Developing the real estate market in Addis Ababa — GIFT Real Estate

Interview with Gebreyesus Igata, Owner and General Manager of GIFT Real Estate Company

Can you give us your overview of the real estate market in Ethiopia and what is your outlook for 2014 and onward?

Regarding the real estate in Ethiopia, there were initially about 215 real estate companies registered in Ethiopia. There are now 50 of them operating in the market and competing with each other. So the market is available for home buyers as long as the price is competitive. The price of housing in Ethiopia is a bit higher due to traditional methods of construction. We haven’t been yet to introduce modern construction materials and methods because the real estate industry started just a few years ago. You could say it just started nine or ten years ago, following the shift towards free market economy.

The construction is being done in traditional ways and so it takes time. The construction material is traditional cement stone, the basic concrete material. We are not using sophisticated industrial material so that makes it a little expensive. Clients need urgent delivery and want the house as soon as possible. As a result, the price must be very competitive. For that reason, private real estate has not been selling as much as it could. There is one thing we cannot deny: the demand is very huge. However due to the delivery delays and the high price, the clients cannot buy as often as they would like.

We are getting ourselves ready and we are searching for new technology to improve construction in the future. We don’t want to continue as usual; we want to introduce new technology in the future – cost-saving methods, fast delivery time, etc. Our outlook is to improve construction in the future in Ethiopia. We know there is a market. The population is growing; as you know, the population of this country is the second largest in Africa. So, we are getting ready to introduce new methods of construction technology to be able to cater for the demand.

Can you just give us a brief introduction to GIFT Real Estate and some of the big, successful projects that you have done?

We run as a group of companies. First of all, I would like to tell you we have the GIFT Group of companies. There are four companies and the first one is coming now. We are in real estate, construction, manufacturing and trading. The real estate company was established nine years ago. We acquired 160,000 square meters of land from the government and we signed a 99 year lease on that land. We have three projects in the eastern part of Addis Ababa. It is about 10 or 12 kilometers away from the center. We have three different projects: we are developing villa houses, townhouses, and different types of apartment houses. We construct and deliver to the house owners and we plan to deliver many new, different types of houses in the future to come. As I mentioned, we acquired from the government 160,000 square meters of land so I can say 70% of that land is already developed. We are planning to develop the remaining land within three years’ time. We are also getting ready to acquire some other land.

Can you tell us about the other companies in the group?

The holding company is called the GIFT Trading Company and it was established 23 years ago. That company is engaged in export, local distribution, international tenders and local tenders. We import different types of building materials, as well as consumer goods, and we distribute them locally. We also have a distribution outlet in the regional states as well as in Addis Ababa. We also participate in the bigger government tenders and then supply different types of material to the government. So this is the trading company or the holding company.

Another company is in the manufacturing industry, producing nails, wires and different bolts and nuts. We are developing a plan to expand the factory and we have submitted our plan to the bank.

The other company is a construction company. The real estate company is doing marketing and promotion and sales. The construction company, called GIFT Construction Company, is a mother company which is the one that constructs GIFT Real Estate houses. So a contract is signed between GIFT Real Estate and GIFT Construction. GIFT Construction is the one that develops the GIFT Real Estate houses. GIFT Real Estate is the one that promotes sales and monitors the quality of the houses.

Do you have any working relationships with mortgage banks in terms of issuing mortgages to some of your customers or is everything done on a cash basis?

Yes we do have some relationships with mortgage banks but for our own purpose – for bridge financing from the local mortgage banks. We haven’t used this so far for our clients; we are in the process of making this available for our clients.

So when you have a development, do people just pay you cash?

The system here is that they see the plot of land, they agree on the contract, we sign the contract, and they pay in advance on an installment basis. We construct houses on an installment basis progressively. When the house progresses, they pay the money in five installments. For example, if the contract we sign to complete the house is for completion in 1 year and 6 months, within that period the client can pay the money.

So there are no types of mortgages for customers available in the market?

Some customers arrange this themselves. The mortgage banks need collateral and sometimes after the house is 50% complete, they can use the house as collateral and get their own loan themselves. But as I said, we are now arranging to be able to do this for our clients but we haven’t been able to offer this up to this time. It is in process.

Is there any participation in the real estate market here by foreign investors? Are foreign investors buying in to the market?

I recently heard about a foreign partner that signed with a private company in a joint venture in order to acquire land from the government. Apart from that, I haven’t heard. I know there are foreign developers coming and looking at things. Sooner or later they will come and it is high time because the demand is there.

Is the government playing any role in the promotion of affordable housing for the middle income tier?

Yes, they definitely are. The government announced they are developing affordable housing in Ethiopia. There are already 900,000 people registered for this. The government has been building affordable housing for the people for the last five to seven years. They are still working on this as far as I know.

What are some of the challenges facing the real estate market in Ethiopia?

There are actually challenges everywhere and we have challenges here too. One is the availability of material – you cannot get the quality or quantity. There is also a need for skilled and unskilled laborers. These are some of the challenges. You can see there is a lot of construction going on and everybody needs skilled and unskilled laborers, and the company needs material. There are no particular factories here for producing construction material. The supply is limited and some of the finishing materials are coming from elsewhere. Also, local sandstone, gravel and crushed stone are locally available but there is a shortage because construction is booming. Government and private companies are building and many factories are being built. There are developments in every direction so construction material is in high demand. Material availability is a challenge, both in quantity and quality.

What role does GIFT Real Estate play in terms of social responsibility? Are you giving back to the community and in what form?

Yes, we definitely do this. We make money from the community and we have to give back to the community. It is very important. We are engaged in different community development. There are some cities when they make inside lane roads, we help people to pay school fees, health care fees etc. If government governments decide to build something, we are eager to participate and help them. We are invited and we participate. We raise money for the Red Cross; we give them some donations. Recently the Red Cross wanted to build a very big high-rise building for its head office; we have given them one apartment and they sold it for ten million Birr. We also help in case of natural disasters; we are highly involved.

As the head of the group and the company, where do you see GIFT Group or GIFT Real Estate within the next five years?

This group of companies has got its own plan. There are board members and we have developed a five year strategy. Each company has its own five year plan as well. Every year there is an incremental step for each plan. When the strategic plan is done, we will develop another strategic plan. We work systematically so every company has general managers, department managers, the management group and board members to create a strategy and evaluate the strategy for how well it works. We evaluate our strategy quarterly, semi-annually and yearly. Within five years, we hope to maybe double where we are now.

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