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Everything you need to know is included in our Ethiopia Property Pack
Are you considering buying real estate in the land of Origins? Are you pondering if it's the right time to buy or if you should consider waiting until next year?
Each person has their own stance on market timing. Your Ethiopian acquaintance might suggest that now is a perfect time to invest in property, whereas your spouse, who is originally from Addis Ababa, might have a different view and recommend waiting for more stability.
At TheAfricanvestor, when we create articles or update our pack of documents related to the real estate market in Ethiopia, we base our work on facts and data we can trust, not opinions or rumors.
We've done extensive research on official reports and government website statistics, resulting in a comprehensive database. Here's what we've learned, which can provide valuable insights for your decision-making process regarding real estate purchase in Ethiopia.
We hope you'll find practical value in this article.
How is the property market in Ethiopia now?
Ethiopia is, as we speak, a very fragile country
Negative
Stability should always be the leading factor to consider when you want to invest in real estate because it ensures future planning and financial security. It is an information you need as a foreigner looking to buy real estate in Ethiopia.
Unfortunately, today, Ethiopia is far from being a stable country. The last Fragile State Index reported for this country is 98.1, which one of the lowest values in the world.
Ethiopia is currently a very fragile country due to ongoing ethnic tensions and conflicts, particularly in regions like Tigray, which have led to humanitarian crises and destabilized the political landscape. Additionally, the country's economic challenges, exacerbated by these conflicts and the impacts of climate change, further strain its social and governmental structures.
First signal is definitely negative. Let's examine more data.
Ethiopia is projected to grow (a lot!)
Positive
Before investing in Real Estate, look at the performance of the country's economy.
As per the IMF's forecasts, Ethiopia will end 2024 with a growth rate of 6.2%, which reflects the country's accelerated progress. If we take 2025, we're talking 6.5%.
That's not all - this impressive growth will keep going on since Ethiopia's economy is expected to increase by 30% during the next 5 years, resulting in an average GDP growth rate of 6%.
Ethiopia's expected massive growth means more people will need places to live and work, driving up demand for real estate. This increased demand can lead to higher property values and rental income, making it a potentially profitable investment opportunity.
That said, GDP growth is just one piece of the puzzle!
Ethiopia's population is growing and getting a lot richer
Positive
When you buy real estate, it's crucial to think about population growth and GDP per capita, since:
- a growing population means more people needing homes
- a higher GDP per person means people have more money to spend on housing (which can lead to increased property value over time)
In Ethiopia, the average GDP per capita has changed by 15.2% over the last 5 years. Almost no country has done better. Furthermore, the Ethiopian population is growing (+19% in 5 years).
This means that, if you purchase a traditional house in Lalibela and rent it out, you will find that each year, you'll attract more tenants with sufficient funds to cover the rent.
If you're considering purchasing and renting it out, this trend is a good thing. Then, there might be a rise in rental demand in Ethiopian cities like Addis Ababa, Dire Dawa, or Bahir Dar in 2025.
Rental yields are extremely high in Ethiopia
Positive
To gauge the profitability of a property investment, pay attention to the expected rental yields.
It's the annual rental income of a property divided by its price. For example, if a property in Ethiopia is purchased for 2,000,000 ETB and generates 100,000 ETB in annual rental income, the rental yield would be 5%.
According to Numbeo, rental properties in Ethiopia offer gross rental yields ranging from 10.0% and 12.7%. You can find a more detailed analysis (by property and areas) in our pack of documents related to the real estate market in Ethiopia.
It's among the best in the world.
Everything you need to know is included in our Ethiopia Property Pack
In Ethiopia, expect minimal inflationary effect
Neutral
In two words, inflation is when expenses inflate.
It's when your go-to cup of Ethiopian coffee costs 30 Ethiopian birr instead of 25 Ethiopian birr a couple of years ago.
If you're considering investing in a property, high inflation can bring you several advantages:
- Property values tend to increase over time, leading to potential capital appreciation.
- Inflation can result in higher rental rates, thereby increasing the cash flow from the property.
- Inflation reduces the real value of debt, making mortgage payments more affordable.
- Real estate can act as a hedge against inflation, preserving the value of the investment.
- Diversifying into real estate provides stability during inflationary periods.
As indicated by IMF projections, over the next 5 years, Ethiopia will have an inflation rate of 1.0%, which gives us an average yearly increase of 0.2%.
This data is telling us that Ethiopia is anticipated to experience negligible inflation. Unfortunately, in the absence of inflation, purchasing a property now may not result in substantial price increases or substantial profits in the future.As a foreign investor, purchasing property in Ethiopia while the currency is low could offer a cost advantage, as the initial investment may be cheaper in terms of foreign currency. However, the potential for currency volatility and economic instability could pose risks to the investment's long-term value and returns. It is crucial to conduct thorough due diligence on the local real estate market and economic conditions to assess whether the potential benefits outweigh the risks.
Is it a good time to buy real estate in Ethiopia then?
Time to conclude !
While Ethiopia's economy is projected to grow significantly over the next few years, making it seem like a promising time to invest in property, there are several factors that might make 2025 not the best time to buy. Firstly, Ethiopia is currently a very fragile country, with political instability and social unrest that could impact the real estate market. These uncertainties can make property investments risky, as changes in government policies or civil disturbances could affect property values and ownership rights.
Moreover, the impressive economic growth, with an expected 30% increase over the next five years, might not translate into immediate benefits for property investors. While a growing economy typically boosts demand for real estate, the rapid pace of growth could lead to speculative bubbles. This means that property prices might inflate beyond sustainable levels, making it difficult to find affordable investment opportunities or achieve long-term returns.
Additionally, Ethiopia's population is indeed growing and becoming wealthier, which should theoretically increase demand for housing and commercial spaces. However, this demographic shift might also lead to increased competition among investors, driving up property prices and reducing the potential for high returns. The market could become saturated, making it challenging to find lucrative deals or tenants willing to pay high rents.
Lastly, while rental properties in Ethiopia currently offer attractive gross rental yields, ranging from 10.0% to 12.7%, these figures might not remain stable. Economic growth can sometimes lead to inflationary pressures, even if minimal, which could erode rental income and property values. Therefore, despite the promising economic indicators, the combination of political instability, potential market saturation, and inflation risks might make 2025 a less favorable time to invest in Ethiopian real estate.
We genuinely hope this article has been helpful and informative to you!. If you need to know more, you can check our our pack of documents related to the real estate market in Ethiopia.
-Will real estate prices go up in Ethiopia?
This article is for informational purposes only and should not be considered financial advice. Readers are advised to consult with a qualified professional before making any investment decisions. We do not assume any liability for actions taken based on the information provided.