution states: “The right to ownership of rural and urban land, as well as of all natural resources, is exclusively vested in the State and in the peoples of Ethiopia.

2. SUPPLY OF LAND IN ETHIOPIA

Supply is a fundamental economic concept that describes the total amount of specific good or service that is available to consumer. Supply can relate to the amount available at a specific price or the amount available across a range of price if displayed on a graph.

In real estate influenced by the prices of real estate at a given time; the major things that change the supply curve is that price of good and service that determine the motivation to supply the goods or services.

Supply Side Factors In Land Real Property Development

Price:- If the price of houses increases, then there is an increase in supply of houses. Because seller can then sell houses at higher rates thus, making more profit.

Cost of A Building A House:- If the cost of building house increase, then there is a net decrease in supply of houses. as this would mean a large initial investment for the builder.

Government Regulation:- If government regulation is inclined (motivating to build or to sell the house) towards building/selling of houses then there is a net increase in supply of houses. This would mean lower cost from the perspectives of a builder/selling of houses. If the government have suitable rule and regulation regarding on real estate development, the supply of housing increase, so it is depending on the policy and regulation performance.

Current Uses and Status of Land

The supply of land for the rural and urban sectors is determined by nature – availability, topography, soil fertility – and by the volume and quality of prior investments, including structures. Regulatory constraints affect both the demand and supply of land. According to different previous studies suggest that “land and real estate assets account for 45 to 75 percent of wealth in developing countries, thus playing a unique dual role of serving as inputs into production activities in as well as consumption by households and commercial entities of residential and commercial real estate and infrastructural services”. The Ethiopian economy remains dominated by agriculture. In recent years, this traditional sector has accounted for about 68% of employment and 34% of GDP, but is making up a decreasing fraction of output over time. It is widely accepted that Ethiopia's agricultural growth over the past decades has been central to the economic growth of the country. Official numbers indicate that the value of agricultural production in Ethiopia has more than doubled since 2000 (FAO, 2018). Growth has been attributed to expansion of land and labor use, as well as to the increased use of modern inputs and extension services. Almost all individuals that run activities have applied to acquire land whether they are from the micro-small-scale activities or big real estate developers or the one who needs to establish a small shop, etc. The actual fact is that all activities need a place (i.e. land), which is a scarce resource . In the past three decades, the supply of land and housing construction did not correspond to the housing needs. Therefore, there is a mismatch between housing supply and housing need by the alarming growing population, 5.5% per annum in the city. This has brought squatting to the inner city and informal acquisition of plots. Land for dwelling house construction has often been allocated far away (approximately 10 km) from the nearest service where basic infrastructure is difficult to find. Therefore, either the dwellers prefer to go to the informal land provider close to the developed area or they leave the land idle for waiting while waiting for infrastructure.

Sustainability of the land supply for multi developmental stakeholders including the private sector has not been performed successfully due to financial constraints. This is because the major portion of the land has been supplied with priority by municipalities to government projects such as housing, roads, telecom, water, health, education, etc. without any payment, even for the compensation and infrastructure development. From budget perspective, land supply is not financially sustainable for city administrations since they are not compensated by the government for the expenditures they incur. From the total area of land supplied per year, only a small proportion of it is allocated to the market for transfer through auction to individual and business users. Such a strategy without a clear association of cost to the beneficiaries (public infrastructure and condominium houses) has created an imbalance between demand and supply of urban land. Though the argument from the government side is social welfare development, which is acknowledged in this study, the consequential effect of this strategy has been significant and caused cities incapable of satisfying the serviced land demand and supply for the market.

Despite a lot of initiatives to manage the land market by developing different levels of legislation, the market is still mismanaged and inefficient due to absence of modern management. Local governments are the main suppliers of urban developed land, and they rarely satisfy the demands of residents, investors and real-estate developers. Most of the time, land with relevant infrastructure supply is very low and a large portion is delivered without the supply of main utilities. Besides this, the compensation of land when reclaimed from the farmers is low relative to what they can “sell illegally” which becomes the main source of resistance around the hinterland of cities in Ethiopia.

Importance of Locations

Location is the most important determinants of real property value. Location is the major factors for the development of real estate because neighborhood quality is more important than the size of the house.

The perceived quality of location is also determined in part by access to public transportation, the quality of the schools, etc. Many cities are actively pursuing improvement of their ―built environments‖ in order to make their neighborhoods more appealing. At the end of the chapter a very short summery of the overall topic is required. In addition, in most cases it is recommended that chapters need to have exercises that can measure student‘s comprehension level.

Land is not only a basic factor of production and an important space carrier, but also a key tool to control the development of both urban and rural economy. While the phenomenon of land participation in regulation exists generally in china, the theory of supporting regulation and the effect of regulation are still unclear. The study intends to analyses the relationship between locations of construction land supply and regional economic growth. By constructing indexes of constructions land supply structure and a theoretical model based on Solow Model, we try to explore the relationship between the location of the construction land supply and economic growth in the area of project. The finding of previous research shows the location of construction land supply significantly impact economic growth .to realize sustainability urban development , construction land location differences of its economic driving effects and actively promote the development of stock construction land not only in the case study area but also other rapidly developing cities.

Future Trends: Impact of Population on Supply and Use of Land

Over population resulted in land resource scarcity, fragmentation of farm plots, and ecological degradation such as increasing emission, soil erosion, deforestation, and the overuses of natural resources. Producing adequate food for a rapidly growing population is a prime challenge for development.

3. DEMAND OF LAND IN ETHIOPIA

The demand for land stock derives first from the need for agricultural goods and housing, which is essentially a demand for land services. Secondly, it arises from the desire for infrastructure and environment-related projects, a demand often independent of land prices as it is determined by government objectives and other concerns. Thirdly, it takes the form of an asset demand in view of the financial asset characteristics of the land stock.

The role of land is, therefore, very vast which is as a hedge against inflation, as collateral for credit operations, and as a component of the diversification strategies of economic agent is subsumed in this third type of demand. The supply of land for the rural and urban sectors is determined by nature – availability, topography, soil fertility – and by the volume and quality of prior investments, including structures. Regulatory constraints affect both the demand and supply of land. According to this study, different studies suggest that “land and real estate assets account for 45 to 75 percent of wealth in developing countries, thus playing a unique dual role of serving as inputs into production activities in as well as consumption by households and commercial entities of residential and commercial real estate and infrastructural services”.

The Ethiopian economy remains dominated by agriculture. In recent years, this traditional sector has accounted for about 68% of employment and 34% of GDP, but is making up a decreasing fraction of output over time. It is widely accepted that Ethiopia's agricultural growth over the past decades has been central to the economic growth of the country. Official numbers indicate that the value of agricultural production in Ethiopia has more than doubled since 2000. Growth has been attributed to expansion of land and labor use, as well as to the increased use of modern inputs and extension services.

Almost all individuals that run activities have applied to acquire land whether they are from the micro-small-scale activities or big real estate developers or the one who needs to establish a small shop, etc. The actual fact is that all activities need a place (i.e. land), which is a scarce resource.

Demand is a function of two factors: the desire for a particular good or service, and the ability to pay for it. The higher either one of these factors goes, the greater the demand for the good or service.

Desire

The point is that when desire for homeownership increases, the demand curve shifts to the right as more people are willing to buy at any given price, or the same number of folks are willing to pay more for the same property. (Either view is an accurate depiction.)

Ability to Pay

We have only covered the desire factor, and the demand curve is equally influenced by the aggregate ability to pay for real estate. The ability to pay for real estate is driven by three factors: Assets (what you have for a down payment or the assets that change to money through mortgage), Income (how much you can afford to pay each month), and the availability and cost of financing

The demand for land stock derives first from the need for agricultural goods and housing, which is essentially a demand for land services. Secondly, it arises from the desire for infrastructure and environment-related projects, a demand often independent of land prices as it is determined by government objectives and other concerns. Thirdly, it takes the form of an asset demand in view of the financial asset characteristics of the land stock.

Demand Side Factors Affecting Real Property Development Industry

Affordability:- Rising incomes mean that people are able to afford to spend more on housing. During periods of economic growth, demand for houses tends to rise. Also, demand for housing tends to be a luxury good. So a rise in income causes a bigger % rise in demand.

Confidence:- Demand for houses depends on consumer confidence. In particular, it depends on people‘s confidence about the future of the economy and housing market.

Interest Rate:- Interest rates play a big factor in determining the cost of mortgage interest payment.

Population:-A A very important factors, it is not just the number of people but demographic changes. E.g. growing number of single people living alone has led to increasing demand for houses.

Mortgage Availability:- Mortgage is based on the household‘s income generated or assets, taking credit from bank with the agreement of monthly mortgage repayment for specific time for the purpose of buying houses.

Income Level and Economic Growth:- Rising incomes enable people to afford bigger mortgages and encourages demand for housing. In boom times, demand for housing grows rapidly suggesting demand for houses are income elastic.

Cost of Renting:- If the cost of renting rises, then households will make greater efforts to try and buy housing as buying a house through mortgage becomes relatively cheaper.

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