The Addis Ababa Housing Development and Administration Bureau is nearing completion of a seven-month old deal with the China Civil Engineering Construction Corporation (CCECC) to construct 1,876 housing units under the first public-private partnership (PPP) model.
The corporation agreed to raise USD 500 million from its own sources, construct the 1,876 units, and transfer the houses to the bureau. The bureau then transfers the houses to affording house seekers.
This consensus was reached seven months ago. However, the project was delayed due to two major points of contention.
The first is the extremely high cost of the final housing prices stipulated by the corporation. Basically, the cost of housing units under the bureau ranges between 7,000 and 11,000 birr per square meter. The CCECC wanted to sell the houses for much higher prices.
“The price the CCECC asked is many times higher than the average price offered by the city housing administration. It is a serious figure, and we are negotiating to reduce it. The houses are for middle-income people. So the price must be in that range. They studied the market and presented the price document to us,” said Paulos Tamrat, Alternative Housing Development and Supply director at Addis Ababa Housing Development Bureau.
The negotiation on the price is ongoing and not decided, according to Paulos.
“If the developer reduces the price to a range affordable by the house-seekers in Ethiopia, we are ready to sign the agreement and launch the project immediately. The company has a good track record. It is a state firm with good project management and technological capacity. So the biggest issue now is the price issue,” Paulos said.
The bureau is currently negotiating the price by offering incentive packages for the construction company, including tax breaks and duty-free import of construction materials, among others.
The second major problem is the currency convertibility issue. The CCECC asked for the money to be paid in dollars, while the city administration could not comply with the terms. The bureau is asking to give-back 30 percent of the total project cost in dollars and settle the rest of the 70 percent in birr for now. The 70 percent will be converted to dollars, probably in the next decade, including the accruing interest rates.
Paulos says the dollar issue is dire in Ethiopia now and every foreign investor is requesting convertibility. “But the government has no idea how much forex to give. This is why many foreign projects are failing due to convertibility issues. This requires macroeconomic level decisions.”
The city administration previously provided 3.5 hectares of land in the Teklehaimanot area. But currently, a new replacement land of 3.2 hectares around Megenagna is allotted for the CCECC. The initial plan was to finalize the housing projects in three years, under two phases. But a new timeframe has been decided to finalize the project in one and a half years’ time.
“Now we are reaching an agreement with CCECC. We will sign the agreement probably in a couple of weeks,” Paulos added.
The agreement must be feasible both for the city administration and the developer according to another official The Reporter spoke to.
“To whom the houses will be transferred is also another issue. Will semi-finished houses or completely finalized houses be delivered? How much will the price for each be?”
The CCECC participated in developing various industrial parks in Ethiopia, including Dire Dawa industrial park. The Chinese giant has been part of various mega projects in Ethiopia since 2012. But it is the first time the company has engaged in housing project development in its Ethiopia portfolio.
The city administration resorted to private developers under the PPP modality, after the existing condos and other housing schemes proved nascent to delivering on the huge housing demand in the capital. While the combined housing supply under the condo schemes, joint ventures, and private real estate remains far below 100,000 units per year, there are over a million house seekers registered and on the waiting list, some of them saving at the state bank.
“We are also preparing additional patches of land so that the CCECC can embark on additional housing projects. We have visited four new sites recently,” added Paulos.