Addis Ababa, the bustling capital city of Ethiopia, has been making headlines for the remarkable surge in real estate prices over recent years. Despite a two-year war in the north and ongoing instability in many parts of the country, this upward trajectory has piqued the interest of investors and analysts. In this article, we will delve into the factors contributing to the skyrocketing real estate prices in Addis Ababa and shed light on the dynamics driving this growth
- Population Growth, Security, and Migration
Addis Ababa has experienced a substantial increase in population due to both internal migration and rural-urban migration. The city has become a hub of economic opportunities, attracting people from various parts of the country in search of better livelihoods. The two-year war, as well as the ongoing instability in many parts of the country, has made the capital an oasis of stability and security. Anecdotal examples are rife with stories of wealthy farmers and individuals selling their properties in many regions and moving to Addis Ababa. This population influx has created a surge in housing demand, leading to increased competition and subsequently driving prices higher.
- Economic Growth and Urbanization
Ethiopia’s robust economic growth and rapid urbanization are key drivers of the rising real estate prices in Addis Ababa. The country has been witnessing a steady GDP growth rate, attracting domestic and foreign investments. As a result, the demand for housing and commercial spaces has increased significantly, putting upward pressure on property prices.
- Limited Supply of Land
One of the primary reasons for the soaring real estate prices is the limited supply of land in Addis Ababa. The city’s rapid growth has strained available land resources, resulting in higher land prices. Many say the government’s policy on land ownership puts a limit on the supply of land for real estate development. This scarcity of land intensifies competition among developers, leading to higher property prices.
- Inflation and Currency Woes
Inflation and currency fluctuations can impact real estate prices. Ethiopia has experienced a rapid rise in inflation in recent years averaging over 30% for the first 8 months of 2023, which can erode purchasing power and drive up property prices. Moreover, the Birr has been losing value in the last three years, especially in the parallel market, which currently is double the official rate. This can affect the cost of construction materials, especially finishing materials which are mainly imported, impacting overall development costs and subsequently pushing prices higher.
- Lack of Alternative Investments
For many Ethiopians with discretionary capital, buying real assets such as cars, apartments, and homes are the only ways to get real gain and fight against rising inflation. This could change as the government is in the final stages of rolling out a stock market, giving citizens an alternative avenue for investments. For the time being, limited investment opportunities mean real estate gets the lion’s share of investors’ money, causing prices to rise.
- Diaspora Investments Fueling Real Estate Demand
An additional factor contributing to the surge in real estate prices is the substantial investment from the Ethiopian diaspora. Many Ethiopians who have settled abroad are now investing in properties in Addis Ababa. This trend has gained momentum in recent years, with the diaspora seeing real estate as a secure and profitable investment option. The influx of capital from abroad has further increased the competition in the real estate market and subsequently driven up property prices.
The rapid surge in real estate prices in Addis Ababa can be attributed to a combination of factors, including economic growth, urbanization, security challenges in other regions, limited land supply, foreign investment, and the substantial involvement of the Ethiopian diaspora. As the demand for housing and commercial spaces continues to rise, it is important for investors and policymakers to monitor the market closely and ensure sustainable growth. By understanding the underlying factors driving the price surge, investors can make informed decisions while navigating the dynamic and evolving real estate landscape in Addis Ababa.