Land confiscation causes banks in Ethiopia to lose 400m birr

Addis Ababa-based business journal Capital Ethiopia reports that the recent confiscation of lands from investors by Meles Zenawi’s puppet mayor of Addis Ababa, Kuma Demeksa, is causing private banks to lose over 400 million birr. Many of the investors are Woyanne members and supporters who have already taken their money out of the country in hard currency. While Woyannes take their money out, some fools in the Diaspora continue to take their money to Ethiopia to lease land, not realizing that it can be confiscated any time at the whim of the regime without due process. That is one of the costs of keeping oneself politically ignorant and becoming unaware of developments in Ethiopia. It is inevitable that the financial system will collapse due to the massive corruption and all those who are depositing their money in Ethiopian banks will be left empty-handed. — Elias Kifle

(Capital Ethiopia) — Several private banks will lose more than 400 million birr in loans to four real estate developers after the Addis Ababa City Administration under Kuma Demeksa’s order reclaimed their plots. The real estate developers allegedly used the land illegally as collateral to obtain bank loans and subsequently transferred them to third parties.

The city administration says it considers suing the real estate developers, [including construction mogul Samuel Tafesse who has recently built a $5 million mansion in a suburb of Washington DC].

An official told Capital that the City Administration reclaimed over 200,000 square meters of idle plots from the four real estate developers. He says the state owns the plots and no one has the authority to sell or transfer them, except the city administration.

Without mentioning the exact amount of money, the official claims the hundred millions of birr that has been disbursed by commercial banks will automatically be lost as per the national law. He says every real estate developer has borrowed more than hundred million birr from the banks.

Banks will also lose the money they gave out for the construction of real estate developers. Construction built on some of the sites reclaimed, will be removed or will be used by the administration after it pays a compensation for the work done at the site. The banks will lose the rest of the money they disbursed to the real estate developers.

According to the Ethiopian law, it’s prohibited to offer vacant plots without any construction on it as collateral, since the land is state-owned. The official further notes that the four real estate developers did in fact construct something on their land: a tiny hovel at one side of the plot, simply to secure the loan from the banks.

A bank president says the policy of most banks on construction loans is to approve the loan request when the client is able to provide a title deed from the city administration and an approved construction plan. If they fulfill these conditions, the banks, who also visit the plots, usually provide them with a loan.

Addis Ababa Mayor Kuma Demeksa said last week that only 18 percent of a total of 5.9 million square meter of land slated for real estate is used properly. He further said that the rest of the plots is transferred to third parties or used as collateral for loans without any construction being built.

The source at the city administration says they are looking into suing those who abused the land rules. Those who transferred their plots to a third party, and those who bought plots, irrespective of whether they have constructed or not, will be taken to court. The court will handle the case and give them a final verdict, he says.

The city administration will continue its recent massive plot reclaiming, which is in its second phase. Over two million square meters of plot from different real estate developers has already been taken back. This accounts for over 33 percent of the total amount of land given for real estate development.

According to Addis Ababa officials, the administration reclaimed over 1.5 million square meters from real estate developers that failed or refused to start construction within eighteen months since the operation started two weeks back. Furthermore, the city reclaimed more than 500,000 square meters of plot that has been held illegally by real estate developers. If the city would have leased the 2 million square meters against an average price of 3,000 birr per square meter it would have gained over 6 billion birr.

The reclaiming operation is part of the city’s measures against 120 real estate developers who it said have violated rules and regulations of the city. Since 1997, the city has slated out over 5.9 million square meters of plots to 125 real estate developers in different parts of the city.

Most lease agreements require developers to deliver their housing units within 24 months from signing the contract and should at least start construction within eighteen months. However, this has been a difficult condition to meet for developers. According to some of them, the primary reasons for the delay include poor infrastructure, escalation of construction material costs and financial problems.

The cost of construction in the city is about 8,000 birr per square meter according to engineering estimates. The real estate developers are also lodging complaints against the city, saying that the administration has triggered the delay itself by creating obstacles in relation to the clearing of plots.

More problems loom ahead for some of the real estate developers. Their clients, who have fully paid for their still-to-be-build homes and who are awaiting the completion of the construction, are expected to officially lodge complaints soon.

FORUM | AMHARIC