As a Canadian, I am familiar with the saying “When America sneezes, Canada catches a cold”, which is another way of saying the American economy has a big effect on Canadians and their financial wellbeing. This is to be expected given the physical proximity of the two nations and their heavily integrated economies. This begs the question of how does a downturn in America affect other nations further away? Specifically, of interest to us, how does a downturn in America affect real estate in Ethiopia?
In our previous post we discussed 6 reasons for the rapid rise of real estate prices in Addis Ababa. One of them is investment from the diaspora, where, most are located in America. If there is a real estate downturn, this diaspora group will be negatively affected. It is easy to conclude that this will in turn affect the level of investment they will make in their home country. To put his hypothesis to test we interviewed several Ethiopian-Americans.
Tsion Befekadu started the construction of a 4-story apartment building in the 22 area of Addis Ababa two years ago. Even though the building is nearly complete, she was forced to stop construction recently due to the loss of her job at a high-tech company. “I used to send the equivalent of $6,000 USD every month to fund the construction of the building, which used to be 50% of my salary”, say Tsion. She plans to restart the construction as soon as she finds another job.
Lemma Nigussie, another diaspora from Seattle, Washington has been saving up to buy an apartment in his homeland for the past two years. His plan was to use the saved-up fund as well as additional fund from refinancing his home to purchase his apartment. Unfortunately for him, interest rates have been rising recently making his mortgage payments unaffordable and therefore decided against refinancing. He hopes to keep saving up and pursue his dream of owning an apartment in Ethiopia sometime in the future.
As the above two examples illustrate, the economic conditions of the USA have a direct effect on the real estate market in Ethiopia. For additional proof of this theory, we contacted Samuel Getachew (not his real name) a well-known commission agent in Ethiopia. According to Samuel, interest from the diaspora has collapsed. “I used to get at least 5 inquiries a week from my website. Now, I am lucky if I get 2”. However, Samuel doesn’t think the US economy is entirely to blame. He thinks the lack of bank loan availability in Ethiopia might be a big factor as well. It is well known that local banks provide a special mortgage to the diaspora community, which has been suspended for the last several months, along with other types of loans.