The liberalization of the Ethiopian birr has been the talk of the town in recent days, with widespread expectations that its impact on the economy will be profound. A key area of interest is how this will affect the real estate market in Ethiopia. In short, we expect a mixed bag of impacts.
In the short term, we anticipate confusion and uncertainty. Most real estate companies currently price their homes in USD to protect themselves against sudden depreciations in the birr. With the birr depreciating by over 30% on the first day of liberalization, the price of homes in birr has increased correspondingly. This sudden increase is likely to displease buyers and could lead to disputes and litigation.
However, in the long term, assuming the currency stabilizes and the gap with the parallel market narrows, the impact should be positive. Buyers, especially from the diaspora, will be able to send money through legal channels, and real estate companies can price their homes in birr without fear of sudden inflation. This would be beneficial for both buyers and sellers.
In the short term, we expect inflation to skyrocket due to increased costs of imported goods, food items, construction materials, real estate, fuel, and services. To shield themselves from rising inflation, people and businesses may invest in real estate and other physical assets, which could positively impact the real estate market and incentivize builders to start new projects.
Other monetary policy changes accompanying the currency floating could also benefit the real estate market. For example, lifting interest rate caps on deposits and loans would allow banks to lend at more profitable rates, making more funds available to borrowers.
Overall, the new monetary policy and the floating of the birr represent a necessary but challenging move by the government. If implemented correctly, we expect a net positive impact on the real estate market in the long term.
This depreciation has been presented as if the Birr was floating in the market. Floating means there is no intervention by the authorities, but in this case, the depreciation from 58 Birr to 74 Birr was directed by the government. The Ethiopian government was able to fool the IMF saying that the Birr was floated, and it was to be determined by the market. The National Bank of Ethiopia gave directives to the banks on July 29th to start exchanging at 74.74 ETB for $1 USD. Until NBE stops giving directives, the Birr will not find the equilibrium to stay stable. Yes, this news is good for the real estate market as investors will push to invest in the industry to protect their depreciating Birr.