It may be the best time to invest in Addis real estate that we have seen in a long time. The high levels of promotion seen these days is one indicator of that although not the only reason why by any means.
Over the past couple of decades, real estate in Addis Ababa has been characterized most by the consistent march upwards of prices at high rates. In the past 5 years alone, prices have gone up four or five fold confounding those who believe that such increases just cannot continue happening. Except that they consistently do.
In fact, there have only been a few instances where the real estate market here has slowed down or pulled back even moderately for a sustained period of time (months). One of them was during the initial stages of the Covid pandemic. The other is right now. As we have repeatedly said on many occasions, the primary reason for the continued strength of the real estate market despite increasing competition and a sagging economy, is that fundamentally demand remains far higher than supply and will stay that way for decades to come yet. On the other hand, it is possible for the market to encounter soft patches as it is doing so now due to temporary circumstances such as a prevailing liquidity crunch in the overall economy.
If you’re a developer, that’s bad news for you but if you’re a prospective buyer, then this is your chance to beat the market in some measure. But you will have to act fast as a return to the normal mode of operations where prices climb ever higher, is likely to be around the proverbial corner.
Why this is a particularly advantageous time to buy
Most developers (and brokers!) will tell you that the past few months have been quite tough for real estate. Less so for apartments than for freestanding properties (villas, buildings, land) but still enough to bite for builders who rely on presales to fund construction. There are a few primary reasons why this is the case and why this means it may be the best time for buyers to make a purchase:
- Liquidity crunch due to bank loan restrictions means developers are particularly motivated to make deals especially for cash buyers
- Probable pending devaluation in the near future implies that ETB prices will likely be set for significant increases when that happens
- High number of developers going after the same buyers – more competition usually means better opportunities for buyers
While the last point doesn’t seem to be automatically the case when it comes to prices, it is certainly true that many more developers are promoting their products aggressively including holiday discounts and the like. Which one should you go for?
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How to make sense of all the offers out there
For an in depth look at how you should go about shopping for real estate here in general, please review our previously published Buyers Guide to Addis Real Estate – 2023. While prices move too quickly for such information to remain static for too long, there is a good cover of sound strategies you should use in your search. For a really quick look at some of the highlights you should be aware of at this particular time, read on. The greater number of choices in the market means it is now more confusing than ever in order to understand which offerings are real, reliable and present you with the best possible buying option for your requirements.
- Prices range from a low of about $1,300 to over $4,300 per square meter (based on official exchange rates)
- The biggest drivers of price are location (3 times!), level of construction progress and what you’re going to get at the end (semi finished, good quality or high end finishing)
- If an offer is too good to be true, it’s because it usually is. It isn’t possible to build an apartment unit for the amounts some marketers talk about much less profitably sell one in the market. Especially by the time you add land prices, VAT, other taxes and inflation management.
- Even given all the up and coming areas of Addis, Bole is still the king of locations for the best returns on apartments whether you’re talking about resale or rental income
- Selling ‘semi-finished’ units is increasingly common so make sure you know exactly how an apartment will be finished before considering it further
Outside of the above, keep in mind that currency movements are a significant determinant of prices and should a devaluation occur, ETB prices will go up overnight. Secondly, the current liquidity crunch is driven significantly by National Bank of Ethiopia’s restrictions on bank loans in an effort to fight prevailing inflation. Those restrictions are set to end no later than mid year releasing what will be a relative ‘flood’ of liquidity into the market. At which point the current soft patch in the real estate market will probably be conclusively over.
An old adage we repeat many times over has never been truer.
“The best time to buy real estate in Addis was 20 years ago. The second best time is today.”