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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 99.3, which one of the lowest values in the world.
Ethiopia is currently facing a number of challenges, including widespread poverty, food insecurity, and political instability, which have left the country in a vulnerable state and weakened its ability to respond to any further shocks. Additionally, Ethiopia is currently dealing with a major refugee crisis, caused by conflict in neighboring countries, which has further destabilized the country.
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 2023 with a growth rate of 6.1%, which reflects the country's accelerated progress. As for 2024, we're talking 6.4%.
That's not all - this impressive growth will keep going on since Ethiopia's economy is expected to increase by 29.4% during the next 5 years, resulting in an average GDP growth rate of 5.9%.
The expected massive growth in Ethiopia provides a great opportunity for investors to get in on the ground floor of the country's development. As the population and economy grows, so too does the demand for real estate, making it a lucrative 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 (+3% 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 2024.
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, inflation forecasts are reaching record highs
Positive
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 95.2%, which gives us an average yearly increase of 19.0%.
This data is telling us that Ethiopia is expected to have significant inflation. Purchasing property now has the potential for its value to increase over time, leading to a possible profit when selling.
Is it a good time to buy real estate in Ethiopia then?
Time to conclude !
Despite a few favorable signals, 2024 might not be an ideal time for property investment in Ethiopia due to substantial concerns arising from the negative signals. While the country is projected to experience growth and its population is showing signs of increasing wealth, the precarious political and economic situation raises significant red flags for potential investors.
The projected growth in Ethiopia is promising, but the current fragility of the country's environment should be a primary concern. Political instability and conflict can undermine economic projections and have adverse effects on property investments. Such uncertainties can greatly impact the long-term stability of real estate holdings.
The combination of a growing population and increasing wealth may suggest potential demand for property, but these positive signals must be considered alongside the highly fragile state of the nation. The ongoing political unrest and societal challenges can impede the expected benefits of population-driven demand for real estate.
Despite extremely high rental yields, it's important to recognize that the investment climate must be conducive to the consistent generation of rental income. The negative signals, particularly the soaring inflation forecasts and the country's fragility, can disrupt economic activities, affecting the ability of tenants to sustain rental payments and the overall profitability of property investments.
Given that Ethiopia is currently experiencing a high degree of fragility, characterized by political tensions and other challenges, these negative signals greatly outweigh the positive ones. In such an environment, the potential risks associated with property investment in 2024 are substantial, and careful consideration is advised before making any investment decisions in the Ethiopian real estate market.
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.
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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.
Buying real estate in Ethiopia can be risky
An increasing number of foreign investors are showing interest in Ethiopia. However, 90% of them will make mistakes. Avoid the pitfalls with our comprehensive guide.
