A Bold Bet on Affordable Housing Faces Skepticism, Financial Roadblocks

Mekelle: 23 May 2024 (Tigray Herald)

A Bold Bet on Affordable Housing Faces Skepticism, Financial Roadblocks

The federal government is embarking on an ambitious venture with the “Chaka Satellite City” project, which will incorporate thousands of “affordable housing units” through a new public-private partnership (PPP) initiative.

Consulting firms are under review to conduct a feasibility study, a process that comes amidst the re-tendering of a separate pilot PPP housing project due to low developer interest. The Prime Minister’s Office (PMO) targets nearly 10,000 housing units across 14 projects in the Chaka and Tiyit Bet areas. The Office proposes a structure where developers retain 70pc of the units built on nearly 4,000hct to recoup investments after project completion.

The Chaka Project is a massive undertaking that plans to include artificial lakes, recreational halls, and greenery in the Yeka and Lemi-Kura districts. Hundreds have been paid with compensations to resettle in Woreda 09, around the Kotebe area, to make way for a 5.3Km underground transmission line connecting the project to the Kotebe-Bela area and a 132/15KV mobile substation.

The Ministry of Finance, with a part of 4.43 million dollars in funding from the African Development Bank (AfDB), invited prospective bidders to submit an expression of interest two months ago to produce a feasibility study. The deadline to submit documents was closed last month. Berhanu Anbessa, the Ministry’s head of the international financial institutions’ cooperation division, expects to begin evaluations for shortlisted firms soon after the screening process concludes.

“Consulting firms are under review,” he disclosed to Fortune.

The feasibility study’s results, along with financing, scope, and options, will impact the project’s implementation. The selected firm is expected to show value for money and risk transfer for the project through the study, which should be completed four months after commencement. While a pipeline of PPP projects has often been proposed for massive infrastructure, energy, and mining projects, implementation has been limited to housing over the past few years. Around 79,800 units are part of the long list planned under the affordable housing project to address the surging demand for accommodations with the rising demand.

A Bold Bet on Affordable…

However, due to a lack of sufficient interest, the pilot PPP housing for the Ethiopian Broadcasting Corporation (EBC) and the Federal Housing Corporation (FHC) will be re-tendered in the next weeks.

Management from a leading local consulting company shed light on the difficulty of attracting participants in the PPP space due to the slow construction sector.

“Only a few large companies or overseas investors will likely engage,” said one executive. “PPPs have yielded few successes in housing.”

According to officials, this comes from the PPP format’s perceived complexity and financial requirements.

Abebe G. Yihdego, head of the PPP unit at the Ministry, said local developers found the financial requirements for participating in the project too high and a bit complicated. He disclosed that the next round of tenders would allow specific modalities to accommodate international companies in a consortium.

“We’ll reissue the tender with some changes,” Abebe told Fortune. “The modalities are different from what local developers are used to.”

He was referring to the recent changes to the investment law, which allow foreign nationals to mobilise capital and equity to enter the PPP scheme. During his meeting with the country’s highest taxpayers, the Prime Minister also signalled the opening for overseas real estate companies to own properties.

Most developers treated the requirement for equity investment and other peculiar features as unfamiliar territory despite three companies showing interest, with only one making it due by the deadline.

The Integrated Housing Development Program (IHDP) was a notable attempt to expand housing projects through private and public sector linkage. These, a.k.a. condominium projects, have seen the construction of nearly 226,000 units in nearly two decades.

It had the German Technical Cooperation (GTZ) as an implementation agency early to develop what were to be model units. During the construction of the first full-scale low-cost housing program, an attempt was made to emulate mass housing projects with initial model units. Partnerships between GTZ and a local firm, MH Engineering, led to pilot projects around the Gerji area in the Bole District, which had 696 housing units distributed in 28 blocks. These were meant to serve as a springboard for an institutional capacity to produce 50,000 units annually.

However, a report by the Center for Affordable Housing Finance in Africa released last year estimated that Ethiopia’s housing demand would require close to 486,000 new urban homes each year. Industry veterans like Abebe Dinku believe that PPPs can be successful if flexible requirements allow negotiations. According to Abebe, the federal government should explore foreign companies’ expertise in the initial stages while encouraging the participation of local developers in the long run.

“No quick rejections should be a working principle,” Abebe told Fortune.

Early participants in similar schemes agree.

Mesele Haile, managing director of MH Engineering Plc, a pioneer in low-cost housing, views PPPs as a critical tool for affordable housing. He believes government-subsidised land for developers can ease difficulties like limited access to mortgage financing and high real estate costs for many.

“Sensible subsidies can make a big difference,” he said.

Mesele, also one of Country Club Developers’ (CCD) three shareholders, suggested that the large-scale condominium project could have achieved its 400,000-unit target if not for the surge in construction material prices.

“The current PPP structure can be profitable for competent developers,” he said.

Several industry experts agree that, given the ambitious housing plans, the success of projects like Chaka will depend on overcoming financial and logistical hurdles, leveraging local and international expertise, and creating a conducive environment for public-private partnerships.

Source፡Addis Fortune

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