PROJECT PROPOSAL

FOR REAL-ESTATE DEVELOPMENT

PROJECT TO BE IMPLEMENTED IN
OROMIA SPECIAL ZONE SEBETA TOWN

PROMOTERS- TOMAS

Sep, 2022
Addis Ababa, ETHIOPIA

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Table of Contents
Executive Summary...........................................................................................................4
1. INTRODUCTION........................................................................................................5
1.1. Project Justification..............................................................................................6
1.2. Objective of the Project.......................................................................................7
1.3. The Economic Significance of the Project........................................................8
1.4. Location, Infrastructure and land.......................................................................9
1.4.1. Location......................................................................................................... 9
1.4.2. Land Use Plan............................................................................................11
1.5. Location Map of the Area..................................................................................12
2. THE MARKET STUDY............................................................................................13
2.1. General considerations.....................................................................................13
2.2. Macro Economic Performance and the Contribution of Real Estate Sector
to the Ethiopian Economy...........................................................................................14
2.2.1. Macroeconomic Performance...................................................................14
2.2.2. Contribution of the Real Estate Sector....................................................15
2.2.3. The Legal Environment for Real Estate Development..........................15
A. Real Estate as a legal Term and a Concept..................................................15
B. Regulatory Experience......................................................................................16
C. The Ethiopian Law.............................................................................................17
2.3. Demand and Supply Analysis..........................................................................21
2.3.1. Demand Determination..............................................................................21
2.3.2. Demand and Supply Gap..........................................................................23
2.3.3. Market Prospects........................................................................................26
2.3.4. Target Customers.......................................................................................26
2.3.5. Marketing Strategy.....................................................................................26
2.4. Pricing................................................................................................................. 27
2.4.1. Terms of payment...................................................................................... 27
3. PROJECT AND TECHNICAL DESCRIPTION.....................................................28
3.1. Description of the Project / Product Mix..........................................................28
3.2. Project tasks and Office....................................................................................29
3.3. Construction Work and Technology................................................................29
3.3.1. Construction Inputs....................................................................................29
3.3.2. Construction Process.................................................................................30

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 3.3.3. Construction Process Flow.......................................................................30
3.3.4. Machineries and Equipments...................................................................30
3.4. Utilities.................................................................................................................30
3.5. Project Implementation.....................................................................................31
4. ORGANIZATIONAL STRUCTURE........................................................................32
4.1. Organization and Management.......................................................................32
4.2. Man Power..........................................................................................................32
4.3. Organizational Structure...................................................................................33
5. FINANCIAL REQUIRMENT AND ANALYSIS......................................................35
5.1. Total Investment Cost.......................................................................................35
5.1.1. Land, Building & Construction Cost.........................................................36
5.1.2. Machineries and Equipments...................................................................37
5.1.3. Vehicles....................................................................................................... 37
5.1.4. Office Equipments......................................................................................37
5.1.5. Initial Working Capital................................................................................37
5.1.6. Pre-service Expenses................................................................................38
5.2. Operating Expense............................................................................................38
5.3. Financial Analysis and Statements.................................................................38
5.3.1. Underlying Assumption..............................................................................38
5.3.2. Sources of Fund.........................................................................................39
5.3.3. Bank Loan Repayment Schedule.............................................................39
5.3.4. Depreciation Schedule...............................................................................40
5.3.5. Revenue Projection....................................................................................40
5.3.6. Balance sheet (Beginning of operation)..................................................40
5.3.7. Financial Statement...................................................................................41
5.3.8. Financial Analysis.......................................................................................42
6. ENVIRONMENTAL IMPACT ASSESSMENT......................................................44

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 Executive Summary
1.Project Name Real-Estate development

2. Nationality Ethiopian

3.Project Owner ALI

4.Project location 416/124 Sebeta

5.Project Composition Residential Real-estate 250 m2 , 432m2 house and

other related house for villa,G+1, G+2 service

6.Primeses Required land 2Hectare .

7. Total Investment Cost Br 100,000.000of which 30% equivalent to

30,000,000financed by the owners equity and the
rest 70% equivalent to 70,000,000 financed
through bank loan
8. Employment Opportunity 36 individuals permanently and 300 labors and
contract workers will be employed on temporary
bases for constructions.
9. Social and Economic Provide better house, employment opportunities,
Benefit generation of income, stimulates town economy
and benefits local people.

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 1. INTRODUCTION
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 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 owners of the real-estate company, Tim Abajifar general Trading
PLC , interested to invest in their existing land in, Sebeta . 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 area.

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

1.1. Project Justification

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.

In Ethiopia the demand for houses in urban areas especially in 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 Addis Ababa, surrounding area and regional cities throughout the

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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 Addis Ababa and

surrounding area.
 High population in Addis Ababa 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 of Ethiopia
 Expansion of infrastructural development in the town
 The government of Ethiopia promising five year growth and transformation
development plan (2010/11-2014/15), the will bring prosperity to its citizens
with collaboration with private sector investment actions.
 The regional government (Oromia) conducive investment packages for
development and poverty reduction.

1.2. Objective of the Project

The main objective of this project is to construct a high quality and comfortable
residential buildings with are son able price.

In relation to the above main objective, the project has the following specific
objectives;
 To develop the area to be comfortable for residential purpose.
 To create socio-economic benefits for the local community
 To consult the construction sector specially in design and supervision

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 1.3. The Economic Significance of the Project
The envisaged project deemed to add to the economic development of the nation
in general and district/region/area in specific with following ways:

1. Provide Quality House and Service

By constructing and selling best residential villas G+1 and G+2, the project will
contribute for the shortage of homes in the nation. Besides, the consultancy
service will provide quality service to its customers.

2. 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.

3. 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
336 permanent and temporary people.

Besides, in construction period many jobs will be created for local people.

4. Benefit For The Local Community

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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.

5. Stimulate the Town Economy Activity

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.

1.4. Location, Infrastructure and land

1.4.1.Location
The project area is very convenient for residential purpose. It is surrounding by
different residential and very near to the main asphalt road to north-west part of
Ethiopia. In general the project area is bounded by main asphalt road to the north,
village road to the East and West and resident to the South.

Infrastructural Assessment
A. Accessibility: - The main asphalted road which has been serving to
connect Addis Ababa to western parts of the nation is bounded with the
project.
B. Power and Water Supply:- The town 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:

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  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.

1.4.2.Land Use Plan

The organization has already a land, which is estimated to be a total of 20,000 m2
required to construct residential buildings. Land use plan indicated in table below.

Table Land utilization Plan

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 SN Description Measurement Quantity One Required Total
Land in m2 Required
Land in m2
1 House A
1.1 Villa (G+0) M2 300 250 75,000.00
1.2 Service room (Ground) M2
1.3 Green area, Spacing and Parking M2
Total Building (G+0) Compound area M2 300 250 75,000.00
2 House B
2.1 Villa (G+1) M2 100 430 43,000
2.2 Service room (Ground) M2
2.3 Green area, Spacing and Parking M2
Total Building (G+0) Compound area 100 430 43,000
2 House C
2.1 Villa (G+2) M2 50 430 21,500
2.3 Service room (Ground) M2
2.4 Green area, Spacing and Parking M2
Total Building (G+2) Compound area M2 50 430 21,500
5 Mall, Village Green area, Guard House, M2 10,000.00
Children, play ground, parking and
Waste Accumulation
6 Village Internal road & spacing M2 2,000.00
Total 151,661.00

2. 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.

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 2.1. 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 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.

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 2.2. Macro Economic Performance and the Contribution
of Real Estate Sector to the Ethiopian Economy

2.2.1.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).

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

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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.

2.2.2. 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.

2.2.3. 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,

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whatever the size of investment made on land relating to construction of
residential or commercial or commercial buildings,

B. Regulatory Experience

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

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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 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
building 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.

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In all types of free hold estates, it is impossible to say in advance at exactly
what moment they will come to an end. 2 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.
3
Ownership of land, the maximum right of which is exhibited by alienation, is
constitutionally prohibited in Ethiopia.4 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.5 Hence, even though the lease holder is a mere possessor by a
lease contract, any financing agreement remains valid as long as;

 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. 6

6
Civil Code(1960),Arts.

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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 Addis Ababa
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 shows that
there is wide opportunity for investment in real estate in Addis Ababa. The
findings are consistent with the Addis Ababa City Administration housing
survey studies. Several factors can be cited for this optimism in real estate
development, the following are however very important:

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  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

2.3. Demand and Supply Analysis

2.3.1.Demand Determination7
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

7
Ethiopian Banker Association, Real Estate Development in Ethiopia and role of Banks,
July 2007

19
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.

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

20
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 sectors in the economy- including land markets,
construction and labour markets-housing finance is also 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,

21
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

2.3.2.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
2008/09 35000
2009/10 35,000
Source: housing Administration Agency

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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 Supply Housing units Excess Demand

units) to be const. By City that must be filled

Admin. 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

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  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

Year Demand for Area in Construction Monetary Debt Finance

Housing units square cost/m2 (Birr) value (in requirement (in

that is to be filled meter billion billion Birr)

by private sector 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.

2.3.3.Market Prospects
Based on market study, the demand of residential real estate in Addis Ababa
Addis Ababa cityis very high. Therefore, the envisioned project will be successful
by entering in to this market in the town.

24
 2.3.4.Target Customers
The target customers of the project are higher income and middle-income earner
since the payment is finished with in long term time (10 years). Besides, for the
commercial centers different business in Addis Ababa city area are taken as a
target market.

2.3.5.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.
 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.

2.4. Selling Pricing

Based on the market price of similar residential real-estate around Addis Ababa
and surround area, the envisioned project set the price for its services as indicated
below;
Product UOM Total Average price Total Price of
home in Addis Ababa the company
in Birr in Birr
House A Unit 300 3,000,000.00 900,000,000
House B Unit 100 5,000,000.00 500,000,000
House C Unit 50 7,000,000.00 350,000,000
House D Unit 6 15000000 90,000,000

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Total 1,840,000,000

2.4.1.Terms of payment
The mode of the payment of the project will be 20% initially and within 10 years the
rest of payment without interest rate.

3. PROJECT AND TECHNICAL DESCRIPTION

3.1. Description of the Project / 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 A, House B,
House C as described as follow;

i. House A

26
In this product mix there will be a total of 300 houses with a total area of 250 and
250 m2 will be constructed on the proposed project area. It consists of G+0 Villa
(150 m2), Ground Service rooms (50 m2) and Green area, Spacing and Parking
(50 m2).

ii. House B
In this product mix there will be a total of 100 houses with a total area of 432 m 2
will be constructed on the proposed project area. It consists of G+1 Villa (250 m 2),
Ground Service rooms (100 m2) and Green area, Spacing and Parking (82 m2).

iii. House C
In this product mix there will be a total of 50 houses with a total area of 432 m 2 will
be constructed on the proposed project area. It consists of G+2 Villa (250 m 2),
Ground Service rooms (100 m2) and Green area, Spacing and Parking (82 m2).
iv. House D
In this product mix there will be a total of 6 houses with a total area of 2,000 m 2 will
be constructed on the proposed project area.
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 equipments for business when the construction finished.

3.2. 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.

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 3.3. Construction Work and Technology

3.3.1.Construction 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
 Sewerage and Water Supply Pipes PVC Pipes
 Dadex Pipe

3.3.2.Construction 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.

3.3.3.Construction Process Flow

The production process includes the following steps.

 Approval of Land
 Architecture Design
 Materials Procurement
 Erection of Foundations
 Construction of Structure

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

3.3.4.Machineries and Equipments

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

3.4. 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

29
 3.5. Project Implementation
The project's implementation is expected to take 30 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.

30
 4. ORGANIZATIONAL STRUCTURE

4.1. 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.

4.2. Man Power

The total manpower required for the company will be 36 permeant and 300
temporary persons. The manpower list and the corresponding salary expense are
shown in the table below.;
Table- Man power list, qualification and salary expenses
SN Position No Qualification Monthl Annual
y salary Salary in
in Br Br
1 General Manager 1 MSC/Construction 50, 60
management 000 0,000
2 Operational 1 BSC in Mechanical/Industrial 20, 24
Manager Engineering 000 0,000
3 Civil engineer 2 BSC in civil Engineering 20, 48
000 0,000
4 Senior engineer 1 BSC in civil Engineering with 20, 24
extensive exp 000 0,000
5 Architect 2 BSC in Architecture 20, 48
000 0,000
6 Senior architect 1 BSC in Architecture with 20, 24
extensive exp 000 0,000
7 Drafting 2 Diploma in drafting 20, 48
000 0,000
8 Human resource 1 BA in 15, 18
manager Management/Administration 000 0,000
9 Forman 2 Diploma in Construction 10, 24
000 0,000
11 Head, 1 BA in Mgt/Acct
10, 12
Administration &
000 0,000
Finance Dept.
12 Personnel 1 BA in HRM 10, 12
000 0,000
13 Marketing/ 1 BA in Marketing 8, 9

31
 promotion expert 000 6,000
14 Sales 2 Diploma in Sales Mgt 8, 19
000 2,000
15 Accountant 1 BA In Accounting 6, 7
000 2,000
16 Cashier 2 10+2 in Bookkeeping 5, 12
000 0,000
17 Secretary 2 Diploma in Secretarial science 5, 12
000 0,000
18 Office assistant 1 10+2 /active assistant 5, 6
000 0,000
19 Store keeper 1 Diploma in logistic mgt 5, 6
000 0,000
20 Purchaser 1 Diploma in supp. & Put. Mgt 5, 6
000 0,000
21 Guard/Security 1 Basic 3, 3
000 6,000
22 Janitor 1 Unskilled 3, 3
000 6,000
23 Driver 1 10 completed + certification 3, 3
000 6,000
24 Machine operator 1 10 completed + certification 8, 9
000 6,000
25 Daily Labor (For 300 Basic
10,800
construction
3,000 ,000
temporary)
Grand Total 330 15,204
,000

4.3. 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.

32
Fig Organization Structure of the Project

33
 5. FINANCIAL REQUIRMENT AND ANALYSIS

5.1. Total Investment Cost

The total amount of money that is required to establish the envisaged Real estate
Project is estimated to be birr 150,000,000

Table Summary of total investment cost

No Description Cost
1 Fixed Investment
1.1 Land, Building and Construction 18,400,000 0.00
1.2 Machines and Equipment’s 71,600,000 0.00
1.3 Vehicles and Motors 3,400,000 0.00
1.4 Office Furniture and Equipment 5,600,000 0.00
Total Fixed Investment Cost 109,000,000 0.00
2 Operating Expense 0.00
2.1 Raw Materials Purchase and Products 26,000,000 0.00
2.2 Salary Expense 8,000,000 0.00
2.3 Other Operating Expense 3,400,000 0.00
2.4 Pre-operating Expense 1,600,000 0.00
Total Operating Expense 39,000,000 0.00
15,000,000
Contingency (Lump sum) 10%
Total Investment Cost 150,000,000 0.00

34
 5.1.1. Land, Building & Construction Cost
No Description Land Unit cost in Total cost in
Requirement br. br.
(M2)
1,000 45,000,00
No Description
75,000 0
1 House A (Villa)
1.1 Service room (Ground)
Green area, Spacing and
1.2
Parking
1,300 25,900,00
2 House B (G+1)
43,000 0
1,500 22,250,00
3 House C (G+2)
21,500 0
2.2 Service room (Ground)
Green area, Spacing and
2.3
Parking
Total
Village Green area, Guard 700 5,050,000
House, Children, play ground, 21,500
4
parking and Waste
Accumulation
4,000 20,000,00
5 Village Internal road & spacing
10,000 0
Total 25,050,000

5.1.2. Machineries and Equipment’s

SN Description Measurement Qty Total cost in Br.

1 Generator Unit 1 2,500,000

2 Construction machineries LS 30,010,000
3 Construction tools LS 25,812,000
4 Worker Safety Equipment’s 6322,000
Total 31,600,000.00

35
 5.1.3. Vehicles
Unit Total
No Description Qty Price in Price in Remark
br. br.
1,391,35
2 Service 2 2,782,703 Duty free
1
1,328,10
3 pick up 3 3,984,324 Duty free
8
4 Forklift 3 843,243 2,529,730 Duty free
Total 9,296,757

5.1.4. Office Equipments

Unit cost Total cost
No Description Qty
in Br. in Br.
1
Managerial Tables 50 84,324 1,216,216
2
Secretarial chairs with table 50 42,162 1,108,108
3
Managerial Chairs 50 25,297 1,264,865
3
Computer and Printer 150 16,865 1,529,730
4
Shelf 200 8,432 1,686,486
5
Filing Cabinets 300 4,216 1,264,865
6
Customer Chair 100 2,108 210,811
7
Television 15 12,649 189,730
8
Waiting Room with sofa 1,000,000 421,622
9
others related service 3,550,000 1,496,757
Assembly chair and 500,
10 210,811
table(set) 000
Total 5,600,000

36
 5.1.5. Initial Working Capital

The initial working capital is estimated to be birr 45,000,000

5.1.6. Raw Materials Purchase and Products

A. Raw and Auxiliary Materials
The major raw materials and auxiliaries required for the Different real state raw
materials starting foundation to finishing parts 26,000,000 birr

5.1.7. Salary Expense

As indicated in part three of this study, the total cost of salary and wage is estimated to be
78,000,000 birrs.
5.1.8. Other Operating Expenses
Sr
. Annual Cost
Description Assumption Used
N in br
o
0.032% of fixed Investment
1 Property Insurance 5,000,000
Cost
2 Audit & Legal Fee 1,000,000 350 per month
3 Uniforms 200,000 1,000*200br
4 Telephone, fax and postal 100,000 450 per month
5 Cleaning goods supplies 500,000 500 per month
2 % of the Fixed
6 Repair and maintenance 1,000,000
Investment Cost
7 Advertisement 1,100,000 % of sales
Stationery and other office
6 100,000 400 per month
supplies
8 Electricity 5,000,000 0.335*225,000KW per year
9 Water 500,000 1.5*3,000m3 per year
1
Fuel 7,000,000 3000 lit*20 per year
0

37
1
Oil and lubricant 1,200,000 10% of fuel cost
1
1
Miscellaneous Expense 706,600 3000 per month
2
Total 23,400,000

5.1.9. Pre-service Expenses

No Description Cost in br.

1 Project proposal 20,000
2 EIA 100,000
3 Licensing fee and others 10,000
4 Staff Capacity Building 1,500,000
5 For Adverting 6,000,000
6 Lease 2,000,000
Total 5,600,000

5.2. Financial Analysis and Statements

5.2.1.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 8.4 br per year for 99 years
Lease payment period 10 years

B. Depreciation

Vehicles 20%
Building Machinery and equipment 10%

38
Office Equipments
10%

5.2.2.Sources of Fund

No Description % share Amount(in birr)

1 Owners Share 30 45,000,000

2 Bank Loan 70 105,000,000

Total 100 150,000,000

5.2.3.Bank Loan Repayment Schedule

Principal Total Annual Remaining
Year Interest (10%)
Payment Payment Balance
0 0 0 0 105,000,000
1 15,000,000 15,000,000 109,200,000 491,400,000
2 15,000,000 49,140,000 103,740,000 436,800,000
3 15,000,000 43,680,000 98,280,000 382,200,000
4 15,000,000 38,220,000 92,820,000 327,600,000
5 15,000,000 32,760,000 87,360,000 273,000,000
6 15,000,000 27,300,000 81,900,000 109,000,000
7 15,000,000 21,840,000 76,440,000 163,800,000
8 15,000,000 16,380,000 70,980,000 109,200,000
9 15,000,000 10,920,000 65,520,000 15,000,000
10 15,000,000 5,460,000 60,060,000 0

5.2.4. Annual depreciation schedule of the fixed Asset ( birr)

S Original Value Depreciation Depreciation

Description
N In Birr rate in % Per year

39
 Construction and
1 109,000,000 5 10,920,000
Civil Work
Machines &
2 17,600,000 15 25,740,000
Equipment’s
3 Vehicles 3,400,000 20 4,680,000
4 Office Equipment 5,600,000 15 2,340,000
Total 135,600,000 3,680,000

5.2.5.Balance sheet (Beginning of operation)

Balance Sheet
Asset
Current Asset
Cash 39,000,000
Inventory of raw materials and inputs 26,000,000

Total Current Asset 65,000,000

Fixed Asset
Land, Building and Construction 109,000,000
Machineries and Equipment’s 17,600,000
Office Equipment 5,600,000
Vehicles 3,400,000
Total fixed Asset 135,600,000
Total Asset
Liability
Account payable 105,000,000
Owners Equity 45,000,000
Capital
Total Liability & Owners’ Equity 150,000,000

40
 5.2.6.Financial Statement
1. Income Loss Statement, projected

Income Loss Statement

Revenue Year 1 Year 2 Year 3-10
1,932,000,00 2,028,600,00
Sales 1,840,000,000
0 0
Sales expenses (5%)* 92,000,000 96,600,000 101,430,000
Purchase of Raw Material 156,000,000 265,075,095 265,075,095
1,666,924,90 1,763,524,90
Gross profit 1,684,000,000
5 5
Expenses
Salary Expense 78,000,000 81,900,000 85,995,000
Operating Expenses 23,400,000 24,570,000 25,798,500
Pre-operating Expense 15,600,000 16,380,000 17,199,000
Deprecation Building 10,920,000 10,920,000 10,920,000
Deprecation machine 25,740,000 25,740,000 25,740,000
Deprecation Vehicles 4,680,000 4,680,000 4,680,000
Deprecation office Equip 2,340,000 2,340,000 2,340,000
Lease Expense 16,340,000 16,340,000 16,340,000
Interest Expense 15,000,000 49,140,000 5,460,000
Total Expense 231,620,000 232,010,000 194,472,500
1,932,000,00 2,028,600,00
Profit Before Tax 1,840,000,000
0 0
Tax(30% ) 552,000,000 579,600,000 608,580,000
1,352,400,00 1,420,020,00
Net Profit 1,288,000,000
0 0

Cash Flow
Statement

Particulars Year0 Year I Year II Year III-XI

A. Cash Inflow 0
· Own equity 45,000,000
· Bank loan 105,000,000
· Depreciation 0 43,680,000 43,680,000 43,680,000
· Net profit 0 1,288,000,00 1,352,400,00 1,420,020,00
0 0 0
Total inflow 1,331,680,00 1,396,080,00 1,463,700,00
150,000,000 0 0 0

41
B. Cash outflow 0
· Fixed capital 429,000,000
· Working capital 273,000,000
. Contingency (Lump 78,000,000
sum) 10%
· Loan repayment 15,000,000 49,140,000 5,460,000
Total outflow 150,000,000 15,000,000 49,140,000 5,460,000
Net inflow (A-B) 1,277,080,00 1,346,940,00 1,458,240,00
0 0 0 0
Cumulative balance 1,277,080,00 1,346,940,00 1,458,240,00
0 0 0 0

5.2.7.Financial 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 8 year of
operation.

42
 6. 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.

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