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PROJECT PROPOSAL FOR REAL-ESTATE DEVELOPMENT

PROJECT TO BE IMPLEMENTED IN OROMIA REGIONAL STATE,
SHAGER KOYE_FACHE SUB_CITY

PROMOTER: ROZA MOHAMMED GUHAR

OCT 2023

Finfinne, Ethiopia

Table Of Contents

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I. Executive Summary.......................................................................................................................5
1. Introduction....................................................................................................................................6
1.1.General Overview................................................................................................................6
1.2.Project Justification.............................................................................................................8
1.3.Back Ground Of Real Estate Development.......................................................................11
2. Location Of The Project..............................................................................................................15
3.1.Location.............................................................................................................................15
3.2.Location Map Of The Area...............................................................................................15
3.3.Infrastructure Availability.................................................................................................16
3. The Project...................................................................................................................................16
3.1. Description Of The Project...................................................................................................16
3.2. General Objectifies................................................................................................................16
3.3. Specific Objectives................................................................................................................17
4. The Market Study........................................................................................................................17
4.1.General Considerations.....................................................................................................17
4.2.The Role Of Real Estate Sector To The Ethiopian Economy.........................................18
4.3.Demand And Supply Analysis..........................................................................................23
5. Real Estate Production, Technology and Engineering................................................................29
5.1. Product Mix...........................................................................................................................29
5.2. Production Process................................................................................................................30
5.3. Production Technology.........................................................................................................31
5.4. Sources Of Technology.........................................................................................................31
6. Raw Materials Inputs And Utilities.............................................................................................31
7.1. Raw Materials And Inputs.....................................................................................................31
7.2. Utilities..................................................................................................................................32
7. Production Programme and Capacity Utilization........................................................................32
7.1. Production Programme..........................................................................................................32
7.2. Capacity Utilization...............................................................................................................32
8. Organization and Management....................................................................................................33
8.1. Man Power Requirements With Qualifications....................................................................33
8.2. Organizational Structure.......................................................................................................34

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9. Financial Requirment and Analysis.............................................................................................36
A. Total Investment Cost...........................................................................................................36
1) Fixed Investment Cost.......................................................................................................37
2) Initial Working Capital......................................................................................................39
3) Sources Of Finance...........................................................................................................39
4) Operating Expense............................................................................................................40
B. Financial Analysis and Statements........................................................................................42
1) Underlying Assumption....................................................................................................42
2) Annual Production and Total Sales...................................................................................43
3) Projected Income Statements............................................................................................44
4) Projected Cash Flow Statements.......................................................................................45
5) Balance Sheet (Beginning Of Operation)..........................................................................46
1) Cost Benefit Analysis........................................................................................................47
10. Environmental Impact Assessment..............................................................................................47
11. Project Implementation Schedule and Land Use Plan.................................................................48
A. Project Implementation Schedule..........................................................................................48
B. Land Use Plan.......................................................................................................................49

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Abstract
The projects envisage is initiated by Ethiopian Diaspora planned to invest on real estate
Development and other investment Projects over 400,000,000Million birr. The specific objectives of
this project are to construct more than 300 to 500 housing units by over 400,000,000.00 Ethiopian
Birr. The land required for this project will be between 2 hectares and more as per the specific
existing reality and availability of land by Koye Fache sub-city. The promoter of this project is also
owners, the buyers and the sellers of the real estate developed by this company. The Real Estates
developed by this company is Modern, Affordable, and Environmental Friendly and accommodated
with all necessary facilities Like Green areas, Social services like school, Health centers, transport
services, Market center, Recreation Areas and the like. The project also considers indigenous people
either by involving in the development company in different job opportunity as owner of the project,
and or in employment, and in every aspects of the project implementation and benefits. On the top
of this the project also employment opportunity, Means of Technology transfer and Modernization,
income generation for the government in the form of tax, provision of social and economic Services.

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 I. EXECUTIVE SUMMARY
1. Project Name Real east Development with all categories and related Facilities
2. Project Promoter ROZA MOHAMMED
3. Nationality Diaspora British
4. Project location Oromia Regional State, Shager koye fache sub-city
5. Project The Real-estate and Related Development and with the following category;
Composition 1. G+1, 200M2 with Service room, green area and parking
2. G+1, 500 M2 with Service room, green area and parking
3. G+2 and G+3, 500M2 with Service room, green area and parking
4. Commercial center, Banks, Bars and Restaurants etc.
5. Social services, Health centers, pharmacy. Schools, Common Sport fields,
Children Play Ground, etc.
6. Green area and Gardening, parking area, Roads etc.
7. Premises Required 5hectares

6. Total Investment Br. 400,000,000from this amount 30 %( Br. 120,000,000.00) from owner equity
Cost and 70 %( Br. 280,000,000.00) from bank loan.
7. Employment A total of 1500 Employee in which 500 permanently 1000 Temporary workers
Opportunity will be employed out of these 500 Skilled 500 Sami skilled 500 unskilled
Laborer.
8. Social and Provide better house, Solve house problem for the High, Middle and Low
Economic Benefit income earner of the society, employment opportunities, generation of income,
stimulates town Cultural Heritage town, Geographically, economy and benefits
local people.
9. Justification for Real Estate is Profitable, High Employment Opportunity, Higher Capital
Project Change Invested, Higher Demand, Return on Investment and Government Revenue:
VAT and Income Tax, Modern Technology, Environmentally Friendly, etc. than
the Previous Resort Project.
10. Technology It will brought and Transfer Modern housing and Construction Technology for
Transfer our Country and the local People and Engineer.

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1. INTRODUCTION
1.1. General Overview
In our everyday life, we use Real Estate in some manner; we make use of Real Estate resources to
provide shelter, comfort, convenience, and privacy, a place of work, recreational facilities and
related services. In an estimate Real Estate represent more than 40% of the national wealth (Hyote
Weime, Principles of Real Estate). The basic component of realty is not only the surface of the earth
but also the property rights and interests that attach to ownership of realty. Thus the Real Estate
means acquirement of land and building which is called inherent right. The men who are owner,
user, maker, financer or marketer of the property have some rights to the property.
Real estate development has got a momentum in the recent years in Ethiopia. During the Eighties,
Eastern Housing was the pioneer who started the apartment development concept to mass people and
later many real estate companies has grown to meet the growing demand of apartments.
Urbanization being twentieth century demographic phenomena, more and more people are changing
residence from rural to urban areas. Studies have shown that increasing proportion of the population
prefer large cities, big towns and a nearby administrative capitals. The growth of an urban center can
take place in different forms: by growth of the existing urban localities, by classification of cities
(from rural to urban) and annexations of new territory to existing cities. The other main factor which
determines the growth of an urban center is the demographic change i.e. natural increase (difference
between crude birth rate and crude death rate) and migration effect.

In one of the world watch publication: Beyond Malthus it is clearly stated that “During the early
stages of industrialization, urbanization was largely in response to the pull of employment
opportunities in cities. More recently, however, the movement from countryside to city has been
more the result of rural push than of urban pull. It is a reflection of the lack of opportunity in the
countryside as already small plots of land are divided and then divided again with each passing
generation, until they become so small that people can no longer make a living from them.
This unprecedented urbanization unparalleled with the growth of the economy needs some
intervention to harmonize the difference. Be it through natural increase or migration effect or area
expansion, growth of an urban center definitely demands infrastructural developments. This includes
roads, schools, hospitals, health centers, housing, water supply, sanitation, waste disposal, light…etc.

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In Ethiopia, especially in urban areas, shortage of housing is one of the major problems that call for
immediate action.
The majority of houses in Ethiopia are below qualitative standard and lack adequate space. The
extent of provision for water supply, electricity, and drainage is very minimal. The lives and health
of people living in housing of such poor quality and with such inadequate provision for water,
sanitation, and drainage are under continuous threat. Howeverin the developing world in general
and in least developed countries like Ethiopia in particular the number of people living in such
conditions is increasing every year. Studies have shown that without major improvements in housing
markets and in the expansion and improved provision of infrastructure and service, it is inevitable
that the population living in such environmental expand very rapidly.
The rapidly changing real estate landscape in koye Fache sub-city and the surrounding towns is one
of the more visible aspects of the extended period of growth recently experienced in Ethiopia. From
large residential developments sprouting at the city outskirts to rising new office complexes and
government-built condominiums being constructed in center city locations, there is no shortage of
new facilities to demonstrate change in this area. Of course, despite all this new construction
activity, Addis Ababa like most developing country capitals retains large swathes of informal and
slum-like settlements scattered across the city. Still, over the past decade, the sub-set of city dwellers
that are now part of the formal real estate market has expanded from a small base and is likely to do
so for the foreseeable future.

The government has recognized the participation of private sectors in construction leasing which
could play its role in satisfying of the growing demand .the strategy is designed to eradicate poverty
or encouraging investment because of this fact the former planned economic policy was replaced
with a market-based economy. There is increasing private sector participation in real estate
development.

Housing has direct correlation with productivity of individuals, households and community. thus it
affects economic development at various levels .it has also impact on socio-cultural aspects of urban
population housing industry creates jobs for unskilled and semiskilled labor, creates markets for
building materials, equipment and machineries.

Broadly defined, real estate refers to land and everything made permanently a part thereof, and the
nature and extent of one’s interest there in (Encarta Reference Library, 2006). Real estate may be

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acquired, owned and conveyed (or transferred) by any legal entity as determined and defined by law.
This entity may take the form of individuals, businesses and nonprofit corporations.

The real estate market, on the other hand, is the market that encompasses all transactions, which
involve dealings in rights or interests in land and buildings (UN ECE REAG, 2000). A dealing here
is used to refer to the transfer of a right temporarily or permanently from one part to another in
return for a consideration, usually money.

As one sub-sector of construction sector, the real-estate sector in Ethiopia increasing in dynamic
rate. However, the sector has many obstacles, including the high cost of construction materials, the
slow and limited supply of serviced plots, and delays in the implementation of the lease system in
plot allocation.
More investment in this area is required to meet the high demand. In this regard, the Government of
Ethiopia has conducive investment policies and regulations to attract the private sectors involvement
in the economic development through the various investment and business endeavors including real-
estate development.

To this effect the owner of the real-estate project promoter planned to invest in koye Fache sub-city
administration. This pre-feasibility study project study is undertaken to check the market, technical
and financial feasibility of this project. The output of the study is very encouraging for the owner to
establish the project in the aforementioned town.

The owners of the project have great interest and determination to commence the project. Hence, he
expects to get the necessary support from the regional and town administration to realize the project.

PROMOTER’S PROFILE

This project is Sole propertaship of Living House Development with

“Roza mohammed
Roza Mohammed real stete development established in 2016 G.C. The company has involved from
solo building projects into a strong Constriction and development Company. The company had been
undertaken many challenging projects and accumulated skills, know-how and experiences in

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design and build solutions, project management services, building trades and related engineering
works.

 Our project management and execution philosophy are:

 Create detail schedule and resources plan to meet client’s project objective

• Communicate clearly with all project stakeholders,

• Track project progress and fine-tune deviations,
• Supervise closely on quality of work done,
• Complete and commission the project on time
Roza Mohammed has founded a highly qualified technical team to manage enable it
to consistently deliver construction projects that are in compliance with quality and
other requirements of its clients.
1.3. OBJECTIVES

1.3.1. GENERAL OBJECTIVE

The prime or main objective of the project is to increase its percentage of income by
providing and supplying variety residential apartments. Which means to generate profit
for the promoter Real state development over the invested capital by providing quality
and affordable houses.

1.3.2. SOCIAL OBJECTIVES

The proposed project will have the following social objectives:-
 To add housing delivery of the city;/
 To diversify residential apartments for society;
 To increase accessibility of house delivery;
 To supply rental proposed Rooms at reasonable price to the town and surrounding residents;
 To create linkage with service and living houses end users/consumers;
 To create job opportunities specifically for the local people and the citizen;
 Efficient use of resources;
 To add to the view/image of the city;

1.3.3. ECONOMIC OBJECTIVES

The proposed project will have the following economic objectives:-
 To initiate housing development Investors;
 To generate income for both Private & Government;
 To minimize land abuse;
 Efficient use of resources;
 To use the available investment land effectively;

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 1.4. VALUES
The promoter’s values will be:
 A high level of quality in its housing;
 Customer respect and satisfaction;
 Maintaining and growing its networks to generate new and repeat sales;
 Improving efficiencies of services;
 Build brand image and brand equity;
Significant investments in research and development

1.5. KEY SUCCESS AND RISK

FACTORS Success Factors

Roza mohammed Success Factors

 There has been a continuous economic growth, which created good demand for shelter/houses;
 Population growth;
 There is a good investment environment; and both Regional and Federal governments have
availed different attractive environment for investment;
There is improvement in service delivery, infrastructure

 Expanding Urbanization & Change in the shelter habits of the population;

 Increase in income of population;
Sector Success Factors
1) Consumer base with sufficient income to create and drive the market for shelter houses;
2) No need of exaggerated infrastructural facilities such as; power supply;
3) Presence of institutional support including research and training institute to be supplied by
up- to-date information, training and administrational assistance;
4) Availability of rental and/or selling optional;
5) Standardized and quality of building design;
6) Availability of incentives such as; 'Duty Free' for construction & civil work inputs & materials;

Firm Specific Success Factors

The Promoter: The individual members of the promoter have good educational background and also have
work exposures of different types of commercial & business

Risk Factors
General Risk Factors
 There is a general inflation in the country. This might slow down purchasing or renting
capacity of individuals;

Sector Risk Factors

 Unpredictability of market access because of different types housing project;

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 Risk Mitigating Measures
 Diversifying the types of living Rooms for residents of different levels of incomes;

1.6. SWOT ANALYSIS

The following SWOT analysis captures the key strengths and weaknesses within the
sector, and describes the opportunities and threats facing interior views.
Strengths
 Easily accessible trained labor;
 Considerable demand base;
 Finest and compacted texture, an excellent 3D Architectural Design for the provision of
high quality buildings;
Weaknesses
 Inability to include and provide living Rooms for low level income residents;
 Poor facilities like worker’s clinic;
Opportunities
 Internet potential for selling /promoting houses to other markets;
 Priority sector well recognized by the Government;
 Investment opportunity;
The existing high demand
Threats
 Sartorial bureaucracies;
Dramatic changes in styles, creates obsolete or less profitable
Land scarcity

1.7. THE ECONOMIC SIGNIFICANCE OF THE PROJECT

The promoter has a team which has a vision and a deep understanding of
government’s plan and experience in real estate industry sector. Therefore, the project
deemed to contribute to the economic development of the nation in general and the city
in specific with following ways:
Benefits of Public Private Partnerships: For the government, the benefits of the
establishment of PPPs are the pace, efficiency and effectiveness associated with
private sector business practices for public service delivery in order to ensure value for
money. Among others, this is due to transparent and competitive procurement processes.
The long-term costs of the housing delivery under the PPP framework, which in turn
promotes more efficient use of resources.
For the private sector, PPP brings in new experiences to work in parallel with
government for both sustainable development and economic gains. Through PPPs the
private sector is enabled to introduce improved technologies, apply innovative business
practices and create efficiency to boost profits.
A. Satisfying Demand Gap

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The project will provide quality residential G+1 - G+2 –G+3 Apartments at a
reasonable price to the market. This will benefits the users to get better house with
better price and quality, which minimizes the existing demand gap.
B. Value Add
The establishment of this project will add a value to the housing & construction, trade, tourism and service
industry sectors in specific and to the economy in general
A. Source of Revenue
As public policy of the nation, the government collects different forms of taxes from
different business organizations and individuals. Among the different forms of taxes,
business income taxes, VAT and payroll taxes are collected from undertaking business
activities. Therefore, the project will serve as sources of revenue for both the
region/city and country in general.
B. Employment Opportunity
One of the problems that our country faced is unemployment. Therefore, the current objective of the
government is working on tackling the problem of unemployment and fostering the
development process either through creating self-employment or employment in other
organization. Hence, the promoter will hire about 72 Skilled, Semi-skilled and Unskilled
manpower, out of which, 50 will be permanently whereas, the remaining 12 will be on a
temporarily basis.
C. Benefit for the Local Community
As a corporate responsibility, the promoter will engage in different development
activities on the developed business surrounding areas. This will better worse the
community and contribute for the development of the region and the local
community.
D. Stimulate the Local and National Economy
This project has positive externality in the district that will encourage movement of local
economy. Hence, there will be additional economic relationship and transactions among
different actors and sub-sectors.
A. Best Practice Transfer
The project will train and develops the capacity of the workers/staffs before and during operation.
Additionally, it will take best practices from similar companies. By doing this, the promoter will add value in
best practice transfer for the citizen

1.2. Project Justification

1) Housing as a Basic Need and Existing of Huge Demand and Supply Gap/Shortage.
Housing is one of the basic human requirements, as every family needs a roof. Providing shelter to
every family has become a major issue as a result of rapid urbanization and higher population
growth.

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In Ethiopia the demand for houses in urban areas especially in Koye Fache sub-city and Addis
Ababa is very high. As one methods of getting houses, real estate becomes common in past few
decades.
The real estate sub-sector has made very significant contribution to the Growth of Domestic Product
(GDP) of the country during the ten years. Because of the efforts made, construction value added has
shown growth trends over the last five years. The construction of residential and non-residential real
estate property grew at an average rate of 13.6% per annum over the last five years under review.
Hence, construction stimulated economic growth and generated employment opportunities.
The property (residential and commercial) market in Ethiopia remained under developed for several
years but the relatively good performance of the macro-economy in the last five years has stimulated
unprecedented investment growth in the property sector. Despite, positive track records, the sector
are still constrained by a number of barriers detrimental to its growth.

To meet the gap, residential houses/buildings are under construction both in the main city of Shager
city, surrounding area and regional cities throughout the country, stimulated by the initiative of the
government and the sharp rise in demand and disposable income of the society.
In addition to the above facts, the following points taken by the owner as a project justifications
behind investment for the envisioned real-estate investment;
 High economic growth and Investment activities in Shager city and surrounding area.
 High population in shager city and surrounding area, which is potential market for the
envisioned project.
 Owner interest to invest in the area
 Location importance of the project area to capital city and Eastern part of the nation.
 Expansion of infrastructural development in the town
 The government of Ethiopia promising five year 1 st and 2nd growth and transformation
development plan, the will bring prosperity to its citizens with collaboration with private
sector investment actions.
 The country and regional government conducive investment packages for development and
poverty reduction.
2) The Socio-Economic Significance of the Project

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The envisaged project deemed to add to the socio-economic development of the nation in general
and district/region/area in specific with following ways:

 Provide Quality House and Service

By constructing and selling best residential villas, the project will contribute for the shortage of
homes in the nation. Besides, the consultancy service will provide quality service to its customers.

 Source of Revenue

As public policy of any nation, the government collects different forms of taxes from different
business organizations and individuals. Among the different forms of taxes, business income taxes,
payroll income tax and VAT are collected from undertaking business activities. Therefore, the
building will serve as sources of revenue for the town as well as for the region.

 Employment opportunity

One of the problems that our country faced is unemployment. Therefore, the current objective of the
government is working on tackling the problem of unemployment and fostering the development
process either through creating self-employment or employment in other organization. Hence, this
Company will hire 1000 individuals permanently and many labors more than 700 contract workers
will be employed on temporary bases. Besides, in construction period many jobs will be created for
local people.

 Benefit For The Local Community

As a corporate responsibility the company will engage in different development activities on the
surrounding areas. This will better worth the community and contribute for the development of the
nation.

 Stimulate the Town Economy Activity

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The real estate sector by its nature has multi positive externality in the town. It will encourage the
economic movement of local economy. There will be economic relationship and transactions among
different actors.

1.3. Back ground of Real Estate Development

In the past few years, demand for private capital for real estate investment and supporting
infrastructure has increased enormously. In the emerging economies, the great migration to the
cities, growing population and swelling middle class are creating a desperate need for more urban
real estate. In the advanced economies, the cities are also growing, although not so rapidly, while
technology, demographics and environmental issues are becoming new value drivers. As Ahmed’s
panelists relate (and the forum organizers broadcast on the Web to watchers worldwide), real estate
as an asset class is changing fast. Mega real estate managers are emerging, which are building and
investing in real estate on an epic scale; yet, small specialist managers are also playing a significant
part. The landscape is becoming more widespread and complex, with a wider range of risk and
return than ever, plus new drivers of value.
Ethiopia, a country located in the horn of Africa bordered by Eritrea to the north, Kenya to the south,
Djibouti to the north east, Somalia to the south east and Sudan to the west is widely recognized as
the cradle of humanity where anthropologists have unearthed the remains of the earliest known
human ancestor and has a history that dates back to 3000 B.C. It has over eighty unique ethnic,
cultural and indigenous linguistic groups and is the most populous landlocked country in the world.
Ethiopia is a country with favorable climate endowed with water and vast land resources combined
with a high population growth meaning that the country also has a strong labour force. At the very
least, these resources should be able to give the country what it needs to meet the subsistence needs
of the people. Despite this however, Ethiopia is now recognized as the second poorest country in the
world (UNDP, 2010; Oxford Poverty and Human Development Initiative, 2010) when evaluated in
terms of the new international measure of poverty, Multidimensional Poverty Index (MPI) which
employs the combination of the three dimensions health, education, and standard of living to assess
the level of poverty in a country.
To top it off, Ethiopia like most African countries, has joined the race to urbanization. As seen on
Figure 8, over the past two decades, Ethiopia being a predominantly rural country has shown a
massive 164% increase in the rural population between 1984 and 2007 while the urban region has

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also shown a considerable rise of 75% in the number of urbanities from a population of 4.5 million
in 1984 to 11.9 million in 2007. It is estimated that by 2015 about 17.8 million people will account
for the urban population and that by 2020, the figures will reach 22 million (MWUD, 2006).
In connection with the implication this rising population has on the shortage of housing in Ethiopia,
Tesfaye (2007), states that the consequent rise in the number of households‟ is yet another facet that
best reflects and provides a measure of the level of demand for housing in the country. According to
the 2007 National population and Housing Census (Appendix 8), the number of housing units in
Addis Ababa (approaching 629,000) was about 4% less than the number of households (around
655,000) creating shortage of housing for close to 26,000 households of the city (CSA, 2010b).
Housing provision as recognized by Drakakis-Smith (1980) and Van Vliet - (1990) and cited by
Chen & Gao (1993), falls into three main categories. The first one is the industrialist model where
housing is perceived as a commodity and its consumption largely depends as other products, on the
supply and demand of the economy. The second is the socialist model that is founded on the
ideology of an equal political and economic system in which the state is duty-bound to provide
consistent and subsidized housing opportunities to all urbanities. What is left is the Third World
Model, its name coined after the countries that apply it most. This category avails the opportunity of
housing only to the wealthy and parts of the middle class leaving out a huge chunk of the population
with low income, inevitably leading to an accelerated growth in informal slums and squatter
settlements.
In conformity of the Third World Model, which applies to Ethiopia, Bahir (2010), states that the on-
going urban land lease policy of Ethiopia favors the rich in the country with its policy of market
economy impeding any chance of the urban poor to afford and compete for accommodation
ultimately paving the grounds for more slums.
The highest percentage of urban population living in slums is spotted in Sub-Saharan Africa (figure
9) with Ethiopia being residence to the world‟s record share of slum dwellers (Gilbert, 2007 and
Davis M., 2006). A recent estimate shows that an alarming 70% of the urban population in Ethiopia
live in slums (UN-HABITAT, 2008).
According to projections by the Central Statistics Agency of Ethiopia (CSA) based on the May 2007
National population and Housing Census, the population of Ethiopia in 2011 is estimated to be
around eighty two million (CSA, 2011) of which close to three million (Appendix 7) people live in
the capital city of Ethiopia, Addis Ababa.

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The rapid rise of urbanization in most parts of Africa has presented the continent with a number of
challenges and stripped its cities of their ability to provide for basic needs like shelter, infrastructure,
education and health care. As cited by Tesfaye (2007), urbanization and demand for houses are
positively correlated and thus as the urban society of a city expands so does the needs for more
housing. In the case of most developing countries, these needs have largely been unmet.
Consequently, housing shortage in developing countries has escalated to unprecedented rates making
the percentage of slum dwellers that reside illegally in a place without authorization and property
rights extremely high
The housing sector, while addressing the needs for affordable housing of low-income groups, can
enormously contribute in the development of African economies (Tipple, 1994). However, in most
developing countries, few segments of the economy, as contributors to growth, have been as
understudied as housing (Renaud, 1987). As a result, a sector largely missing in the economic plans
of most developing countries is that of housing and housing-related activities
the construction sector plays a vital role in the development of an economy and in Ethiopia’s case,
its role will most definitely be amplified as it could generate numerous labor intensive job prospects
while availing the country which much needed infrastructure and facilities needed for the production
as well as distribution of goods and services. This will in turn chop down business costs marking the
construction sector as a catalyst for economic growth and creation of employment opportunities.
Unfortunately, the quality standard as well as contribution of the construction sector to the economy
currently is below average even comparing it with Sub-Saharan countries (MWUD, 2006). In view
of this, the main objective during the PASDEP period is to establish an efficient construction sector
through the setting up and implementation of a Construction Policy and Construction Capacity
Building Program.
The private sector in the real estate industry can immensely contribute in the provision of low-
income housing (Poschmann, 2009). In Ethiopia, the real estate industry has shown a substantial
growth in the past few years highly contributing to the national GDP which adding up to the
construction sector‟s role, amounts to a considerable involvement in the growth of the economy as a
whole (Access Capital, 2010).
To determine the level of contribution the private sector in the real estate industry in Ethiopia has in
the provision of affordable housing as well as its implication to a rapidly urbanizing nation, a
questionnaire survey was conducted

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Ethiopia’s overall GDP over the 1995/96-2005/06 period has shown an average growth of 5.4%.
According to Tesfaye (2008), investment in all economic sectors has increased dramatically from
1994/95 to 2004/05. The percentage contribution to growth from construction in general to GDP
rose from 3.3% in 1994/95 to 7.2% in 2004/05 and from 6.8% in 1994/95 to 10.1% for real estate in
particular in 2004/05. On the other hand, the rate of growth of the urban population is increasing
from year to year. According to the Central Statistics Authority (CSA:1994), current population
growth is estimated to be 2.8% per annum, and the growth rate is expected to remain above 2% for
the next 20 years. Rural population is growing at about 3.0% while the urban population is growing
at about 4.3%. Total population is projected to reach 129 million by 2030. In Ethiopia, of the total
population, about 16.0% is estimated to reside in the urban areas. The trend suggests that the size of
urban population is likely to continue to grow at a high speed in the future. The share of urban
population will rise from 16.0% in 2005 to about 23% by 2030. Nearly 30 million of the total 129
million will live in cities and towns by 2030.
The total number of currently operating real estate operators in Addis Ababa is seventy one (71) and
the employment opportunities is 4,860 permanent and 1888 for temporary employees. The total
registered capital by all is Br. 2,352,077,000. In the implementation and pre-implementation stage
there are 129 and 2293 projects having registered capital (br.244,5365,000 & br. 48641318),
respectively.
There is a huge gap between the demand and supply of houses in KOYE FACHE SUB-CITY and
Addis Ababa, the capital city (Abraham, 2007). A vibrant real estate sector is crucial to economic
development. Similarly, transparent and cost-effective land use policies offer a hospitable
environment for foreign direct investment as well as local projects. At present, however, real estate
lending and real estate transactions in Ethiopia are severely constrained by a number of factors,
including a large concentration of unregistered properties, delays and other problems in enforcement
of legal contracts; excessive taxes, fees, and permitting requirements, and urban development
activities stalled by an overly-layered administrative framework and by the lack of resolution of the
restitution issue.
Abraham stated, the residential housing market in Addis is the price one has to pay both in relation
to those in other metropolitan areas of the world as well its almost incongruous disparity with what
the vast majority of residents in the capital can afford.

18
2. LOCATION OF THE PROJECT
2.1. Location
The planned project will located in Oromia Regional State Shager koye fache sub-city . The project
area is very convenient for residential purpose. It is located almost at the center of the country within an
altitude of about 2,400 meters above sea level. The City has an estimated population of about 2 million
people. Shager city contains 22.9% of all urban dwellers in Ethiopia, with an estimated area of 530.14 Square
Kilometers (204.69mi). The current urban growth rate in Ethiopia is estimated at 4.1%; however, others have
estimated an annual growth rate as high as 8% for the city of shager city . Therefore, it is the largest and the
most populated city in Ethiopia. The city is divided into 10 sub-cities which are run by the City
Administration.

Various investments undertaken have been attracted to the area to utilize the
available demand potential for services, which is because of the existence of vast end
users. Availability of physical and social infrastructure facilities such as; access of main
asphalt road, telephone service and others, make the project effective.
Based on the above facts, the following points taken by the owner as a project
justification behind selection of this project area:
The main justification behind selection of this city generally, and the
selected project area particularly are;-
1) Owner interest to invest at the selected area;
2) Available demand potential for the envisioned types of services (urbanization,
dwellers income level, etc.);
3) High economic growth and investment activities of the selected area and the surroundings;
4) Existence of different similar business types;
5) The coming of the building in to view will be a plus in promoting the image of the city.
6) Large population of the city and the surrounding area which is the potential market for
the envisioned project;
7) Location importance of the project area (the most central part of the city);
8) It is among well infrastructure area of the country as well as city;
9) Investment land use plan of the city’s Administration;
Therefore, the concerning bodies of the City/Sub-city Administrations are expected to take the due
considerations of the Company’s commitment and partnership in promoting housing and investment will grant
the plot of land at the preferred area with fair land lease price

19
 2.2. Infrastructure Availability
A. Accessibility: - The main asphalted road which has been connect Addis Ababa and towns
had adequate asphalt roads and other access roads.
B. Power and Water Supply:- All towns has electric power and water lines have been
extended to the project area with adequate supply capacity. Moreover, there is ample
underground water potential as observed in neighboring villages.
C. Other Socio – economic services:- These include education & health services, transport
facilities, financial institutions government offices etc….Regarding the fulfillment of these
ones since the area is recently allocated for such a purpose; so far, these have been developed
there.

The main reasons behind the selection of this location are:

 Its proximity and strategically located to the central and largest market of the nation (Addis
Ababa) for residential real estate.
 Relatively advanced development in infrastructure (Power, Water, Telephone internet, road
etc.
 Accessibility of skilled labor force
 Conducive investment policy and governance
 Environmentally very fit for residential purpose.

3. THE PROJECT
3.1. Description of the Project
This project involves the development of a real state both in the inner city, transitional and
expansion areas. The proposed project has encompassed different typologies of commercial real
estate complexes in different parts of the city. This will be constructed according to the height
regulation of the city. Therefore, the inner city building will be from G+3-5 while the transitional
and expansion areas buildings will have from G+2-3 height.

This project is aimed at providing necessary services for its clients in terms of transferring the
property through sales and rental services. Rooms for shopping and mole activities, residential

20
apartment, different services will be provided at competitive prices. The detail project configuration
is indicated in the following table.

The proposed project envisions the establishment of a new realstate (Residential House)
that will give different services in addition to living home. Hence, it decided to invest in
G+1 - G+2 real state Building at City.
Public Private Partnerships (PPP) is any type of institutionalized collaboration
between the public and the private sectors that aims to develop the investment returns of
the workforce or of the general public. PPP is medium to long term (legally-binding)
arrangements with a clear agreement on shared objectives. While some PPPs entail
many different types of activities that last for many years and involve significant
financial resources.
Benefits of Public Private Partnerships: For the government, the benefits of the
establishment of PPPs are the pace, efficiency and effectiveness associated with
private sector business practices for public service delivery in order to ensure value for
money. Among others, this is due to transparent and competitive procurement processes.
The long-term costs of the housing delivery under the PPP framework, which in turn
promotes more efficient use of resources.
For the private sector, PPP brings in new experiences to work in parallel with
government for both sustainable development and economic gains. Through PPPs the
private sector is enabled to introduce improved technologies, apply innovative business
practices and create efficiency to boost profits.
The project requires a project site (building and land) and modern equipment and
furniture. With the purchase of the required equipment, and a complete construction
of the site, service can begin soon.
Different types of living Rooms, retail space and recreational services shall be available for occupation
once the construction of the building is complete. Several residential activities such as private living
home, super market, laundry, ground tennis playing area, etc will thus be carried out
within the compound.
Hence, it is
Hence, it is this viable investment policy which invited "Roza Mohammed real state development ."
to develop the interest and motivation of opening the Apartment in area aforementioned

3.2. General Objectifies

The main objective of this project is to construct and sale quality and comfortable Real Estate
residential and Commercial buildings for high , middle and lower income earner in Shager city and
thereby Profitable, return on investment and generate government tax in the form of Income Tax

21
and Tax, Provide Employment opportunity, contributing infilling supply and Demand gap for
residential services of our country, Modern Technology transfer for the construction industries of our
country and the local community.

3.3. Specific Objectives

 To earn return on investment for investor;
 To create employment opportunity to the people;
 To provide a quality service with a fair and affordable prices for high, Middle and Low
income class of our country residences and or Citizen;
 To generate revenue for government in the form of different tax payment: Income Tax, VAT
and Roof and Land Lease Payment, different Services Charges of the municipalities;
 Drawing fair and reasonable profit from the project which will be used for the purpose of
reinvesting on expansion of similar business activities or engage in Industrial development
activities of our country, and
 To fulfill the demands and Supply Gap for residential services of our country and
surrounding Citizen.

4. THE MARKET STUDY

The market study for the project has considered major factors that affects real-estate sector in
Ethiopia. Besides, the study compiled primary and secondary sources studied by different
organizations.

4.1. General considerations

Investment and property development play an important role in any emerging markets or economies.
Property generally comprises residential houses and commercial real estate property developed for
rental business and sale. The property investment market in Ethiopia remained under developed for
several years. As a consequence, the supply of residential houses and non-residential real estate that
can be used for residence, office space, shopping malls and catering services in the urban centers of
the country is disproportionately low to cope with the growing demand in the country spinning from
the average growth in GDP of 5.5 percent over the last ten years and population increase. The
relatively good performance of the macro-economy (real growth in GDP, low inflation rate and
growth in investment and export sector) has stimulated unprecedented investment growth in the

22
property sector over the last five years. The growth of investment in the property market over the last
five years is consistent with the global experience suggesting that investment in the residential and
commercial property (real estate) is greatly influenced by the performance of the macroeconomic
conditions. In general, a stable macroeconomic condition leads to economic and business growth
and develops investors’ confidence. This certainly spurs large demand in the property market for
office space, shopping malls, catering services, apartment and residential houses. Following growing
demand trends, and with the expectation of high return on their investment capital, large number of
Land Developers pooled their financial resources and invested in the property market.
Looking at the past trends and permits issued by the Government to the construction of real estate
properties in the major urban areas of the country, one can easily conclude that the momentum is
more likely to continue.

4.2. The Role of Real Estate Sector to the Ethiopian Economy

1) Macroeconomic Performance
Review of trends in macroeconomic performance over the period covering 1995/96 to 2006/07
depicts that; the country’s economy has registered encouraging results despite its volatility due to
heavy dependence on agricultural sector contribution, which depends on the vagaries of nature.
During the period, real GDP growth averaged 5.5 percent. This is consistent with the preceding years
achievements of 6 percent GDP average growth per annum over the period 1992-2001.The negative
real Gross Domestic Product (GDP) growth rate of 3.3 percent in 2002/03 was followed by a strong
positive record of 11.9 percent, 10.6 percent, 9.9 percent and 10.1percent growth rates in the
subsequent four years, 2003/04 to 2006/07, respectively, due to mainly the good weather condition
resulting in pamper agricultural harvest and improved performance of the industrial and service
sectors of the economy. The stumpy GDP growth of negative 4.2 percent in 1997/97 and negative
3.3 percent in 2002/03 was mainly caused by the severe drought that affected agricultural harvest.
With agriculture employing more than 85% of the population and accounting for nearly half of GDP,
Ethiopia’s economic performance is largely determined by what happens in the agricultural sector.
Over the period under review changes in GDP and agricultural output have been closely linked and
erratic. The volatility in GDP growth is a direct result of the economy’s extreme dependence on rain
fed agriculture. GDP growth is highest in years with good rains (1995/96, 2000/01, 2003/04-
2006/07).

23
Over the same period, the growth in GDP has resulted in significant improvement in per capita
income. This is more evident by comparing growth rate of GDP with population growth over same
period. When the figure of 5.5 percent average GDP growth rate achieved is compared with the
average population growth rate of 2.75 percent per annum over same period, the recorded growth of
real GDP implies an average annual per capita income growth rate of 2.65 percent per annum.
2) Contribution of the Real Estate Sector
During the period, the real estate sub-sector has made very significant contribution to the Growth of
Domestic Product (GDP) of the country. The real estate industry contribution to the gross domestic
product at constant factor cost averaged 7 percent per annum over the period. The 7 percent average
contribution of real estate to GDP is very significant and consistent with trends in growth in
investment on real estate development in the country.
3) The Legal Environment for Real Estate Development
a) Real Estate as a legal Term and a Concept
Real estate as a term originates in the common law, which in broad terms has a meaning of
land and everything made permanently a part thereof and the nature and extent of one’s
interest therein. At common law, if the owner of the property built on the land does not own
the land, the term “real estate” is legally inapplicable. The Federal Constitution of Ethiopia
provides that land, urban or rural, shall not be subject to sale or other means of
exchange.1Hence there is a constitutional prohibition for private ownership of urban or rural
land, which automatically works against the establishment of real estate as a legal concept of
right in them.
Nevertheless, there are a number of individuals or group engaged in the business of
construction of residential or commercial buildings known by the name of or calling
themselves “REAL ESTATE” firms. Such firms may also engage in the simple buying and
sale of such property without making some improvement on the property acquired through
such transaction. It does not, however, include those engaged in the real estate brokerage
business, whatever the size of investment made on land relating to construction of residential
or commercial or commercial buildings,
b) Regulatory Experience

1
Art.40(3), The Constitution of The Federal Democratic Republic of Ethiopia

24
Real estate business in Ethiopia is at a very low level of development compared to many
other countries found at a more or less similar stage of economic development. In Ethiopia,
this mainly owes to the fact that it is a business with less than a decade history. By the same
token, the law governing the business and its financing aspect are much less underdeveloped.
For instance, in the People’s Republic of China, laws regulate this sector and directives
issued for banks; and no special law is in place to govern real estate finance. In practice
finance is crucially needed to finance property development and personal housing
consumption. In countries like China, the growth of property development loans outpaced the
growth of total lending of financial institutions markedly.

Mature real estate financial market provides various intermediaries financing products. These
include the issuance of public stock, corporate bond, equity financing and real estate trust. A
mature real estate finance market is featured by secondary market of asset securitization. This
improves liquidity of real estate assets and provides means for stabilizing financing sources
for the real estate sector.

Underdeveloped real estate finance market is featured by other than consumer s’ contribution
in the form of advance payment or otherwise, a very high reliance on the banking finance.
Such loan is mainly used for the purpose of land acquisition, real estate property
development and house sales. In such countries commercial banks oversimplify examination
formalities and lose sight of certain risks .As the business has developed for just few years
some problems are prone to be concealed .The difficulty in obtaining individual credit
information has created the problem of monitoring credit standing and debt servicing
capability.
c) The Ethiopian Law
The Ethiopian Law provides no definition for real-estate applicable for all such business
under all circumstances throughout the federal state. It is in only under one subsidiary
legislation, i.e. the Addis Ababa City Government Regulations Issued to Provide Land For
Real Estate Regulations No.20/2005.

It is true that a substantial portion of the total real estate business is situated in Addis Ababa.
However the relevance of this legal definition holds little relevance for the purpose of the

25
case at hand for the following reasons. Firstly; it is relevant only for the purpose of providing
land to investors in Addis Ababa and is not applicable to such business in other national
states. Secondly it is only binding in regulating the relationship between the Administration
and the investor and not necessarily binding on other administrative agencies, such as the
monetary regulator (the NBE).

The cited Regulation defines “Real Estate Developer” as one who builds 50 houses and
above. House is not defined in the Regulation and it is not clear as to whether small houses
irrespective of the amount of capital required to build them.

Legally, the word ‘real- property’ is never used except in connection with land. In its strict
sense, it denotes only a particular class of interest in land, real is synonymous with free hold
property and it does not include leasehold interest. 2
In all types of free hold estates, it is impossible to say in advance at exactly what moment
they will come to an end.3 The word ‘estate,’ is said to have its origin in the fact that in
feudal times a man status was determined by his ownership of land; that ownership came to
be called his status or estate. 4Ownership of land, the maximum right of which is exhibited by
alienation, is constitutionally prohibited in Ethiopia. 5 Under no circumstance shall
proprietary right over land shall extend to ownership right in Ethiopia. Having noted the
above, the use of the term ‘real-estate’ to traders engaged in construction and sale and lease
of buildings appears to be legally inappropriate and a legal misnomer in its strict sense.

Among the numerous credit facilities of banks, there is what is commonly termed as ‘real
estate credit’, composed of loans secured by land and buildings. Proc.272/2002 allows a lease
holder to subject the lease hold for a surety. 6 Hence, even though the lease holder is a mere
possessor by a lease contract, any financing agreement remains valid as long as;

2
The Universal Home Lawyer, ODAMS PRESS LIMITED, London(1957)P.540

3
Ibid.P.265

4
Ibid.P.218

5
The Constitution of the FDRE (1995),Art.40(3).

6
Art.13

26
  The parties are capable of contracting ;
 They give free and sustainable consent;
 The objective of financing is sufficiently defined ;and is possible and
lawful; and
 The contract is made in the prescribed form.7

As land acquired for the said purpose is said to be under lease Agreement, it becomes
important to have a legal understanding of the various aspects of lease as a legal term.
Demand for Residence and Non-Residence Housing in Shager city and Surrounding
area
Demand
A housing survey made by the Addis Ababa City Administration Housing Agency estimates
the current demand for residential housing units in Addis Ababa at 300,000 housing units.
The survey reveals that 300,000 dwellers of the City do not have defined shelter. The
demand by the business community for shopping, office space and other catering businesses
is also very significant with considerable backlog of unmet shop seekers registration by the
Agency for the Administration of Rental houses. The Agency had registered 13,966 shop
space seekers until November 2003. Total requirement of space was 698,300 square meters.

The City Administration’s study of the housing needs in Addis Ababa further elaborates, that
it is absolutely necessary to construct 468,668 houses over six years (2004-2009) to cope
with the demand for housing. This indicates that it is necessary to construct 78, 000 houses
per annum over the plan period. This presents enormous opportunities to real estate
developers who invest on residential and non-residential building construction in Addis
Ababa.

The market survey made by the consultants of the proposed mixed-use building complex
similarly shows that there is wide opportunity for investment in real estate in KOYE FACHE
SUB-CITY. The findings are consistent with the KOYE FACHE SUB-CITY town. Several

7
Civil Code(1960),Arts.

27
factors can be cited for this optimism in real estate development, the following are however
very important:

 Persistent growth in GDP and stable macroeconomic environment, which stimulates

demand for real estate property (office space, shopping mall and catering services);
 Expansion of the existing banking and insurance industry with opening of new
Branches at different locations of the city;
 Emerging new Banks in the pipeline that have acquired licenses and those that are
under the process to acquire;
 Proliferation of private colleges, primary and secondary schools;
 Increase in the number of foreign investors starting business in Ethiopia; and
 Improved performance registered in the tourism sector in terms of annual increase in
the number of tourists that arrive in the country for leisure

4.3. Demand and Supply Analysis

1) Demand Determination
The demand is determined based on the Space Absorption (SA) model. The SA Index is
defined as a measure of the intensity of the absorption or take up of all the available property
stock in a market at a point in time. The total available stock is defined as the sum of vacant
stocks (in the previous period) with the new stocks ( in the current period). The formula
given below measures the net absorption or demand for space.
The SA Index = At X 100
V t -1 + Nt
At= Net absorption in current period t
VT-1= Vacant Stock in period t-1 (ie, previous period)
NT= New Stock that were completed in period t

The SA Index is intended to provide to an alternative way of examining the demand in the
market by analyzing the net absorption of space.

28
Although the above model is widely used in many countries to forecast demand for real
estate property, it has been found difficult to apply it to forecast the demand for housing in
Addis Ababa due to absence of data. There is no systematic compilation of data on housing
supply, demand and construction of new houses, demographic factors. Hence the application
of the model to forecast the demand is constrained by the absence of data.

Real estate development lending banks can use this model to determine the demand for space
at any point in time to assess the commercial viability of lending to the property sector.
However, the outcome of the analysis using this model depends on the reliability of the data
used to determine demand for space at any geographical location. Therefore, the user should
make sure that the input data is reliable and accurate.
Therefore, the demand for housing in Addis Ababa has been forecasted on the basis of past
studies and trends in the country’s GDP. Generally growth in the economy leads to high
demand for real estate property in any country. GDP growth rate over the last three years
averages 10% per annum in Ethiopia, and the Government is committed to sustain the growth
rate. A growth rate of such magnitude would result in high demand for the property market
due to the fact that economic growth and demand for space have a strong linkage. Thus a
10% annual growth rate in the demand for residential and commercial real estate space is
anticipated. The Addis Ababa Housing Administration Agency estimates a backlog of
demand for residential and non-residential housing units at 300,000 units and other studies at
468,668 units from 2004 - 2009. The Agency estimates the construction of 78, 000 units per
annum to meet backlog of demand. There is a considerable disparity between the two
estimates. But the later appears more realistic estimate, as it is very recent study based on the
demographic factors, existing housing stock and anticipated growth in the country’s GDP.
Experience on the other hand shows that there is a strong linkage between GDP growth and
demand for space (Residential and non-residential real estate). The Ethiopian Government
targets 10% annual GDP growth rate to raise the country to middle income countries over
20years period. Annual GDP growth rate of 10%, stimulates the demand for residential and
non-residential property space in the country and provides impetus to the growth of
investment in the housing sector. Conversely, a greater demand for housing provides a very
large economic stimulus to the broader economy. Given its linkage to many sector in the
economy- including land markets, construction and labour markets-housing finance is also

29
key to economic growth. The availability of mortgage financing also stimulates the
construction of new houses and property. Housing construction is labour intensive and thus
provides significant employment opportunities. The demand for residential and non-
residential real estate property is therefore expected to grow at 10% per annum, consistently
with GDP annual growth rate. Considering the annual housing need estimates of 78,000 units
by the City Administration, to provide for the City’s population growth, relief of
overcrowding, replacement of dilapidated houses and space for office, shopping etc, a 10%
growth rate in the demand for residential and non-residential housing units is anticipated that
spin off from economic growth. Therefore, the demand for housing (residential and non-
residential) in Addis Ababa is projected as follows:

Table-Demand for housing units (residential and non-residential) in Addis Ababa

Year Housing units

2007(backlog) 468.668

2008 85,800

2009 94,380

2010 103,818

2011 114,200

2) Demand and Supply Gap

The demand for housing is expected to grow from 85,800 units by 2008 fiscal year to
114,200 in 2011. Against this growth in housing demand, the City Administration planned to
construct 35,000 units every year to partially meet the demands. According to Addis Ababa
Housing Administration Agency, the number of housing units to be constructed by the Addis
Ababa Administration is as follows:
Table-Plan for condominium construction
Year Housing units
2006/07 33,000
2007/08 35,000

30
 2008/09 35000
2009/10 35,00
Source: housing Administration Agency
Comparison of demand and supply of housing shows that despite the fact that the Government is
investing on condominium construction to provide shelter to middle and low income urban
population, there is still a large gap that must be filled by the private sector such as land developers
who are investing on commercial property for profit. The table shows the excess demand that must
be bridged by land developers and individuals and institutions.

Table-Demand and Supply for housing units (residential and non-residential) in Addis Ababa

Year Demand (Housing units) Supply Housing units to Excess Demand that

be const. By City Admin. must be filled by

private sector

2007 468.668(backlog) 33,000 435,668

2008 85,800 35,000 50,800

2009 94,380 35000 59,380

2010 103,818 35,000 68,818

2011 114,200 35,000 79,200

As can be observed, there is a considerable gap that needs private sector involvement to invest on
real estate properties to cope with the demand for residential and non-residential buildings in Addis
Ababa.

Attempt is also made to convert the excess housing demand in Addis Ababa that may be met by the
private sector (residential and commercial property developers) in to monetary terms. For this
exercise certain assumptions have been made as follows:

 Current Average construction cost (villa and High rise buildings) is Birr 3,800 per m2; ; and
 Average area of single housing unit is 60 m2.
Using this assumption, the monetary value and debt finance requirement is estimated as follows.

Table -Demand for housing units (residential and non-residential) in Addis Ababa and Financial
investment requirement

31
Year Demand for Housing units that Area in square meter Construction Monetary value Debt Finance

is to be filled by private sector cost/m2 (Birr) (in billion Birr) requirement (in

billion Birr)

2008 50,800 3,048,000 3800 11.6 8.1

2009 59,380 3,562,800 3800 13.5 9.5

2010 68,818 4,129,080 3800 15.7 11.0

2011 79,200 4,752,000 3800 18.1 12.7

The demand for housing converted in to monetary value is estimated at Birr 11.6 billion, and this
rises to Birr 18.1 billion in 2011. This doesn’t include housing units to be constructed by the
government, as the financial outlay would obviously come from government sources and
beneficiaries from the scheme. What is depicted in table 18, is that, only housing units that may be
developed by land developers and private sector. Assuming that, 30% of the investment outlay
would be covered from equity sources contributed by owners and 70% to be covered from long-term
bank credit facilities, the amount of loan that may be required from banks over the period ranges
from Birr 8.1 Billion to Birr 12.7 billion.

3) Market Prospects
Based on market study, the demand of residential real estate in Shager city is very high. Therefore,
the envisioned project will be successful by entering in to this market in the town.

4) Target Customers
The target customers of the project are lower, middle and higher income earner for both founders
and owners of the project and others interested customers.
Besides, for the commercial centers different business community around the project area are taken
as a target market.
5) Marketing Strategy
To reach customers different marketing ways will be used. Among the different marketing strategies
and tools for promotion controlling the market:

 Printed and non-printed forms of advertising,

 Sponsorship of key government activities and public support mechanism.

32
  Commissioning
 Long term payment mood

The project under discussion has diversified marketing strategies that could enable it come up with
the different competitors in the market. Moreover, customer satisfaction at reasonable payment
mood will be the key marketing strategy of the house.
5. REAL ESTATE PRODUCTION, TECHNOLOGY AND ENGINEERING
5.1 Product Mix
The project under consideration will be for construction of residential houses and consulting in
construction sector particularly in the area of design and supervision.
The project will have four types of residential houses, i.e., House I, House II, House III, Apartment
and Commercial Center as described as follow;
Qty(Number Total Land
S.N Description UOM In M2
of Houses) in M2
1 Real Estate 500M2(G+1) 100 300 10,000
2 Real Estate 200m2(G+1) 130 200 1000
2 Real Estate 500M2(G+2) 30 300 2000

3 Real Estate 500M2(G+3) 100 500 2000

Other Buildings(Commercial
4 1,500 1000
Area and Office Building) 2
Contingences( Guard Room and
5 5 500 2,000
Wash area)-5 Class Room)
Green area, Road and Field play
6 2,000
ara
Sub Total 2hectares

i. House I
In this product mix there will be a total of 100 houses with a total area of 10,000 M 2 will be
constructed on the proposed project area. It consists of G+1 house together with Ground Service
rooms and Green area, Spacing and Parking.
ii. House II
In this product mix there will be a total of 130 houses with a total area of 2,000 M 2 will be
constructed on the proposed project area. It consists of G+1 Villa inclusive of, Ground Service
rooms and Green area, Spacing and Parking.

33
 iii. House III
In this product mix there will be a total of 130 houses with a total area of 3 00 M2 will be constructed
on the proposed project area. It consists of Villa G+1 including Ground Service rooms and Green
area, Spacing and Parking.
iv. Apartment IV(Commercial Center)
In this product mix there will be a total of 2 Apartment building(G+1) with a total area of 3000 M 2
will for Market, supermarket and shopping area, Internet and cafeteria, Bar and Restaurants,
Children Gam Zone, Gymnastic, Beauty Salon, laundry, Multi-Purpose hall, Warehouse, Drug store
etc. and one office Building be constructed on the proposed project area.

v. Contingencies
The project will construct four the promoter change in design and interest on 500M 2. The building
will provide different services like Cultural center, Showing room, Main guard Gat, Common
Washing area It is aim to provide these service for residential.

The company also provides consultancy service for different customers mainly in the area of design
and supervision Besides, It will rent its construction machines and equipment’s for business when
the construction finished.

5.1. Production Process

This section will include the production details of the project, which includes the raw material
required, product mix, production capacity, production proportion of each product etc.

The production process includes the following steps.

 Approval of Land
 Architecture Design
 Materials Procurement
 Erection of Foundations
 Construction of Structure
 Installation of Electrical Wire Pipes

34
  Construction of roof.
 Plaster of cement
 Sewerage and water pipe installation
 Construction of floors and bathrooms
 Paints and electrification
 Requirement and cash flow forecast.

Machineries and Equipments

Most required machinery and equipment for the project will be rented. Basic machinery and
equipment will be purchased.

5.2. Production Technology

The Production technology will be the modern technology of the present one

5.3. Sources of Technology

Source of most technologies will be employed from China and Other Counties.

6. RAW MATERIALS INPUTS AND UTILITIES

6.1. Raw Materials and Inputs

The project will use the following inputs:
 Bricks/ Steel Doors and Grills
 Sand Wood
 Crush Win board
 Steel Chipboard
 Mud Glass
 Cement Varnish
 Floor Tiles Paints
 Bath Room Fittings Hardware
 Cupboards Wires
 Lighting accessories Misc. electrification equipment

35
  Sewerage and Water Supply Pipes PVC Pipes
 Dadex Pipe

6.2. Utilities
A number of utilities would be put in place in order to ensure smooth functioning of the project.
These utilities include:
 Water Supply,
 Supplementary Electricity supply,
 Telephone line
 Fuel , oil and lubricant
 Paved Road Transportation,
 Drainage Facility

7. PRODUCTION PROGRAMME AND CAPACITY UTILIZATION

7.1. Production Programmem

Based on demand projection indicated in the market study, the suggested plant capacity is 200 Real
Estate for 300 M2 and 150 real estate for 100 M 2 residential house and 100 real estate for 1500
m2that will make 587 houses for the Real Estate houses that will be built in the first year and
gradually will increase according to the production programme and schedule stated above. The
Project is envisaged to operate in double shift of 16 hours a day for 300 days a year. This is
excluding 13 holidays and 52 Sundays.

7.2. Capacity Utilization

Considering the gradual growth of demand and the time required to develop the required skill the
rate of capacity utilization during the first, second and third year of production will be 75%, 85%
and 95% respectively. Full capacity utilization 100% will be reached at the 4 th year of operation. as
indicated in the table below;

Capacity Utilization
S.N Production Programme 1 Year 2nd Year 3rd Year 4th Year
75% 85% 95% 100%
1 Real Estate G+1: 500 M2 68 55 50 27

36
 2 Real Estate G+1: 200 M2 40 35 35 20
2
3 Real Estate G+1:500 M 45 40 36 29
2
4 Real state G +3: 500m 35 30 25 10
4 Others(G+1) 2
5 Contingencies 0 5
Total Hosing Unit in No 190 165 146 86

8. ORGANIZATION AND MANAGEMENT

The organizational structure should be in a way that the company able to achieve its objectives as
well as the satisfaction of standard requirement.

8.1. Man Power Requirements with Qualifications

The total manpower required for the company will be 74 individuals permanently and many labors
more than 700 contract workers will be employed on temporary bases.. The manpower list and the
corresponding salary expense are shown in the table below:
Table- Man power list, qualification and salary expenses
Monthly Salary Annual Salary in
SN Description No Qualification
in Birr Birr

I Permanent Worker

1 General Manager 1 MSC/Construction management 16,000.00 192,000.00

2 Operational Manager 3 BSC in Mechanical/Industrial Engineering 10,000.00 360,000.00

3 Civil engineer 3 BSC in civil Engineering 8,000.00 288,000.00
4 Senior engineer 3 BSC in civil Engineering with extensive exp 7,000.00 252,000.00
5 Architect 6 BSC in Architecture 5,000.00 360,000.00
6 Senior architect 5 BSC in Architecture with extensive exp 2,000.00 120,000.00
7 Drafting 8 Diploma in drafting 2,000.00 192,000.00
8 Human resource manager 1 BA in Management/Administration 3,000.00 36,000.00
9 Forman 4 Diploma in Construction 7,000.00 336,000.00

Head, Administration & Finance

10 5 BA in Mgt/Acct 1,800.00 108,000.00
Dept.

11 Personnel 5 BA in HRM 1,200.00 72,000.00

12 Marketing/promotion expert 1 BA in Marketing 7,000.00 84,000.00
13 Sales 2 Diploma in Sales Mgt 2,000.00 48,000.00
14 Accountant 5 BA In Accounting 7,000.00 420,000.00
15 Cashier 3 10+2 in Bookkeeping 3,000.00 108,000.00
16 Secretary 2 Diploma in Secretarial science 2,000.00 48,000.00
17 Office assistant 3 10+2 /active assistant 1,800.00 64,800.00

37
18 Store keeper 2 Diploma in logistic mgt 1,100.00 26,400.00
19 Purchaser 4 Diploma in supp. & Put. Mgt 1,800.00 86,400.00
20 Guard/Security 4 Basic 1,300.00 62,400.00

21 Janitor 3 Unskilled 54,000.00

1,500.00
22 Driver 4 10 completed + certification 1,200.00 57,600.00
23 Ass. Driver 2 Basic 1,000.00 24,000.00
24 Machine operator 3 10 completed + certification 5,000.00 180,000.00

25 Unskilled 240 Basic 2,880,000.00

1,000.00
26 Sami Skilled 178 Unskilled 2,136,000.00
1,000.00

27 Cleaner & Laundry & Other 1000 Unskilled 12,000,000.00

1,000.00

Sub total 1500 101,700.00 20,595,600.00

8.2. Organizational Structure

The organizational structure of the project is designed by including all the necessary personnel under
the right division. At the top of the organizational structure, there will be General Manager with the
responsibility of supervising the overall activity of the plant. Depending up on the nature of the
center and the amount of work to be performs; there exist auxiliary units under the general manager.

Employees under each unit will be supervised by the department head that is accountable for the
general manager. General Manager is appointed by owners.

38
Fig Organization Structure of the Project

39
Project tasks and Office
The Project will design, construct and supervise by its staffs on separate department. It will
sub contracts works like Electrification, Sanitation, Paint, Carpenter, Guard, Glass Work
etc. The company will rent an office in Addis Ababa and will have one satellite office on
the project site.

9. FINANCIAL REQUIRMENT AND ANALYSIS

A. Total Investment Cost

Total initial investment cost is a Capital expenditures equivalent to the total financial
requirements of the project. In other words, they are initial investment outlays required to
enter operational stage. Capital expenditure consists of fixed investment cost and initial
working capital.

The total amount of Cost that is required to establish the envisaged Real estate Project is
estimated to be shown in the following table.
Table Summary of total investment cost

I Fixed Investment Cost Total

266,993,600
1 Land Building and Construction .00
24,174,517
2 Machinery and Equipment’s .00
12,926,759
3 Vehicles .71
297,00
4 Office Furniture 0.00
782,73
5 Contingencies 5.58
Sub Total 305174612.29
64,825,387
II Work inking Capital Requirements .71
400,000,000
Total Initial Investment Costs .00

40
 1) Fixed Investment Cost

Fixed investment costs are expenditures on the required fixed asset. The major components
of fixed costs are constituted of expenditures on Land, Building, civil work and
Construction cost, machineries and equipment’s, Vehicle, office furniture and other fixed
assets while the rest will be acquisition of different preliminary fixed assets.

a) Land, Building & Construction Cost

S.
Description UOM Quantity Unit Price Total
N
1 Land Rent M2 8,726,400.00
60,600 144.00
2 Land Development M2 3,030,000.00
60,600 50.00
3 Project Building(190 Real Estate 1st Year) M2 45450 266,427,900.00
5,862.00
Commercial Center and Office Buildings
4 M2 6855 40,184,010.00
and Others 5,862.00
Others Building ( Washing, Main guard,
5 M2 26495 48,625,290.00
Green Area, Clinic Etc.)+ Reserve 1835.00
Total 200,000 366,993,600.00

b) Machineries and Equipment’s

SN Description UOM Total cost

3,503,000.0
1 Generator 500 KVA LPM
0
5,475,800.0
2 Construction Machineries LMS 0

4,500,622.2
3 Construction Tools Kit LPM
6
6,059,999.0
4 Worker Safety Equipment LPM 0

5 Other Construction Machineries LPM 4,635,095.74

Total 24,174,517.0
- 0

41
 c) Vehicles

S.N Description UOM Quantity Unit Price Total Price

750
4X4 Pick up car No 4 3,000,000.00
,000.00
750
Service Mini bus " 5 3,750,000.00
,000.00
500
Motor cycle " 10 5,000,000.00
,000.00
300
Others(Vehicle) " 4 1,176,759.71
,000.00
Total " 12,926,759.71

d) Office Equipment’s

S.N Description UOM Unit Price Total Price

700.0 10,500.0
Table NO
0 0
200.0 3,000.0
Chair ”
0 0
1,500.0 7,500.0
Shelf ”
0 0
13,000.0 26,000.0
Computer with printer ”
0 0
2,500.0 250,000.0
Filing cabinet and Others ”
0 0
297,000.0
Sub total ”
0

e) Pre-service Expenses
SN Description Cost in Birr
1 Project proposal 20,000.00
2 Environmental Impact Assessment 40,000.00
3 Promotion and Advertisement 250,000.00
4 Worker Capacity Building 100,000.00
5 Licensing fee and others 5,000.00
Total 425,000.00

42
 2) Initial Working Capital

The amount of money used for the working capital requirement is estimated by taking the
cost of liquids, staff salaries and etc., needed annually by braking dawn to their liquidity of
month or year form the annual operating cost. The initial working capital requirement will
be determined after the completion of the building project based on the legal status of the
business.
The initial working capital is estimated to be shown in the following table
S.N Description Local Cost Foreign cost Total
1 Raw Materials and Inputs (3 month) 116,6 1 33,
66,666.67 6,666,666.67 333,333.33
2 Utilities (3 months) 8,38 16,
3,333.33 8,383,333.33 766,666.67
3 Wage and Salaries (2 month) 3,43 3,
2,600.00 1.00 432,601.00
4 Others Operating Expense (3months) 32,67 32,
2,296.92 672,296.92
Sub total 61,154, 25, 86,20
896.92 050,001.00 4,897.92
5 Contingences (10%) 6,115, 2, 8,62
489.69 505,000.10 0,489.79
Ground Total 67,270,386.61 27,555,001.10 94,825,387.71

3) Sources of Finance

The above forecasted project capital is planned to be raised from two sources. These two
sources are the promoter’s equity contribution and loans from one of the local banks. The
promoters of the project plans to raise 30% of the total capital while the remaining 70% is
assumed to be obtained from one of the local bank loan.

SN Description % share Amount(in Birr)

1 Owners Share 30 120,000,000.00
2 Bank Loan 70 280,000,000.00
400,000,
Total 100
000.00

43
 4) Operating Expense

S.N Description UOM Total cost

100,000,00
1 Raw Materials LPMS
0.00
LPMS 50,300,00
2 Utilities
0.00
LPMS 20,595,60
3 Wage and Salaries
0.00
LPMS 20,250,00
4 Spare and Maintenance and Others
0.00
191,145,600.0
Sub Total
0
LPMS 40,439,18
5 Depreciation
7.67
LPMS 70,000,00
6 Financial Cost
0.00
301,584,787.6
Sub Total
7

44
 a) Depreciation Schedule
Deep rate
S.N Description Initial value Deep cost
(%)
1 Construction and Building 10 6,699,360.00
266,993,600.00
2 Machinery and Equipment’s 10
24,174,517.00 2,417,451.70
3 Vehicles 10
12,926,759.71 1,292,675.97
4 Office furniture and Equipment’s 10
297,000.00 29,700.00
Total 0
40,439,187.67
b) Bank Loan Repayment Schedule
Yea Total Annual
Principal Payment Interest (10%) Remaining Balance
r Payment
0 - 280,000,000
- -
1 28,000,000 28,000,000 70,000,000 315,000,000
2 28,000,000 31,500,000 66,500,000 280,000,000
3 28,000,000 28,000,000 63,000,000 2120,000,000
4 28,000,000 24,500,000 59,500,000 210,000,000
5 28,000,000 21,000,000 56,000,000 175,000,000
6 28,000,000 17,500,000 52,500,000 140,000,000
7 28,000,000 14,000,000 49,000,000 105,000,000
8 28,000,000 28,000,000 45,500,000 70,000,000
9 28,000,000 7,000,000 42,000,000 28,000,000
10 28,000,000 3,500,000 38,500,000 0

45
 B. Financial Analysis and Statements

1) Underlying Assumption
The financial analysis of the project is based on the data provided in the preceding sections and the following assumptions.

A. Construction and Finance

 Construction period 30 Months

 Source of finance 30% equity and 70% loan
 Tax Holiday 2 Years
 Bank interest rate 10 %
 Land lease Birr per year for 99 years
 Lease payment period 10 years
 Rental Construction Equipments income increased by 5% annually
 Consultancy Income increased by 10% annually
 Salary increased by 3% annually
 Operating Income increased by 5% annually

B. Depreciation

 Building and Construction 10%

 Building Machinery and equipment 10%

46
 Vehicles 10%
 Office Furniture and Equipment’s 10%

2) Annual Production and Total Sales

S. Qty(Number Total Land in Unit Saling

Description UOM In M2 Total Sales
N of Houses) M2 Price
1 Real Estate 500M2(G+1) 200 300 60,000 4,625,000.00
925,000,000.00

2 Real Estate 200M2(G+1) 130 200 26,000 2,500,000.00

325,000,000.00
3 Real Estate 500M2(G+2) 100 300 39,000 28,000,000.00 1,050,000,000
4 Real estate 500m2(G +3) 100 500 50,000 12,000,000 1,200,000,000
4 Other Buildings 2 1,500 3,000 5,000,000.00 10,000,000.00
5 Contingences 5 2000 2,000 2,500,000.00 12,500,000.00
Green area, Road and \
70,00
field Play 0.00
Sub Total 587 200,000 59,625,000 3,522,500,000

47
 3) Projected Income Statements

Years
Description
1 2 3 4 5 6 7 8 9 10
429,250,000.0 1,419,008,264.4 30,788,301,543.3
Revenue 780,454,545.45 2,627,793,082.34 4,866,283,485.81 5,122,403,669.28 9,313,461,216.87 16,933,565,848.85 55,978,730,078.83 101,779,
0 6 6
Less
301,584,787.6 27,573,466,301.3
operating 603,169,575.34 861,670,821.92 1,723,341,643.83 3,446,683,287.67 3,446,683,287.67 6,893,366,575.34 13,786,733,150.67 53,025,896,733.36 98,196,
7 5
cost
127,665,212.3
Gross Profit 177,284,970.11 557,337,442.55 904,451,438.50 1,419,600,198.14 1,675,720,381.61 2,420,094,641.53 3,146,832,698.17 3,214,835,242.01 2,952,833,345.47 3,583,
3
Less
40,439,187.67 40,439,187.67 40,439,187.67 40,439,187.67 40,439,187.67 40,439,187.67 40,439,187.67 40,439,187.67 40,439,187.67 40,439,187.67 40,
depreciation
Less 28,000,0
28,
interest 28,000,000.00 00.00 28,000,000.00 28,000,000.00 28,000,000.00 28,000,000.00 28,000,000.00 28,000,000.00 28,000,000.00 28,000,000.00
Profit Befor
52,226,024.66 101,845,782.44 481,898,254.87 829,012,250.83 1,344,161,010.47 1,600,281,193.94 2,344,655,453.86 3,071,393,510.50 3,139,396,054.34 2,877,394,157.80 3,507,
Tax
35,646,0
Tax (35%) 1,227,
18,279,108.63 23.85 168,664,389.21 290,154,287.79 470,456,353.67 560,098,417.88 820,629,408.85 1,074,987,728.68 1,098,788,619.02 1,007,087,955.23
Net Profit 33,946,916.03 66,199,758.59 313,233,865.67 538,857,963.04 873,704,656.81 1,040,182,776.06 1,524,026,045.01 1,996,405,781.83 2,040,607,435.32 1,870,306,202.57 2,280,

48
 4) Projected Cash Flow statements
Description Project Years
0 1 2 3 4 5 6 7 8 9 1
Cash inflows
Equity 150,000,0 - - - - - - - - - -
00.00
Bank loan 105,000,0 - - - - - - - - - -
00.00
Net profit - 33,946,9 66,199,7 873,704,6 1,040,182,776 1,040,182,776. 1,524,026,045. 1,996,405,781.8 2,040,607,435.3 1,870,306,2 5,83
16.03 58.59 56.81 .06 06 01 3 2 02.57
Depreciation - 40,439,1 40,439,1 40,439,1 40,439,187. 40,439,187. 40,439,187. 40,439,187.6 40,439,187.6 40,439,18 40,43
87.67 87.67 87.67 67 67 67 7 7 7.67
Total 500,000,0 74,386,1 106,638,9 914,143,8 1,080,621,963 1,080,621,963. 1,564,465,232. 2,036,844,969.5 2,081,046,622.9 1,910,745,3 46,27
00.00 03.70 46.26 44.48 .73 73 68 0 9 90.24
Cash outflow
Fixed investment 405,174,6 - - - - - - - - - -
12.29
Working capital 94,825,38 - - - - - - - - - -
7.71
Pre-op. - - - - - - - - - -
Expenditure
Loan Repayment - - - - - -
- - - -
Total 500,000,0 - - - - -
00.00
- - - -
Net inflow 74,386,1 181,025,0 996,795,0 1,172,456,659 1,182,660,514. 1,677,841,400. 2,162,818,489.2 2,221,017,200.5 2,066,268,2 219,08
03.70 49.96 70.81 .65 76 49 8 3 54.17
-
Cumulative 0 74,386,1 82,651,2 91,834,6 102,038,551. 113,376,167. 125,973,519. 139,970,577.5 155,522,863.9 172,803,18 391,88
03.70 26.33 95.92 03 81 79 4 3 2.15

49
 5) Balance sheet (Beginning of operation)

Asset
Current Asset Value in Br.
Cash 66,377,771.40
Initial inventory of raw materials and inputs 28,447,616.31
Total Current Asset 94,825,387.71
Fixed Asset
Land, Building and Construction 366,993,600.00
Machineries and Equipment’s 24,174,517.00
Office Equipment 297,000.00
12,926,759.7
Vehicles
1
Total fixed Asset 404,391,876.71
500,000,000.0
Total Asset
0
Liability
Account payable 150,000,000.00
Owners’ Equity
Capital 105,000,000.00
500,000,000.0
Total Liability & Owners’ Equity
0

50
 1) Cost Benefit Analysis
i. Profitability

According to the projected income statement, the building will start generating profit in the 1st year
of operation. Important ratios such as profit to total sales, net profit to equity (Return on equity) and
net profit plus interest on total investment (return on total investment) show an increasing trend
during the lifetime of the project.

The income statement and the other indicators of profitability show that the project is viable.

ii. Pay-Back Period

The investment cost and income statement projection are used to project the pay-back period. The
building’s total investment will be fully recovered at the 2.4 years of operation.

10. ENVIRONMENTAL IMPACT ASSESSMENT

All projects in environmentally sensitive areas should be treated as equivalent activities irrespective
of the nature of the project.

The real estate is provided with a drainage system that carries all waste water to a central point. The
mitigation of the effects of the waste begins by bringing it to a central point and collecting it in a pit
of sufficient size to handle the amount of waste generated. Such a pit should be lined appropriately to
render it impervious so that no used water escapes to the environment.

Generally, the Real estate operation including any other tourist network industries are environmental
friendly. As to real estate service, due to the very nature of the operation, the business itself requires
keeping the environment tidy and beautiful. Therefore, due to their vested interest real estate
operation has to keep the environment friendly and attractive. The service is not going to have any
danger to resident of nearby and to the overall environment.

51
11. PROJECT IMPLEMENTATION SCHEDULE AND LAND USE PLAN

A. Project Implementation Schedule

The project's implementation is expected to take 31 months. The major activities include Bank loan
processing, construction of the building, cleaning the area around the building, procurement of
equipments and start rendering services. The time schedule for the above mentioned major activities
is presented below:

Table-Project-Implementation-Schedule
SN Activities Date

1 Land Approval September, 2013

2 Bank loan processing Oct-Dec 2013
3 Purchasing of Machines and Equipments January 2013
4 Site Development June 2014
5 Building and construction work July-Dec 2015
6 Staff requirement and Training Jan-Dec 2015
6 Launching of The project and Sales
execution January 2015

52
 B. Land Use Plan
The project requires a total of 2 hectares, which is equivalent to 20,000 M 2 required to
construct residential buildings, commercial center and other facilities. Land use plan
indicated in table below.
Table Land Use Plan

S.N Description Qty(Number of Houses) UOM In M2 Total Land in M2

1 Real Estate 500M2(G+1) 200 300 10,000

2 Real Estate 200M2(G+1) 130 200 2,000

3 Real Estate 500M2(G+2) 150 300 2,000

4 Real estate 500m2(G+3) 100 500 2,000
5 Other building 2 1500 2000
5 Contingences 5 500 1000
6 Green Road construction 1,000
Sub Total 587 2hectare

53