3.

3 Residential Real Estate Development

3.3.1 Overview of the Residential Real-Estate Development Sub Sector

Residential real estate properties are mainly constructed for the sole purpose of providing shelter.
Residential real estate may contain either a single family or multifamily structure that is available
for occupation or for non-business purposes.
The importance of housing to individual lives, community and society cannot be overestimated.
The link of housing to the socio-political life of a country, the economy and the very fabric of
how people live and organize their systems of interaction and development, especially in urban
settings, is elemental.
Moreover, housing is an integral element of a given economy. Its backward and forward linkages
with other parts of the economy closely bond people’s needs, demands and social processes with
the supply of land, infrastructure, building materials, technology, labour, and housing finance.
These linkages allow housing to act as an important engine for sustainable development and
poverty reduction in both society and the economy. Access to a diverse, quality housing stock
that is affordable to households sets a foundation for inclusive growth.
Without a functioning housing sector, urban centers cannot be established or developed. In
general, the availability of adequate, sufficient, housing that is affordable, in the right locations,
that meets people’s different needs and is of good quality is the basic characteristics of a vibrant
housing sector.
Adequate shelter as defined in the Habitat Agenda means more than a roof over one’s head. It
also means adequate privacy; adequate space; physical accessibility; adequate security; security
of tenure; structural stability and durability; adequate lighting, heating and ventilation; adequate
basic infrastructure, such as water-supply, sanitation and waste-management facilities; suitable
environmental quality and health related factors; and adequate and accessible location with
regard to work and basic facilities: all of which should be available at an affordable cost.
Adequacy should be determined together with the people concerned, bearing in mind the
prospect for gradual development.
Residences can be classified by, if, and how they are connected to neighboring residences and
land. Different types of housing tenure can be used for the same physical type. For example,
connected residents might be owned by a single entity and leased out, or owned separately with
an agreement covering the relationship between units and common areas and concerns. The
major categories of residential buildings are;
 Attached / multi-unit dwellings
 Apartment or Flat– An individual unit in a multi-unit building. The boundaries of
the apartment are generally defined by a perimeter of locked or lockable doors.
Often seen in multi-story apartment buildings.
 Multi-family house – Often seen in multi-story detached buildings, where each
floor is a separate apartment or unit.
 Terraced house (a. k. a. townhouse or row house) – A number of single or multi-
unit buildings in a continuous row with shared walls and no intervening space.
 Condominium – Building or complex, similar to apartments, owned by
individuals. Common grounds and common areas within the complex are owned
and shared jointly. In North America, there are townhouse or row house style
condominiums as well.
 Semi-Detached Dwellings
 Duplex – Two units with one shared wall
 Detached Dwellings
 Detached house or single-family detached house
The size of an apartment or house can be described in square meters. This includes the total area
of the walls enclosing the home, thus including any attached garage and non-living spaces. It can
be described more roughly by the number of rooms. A studio apartment has a single bedroom
with no living room (possibly a separate kitchen). A one-bedroom apartment has a living or
dining room separate from the bedroom. Two bedroom, three bedroom, and larger units are
common (a bedroom is a separate room intended for sleeping. It commonly contains a bed and,
in newer dwelling units, a built-in closet for clothes storage.)
3.3.2 Trend and Structure of Housing Market in Mekelle
The structure of a market refers to the number and characteristics of the stakeholders in it or the
markup of the stakeholders operating in a particular market. The market for real estate in
Mekelle in particular and in Tigray is heterogeneous and comprise of owners, public and private
firms and different institutions as developers and users.
A comprehensive, up-to-date data on the trend in new housing construction in Mekelle’s is
unavailable. In general, the real estate market in Mekelle is evolving into a varied mix of
government-built condominiums, mid-market developments by housing cooperatives, and
largely high-end homes built by real estate developers and/or homeowners themselves.
In general, according to Mekelle City Administration, the main suppliers of housing in Mekelle
are the individuals (formal), cooperatives, public, real estate developers and the informal sector.
The dominant player in housing development is the private or individuals who have been legal
privileges in accessing land through periodical land provisions by the city government.
Furthermore, recently the city government has also actively promoted cooperative based housing
development through availing financial sources and around land per individual.
a) Owner-Built Housing Construction
Housing units built by owners were by far the most common type of new residences before the
advent of government-built condominiums and real estate developers within the past decade.
However, there is a tendency of reduction in the proportion, this portion of the real estate market
is still the most active one and more residential houses have been supplied by in the city of
Mekelle.
Usually in Mekelle owner built residential homes are villa types, which are mostly a free
standing structure with a compound of several buildings.
As referred from the Structure plan of Mekelle (2014) by Mekelle University, the city’s recent
residential sites are block level layout of houses having a rectangular shape where as in the old
settlements which are squarish. The average plot size ranges between 140 and 250 m 2 in many
formal residential developments. The blocks run from 70 to 90m in length in these areas. The
number of plots within a block also ranges from 10 to 28; whereas blocks in the old settlements
are smaller (many as small as 45-60m).
Costs for owner-built construction are, of course, generally higher and this segment of the market
thus tends to include the full range of housing units from modest homes constructed over
extended periods to large and luxurious homes often built by razing or replacing older properties.
b) Private Housing Cooperatives
Since the late 1970s housing cooperatives have also provided an avenue for home ownership.
This delivery method was established in 1978, through Proclamation No. 138. The approach is
for citizens to organize themselves into small groups (between 10 and 20 people), register as a
cooperative group for land allocation, develop savings capacity, prepare settlement plans, receive
land and secure tenure, and largely build their housing themselves incrementally. Cooperatives
have received varying levels of government support.
The private housing cooperative is one of the major formal housing delivery mechanisms. It is a
continuation of a housing delivery system introduced during the Dergue regime. Post-1991
private housing cooperatives made 75 to 250 m2 plots of land available for individual
households. Under the private housing cooperative system groups of individuals establish
cooperatives which then request land from the government.
In recent years, Private cooperatives contributed significantly to formal housing supply in in the
city of Mekelle. At present, the city administration has registered more than 3,524 housing
cooperatives, which considering that the minimum and maximum membership in housing
cooperative is 16-24, respectively or mostly on average 20 members in one housing cooperative
(70,000 households). A good number of these cooperatives members are in the middle-income
group, typically based on employer associations. Accordingly, the city government provide 84m 2
land per household for 569 housing cooperatives in 2009EC (2016/17) and 349 households in
2011 EC (2018/2019). During the first phase the government allowed row houses of G+1 while
in the later year G+3 houses. The transferred land plots are found in the middle of two adjacent
sub cities of Adihaki and Hadnet. The total plat of land in the first phase is around 1001 blocks
that have 1680m2area coverage.
The land distribution has been undertaking as per the directive No 3/2009, Mekelle city
administration; that after the cooperative associations gain the legal registration certificate and
they secure the 50% (estimated around 120,000 Birr) cost of construction in blocked account and
land lease of approximately price 485 birr/m2 for 99 years of lease contract period. Besides these
beneficiaries are required to contribute 5,000 birr per household for the cost of land
compensation of displaced farmers from their farming land and it is considered as a recovery
cost of building design and other administrative costs. Furthermore, land is transferred to the
associations through lottery system.
However, there has been efforts undertaking in the city regarding land provision and availing of
financial support and credit facilities, there exists a large waiting lists for land allocations, around
2,679 housing cooperatives or more than 53,000 households; indicate that this segment of the
market will continue to contribute to overall growth of the real estate market in the years ahead.
In general, since 2008, the cooperative housing program, initiated by the regional government;
has been implemented and contributed for solving the city’s deep rooted problem and huge back
log demand of housing.
c) Private Real Estate Developers
The private real estate development sector of the country has undergone tremendous changes and
development since the late 60s. Prior to the late 60s foreign developers used to carry out a large
share of major works. Local developers began to emerge in smaller numbers during the late 60s
and early 80s. However, the industry lost its stamina of growth and expansion during the period
1982 - 1991 when the then socialist command economic policy of the country put them under
state control.
However, having realized the important role the industry plays in economic development, the
trend was reversed in 1991, when EPRDF came to power and adopted free market policy. The
policy among other things laid a cornerstone for the increased role of private sector initiatives in
the economic development process of the country. The National Urban Development Policy also
emphasizes the role the private real estate development sector can play in providing housing for
the high-income group under the framework of free market principles.
Accordingly, the government has attempted to put in place the appropriate policies and
institutional structures necessary for creating conducive business/ operating environment for
development and operations of real estate products by the private sector. Since then, trends in
private real estate development have shown unprecedented growth.
In Mekelle, even if it has been a recent or a decade history of development, there are around 5
private real estate developers. Among these, in this year SUR construction PLC has taken around
100 hectares of land for large scale development. Furthermore, from the other operational real
estate developers, Kelamino real estate has been actively operational.

Table 3.1: List of Real Estate Developers In Mekelle City

Allocated Land
S/N Developers Name
(ha)
1 Profession General Mechanics developer 2.4
2 Dora Real Estate 2.7
3 Kelamino Real Estate 5.5
4 YTY Construction (Gezana) Real Estate 1.8
5 SUR Construction PLC 100

Regarding the number of housing units constructed by the real estate developers, no substantial
data is available. However, during field visit of the selected sites (Kelamino developer)
individual housing units are built up around 300 to 50m2 plots of land.

In general, the private real estate sector has been increasingly contributing a considerable amount
of housing supply in Mekelle city.

d) Government Built Condominiums

A more comprehensive policy and strategic framework on housing emerged after the
introduction of Ethiopia’s first comprehensive urban development policy in 2005 which
informed the drafting of the Plan for Accelerated and Sustained Development Program
(PASDEP). Unlike the SPRPR, the 2006 PASDEP clearly laid out a strategy on how to curb the
challenges of access to urban housing and urban land. The Ethiopian government launched one
of the most expansive and large-scale public housing projects: the Integrated Housing
Development Program (IHDP), a multi-sectoral project that aimed to supply residential units
through the construction of condominium housing, while also providing infrastructure, services
and job opportunities. The IHDP specifically targeted at low- and middle-income households,
with the aim to clear all slums and contribute to Ethiopia’s desire to become a middle-income
country by 2025 (UN-Habitat, 2011). The multi-story commercial/-residential condominiums
also promote more efficient use of urban space through densification.

During 2006 - 2010, the government planned to construct a total of 360,000 condominium
housing units of which 175,000 (48.6%) were in Addis Ababa and the rest 185,000 (51.4%) in
selected regional towns. In terms of typology of the planned condominium houses, the
percentage share of Studio, one-bed room, two-bed rooms, and three-bed rooms was 21%, 41%,
30%, and 8% respectively.

However, country-wide, the programme only delivered 142,802 housing units during the planned
period i.e. about 40%. Of these, a little over 80,000 or 56% were built in Addis Ababa, spread
over thirty different sites. In terms of housing typology, the largest share (39.45%) was
accounted by one bed room units followed by two-bed room units (29.25%), studio (16.23%),
three-bed room units (8.50%) and commercial units (6.57%). The condominium programme,
limited as it was, minimized the city’s housing shortage by at least 17.6% (MoWUD 2013).

Regarding Mekelle city condominium housing development, during the period 2006-201, around
3,316 (2.32% share from the country) housing units were constructed and provided to the
beneficiaries’ households. Among the housing typology, the largest share (36.22%) was
accounted by one bed room units followed by two bed room units (29.13%), Studio (17.34%),
Commercial units (9.14%) and three bed room units (8.17%).

Table 3.2 : Summary of Condominium Housing Constructed from 2006-2010

Type Mekelle Ethiopia

Commercial 303 9,379
Studio 575 23,182
One bed room 1,201 56,333
Two bed room 966 41,763
Three bed room 271 12,145
Total 3,316 142,802
In general, the government has made huge investments in subsidized and affordable housing for
low- and middle-income residents. The construction of condominium housing has been
successful in increasing the city’s housing stock and improving the physical urban environment
through slum reduction. These efforts, however, have been overshadowed as delivery is minimal
as compared to the huge demand. According to the Mekelle Housing Development Agency,
more than 18,893 beneficiaries have been registered and waiting for the lottery draw while there
has not yet new condominium housing construction taking place in the city.

The condominium housing project is majorly pro-low income, i.e., focus on meeting the housing
demands of those on low income, whilst the private real estate companies aim to attract mainly
high-income and recently middle-income home buyers through availing different financial
raising mechanisms.

In general, even if condominium houses contributed substantial share for housing supply,
Mekelle city government has been recently shifts the direction to pro-private cooperative housing
development programme.

3.3.3 Trends in Factors Which Affect the Demand for Residential Real Estate in Mekelle
City
a) General
The housing sector is subject to market forces that affect a given locations economy as a whole.
The availability or scarcity of certain factors will result in changing prices, market distortions
and directly impact on the housing stock, housing affordability and housing quality etc.
The wellbeing of the national economy of a given location will directly affect the demand for
housing. Affordability is the primary constraint for most potential buyers and residents. The
macroeconomic conditions can act as a catalyst or restrictor to the general economy including the
housing market. Macroeconomic conditions can also influence distribution patterns within an
economy: unequal wealth distribution within a growing economy may prevent low income
earners purchasing property, for example, and therefore suppress demand for formal housing as
opposed to informal development, or continued slum formation.
Market demand in the housing sector is highly affected by demographic changes and rates of
urbanization. Issues of security of tenure and ownership will affect the strength and reliability in
the housing sector and, in turn, affect demand. Householders and investing developers make
logical decisions when investing time and effort in house-building and house-purchasing.
Complicated rules, housing subsidies, the level of bureaucracy associated with sale and transfer
of housing along with other aspects of property rights, will also affect demand.
The presence of housing subsidies dedicated financial institutions, low-income banking facilities,
cooperative systems, ease of obtaining mortgages etc. all affect the supply of (and demand for)
housing as they facilitate or enable the market to respond to demand.
Market supply in the housing sector is also affected by land availability, infrastructure, building
materials and the organization of the building industry. The quality of the labour force can also
have a big impact on the efficiency and standard of housing supply. Equally the technology used
in the building industry and the technical capacity of the national labour force will influence
housing supply.
Moreover, stable political environment, as well as conditions that support physical and personal
security, legal framework and the rule of law and corruption and governance concerns constitutes
the other main external factors which affect the housing sector.
Accordingly, in order to give an insight about the market for residential real-estate in Mekelle
city the above factors are briefly analyzed hereunder.
b) Physical Features and Spatial Expansion
Mekelle, the capital of the Tigray Region, is located about 780 km from the capital, Addis
Ababa. Geographically the city is located between 33024’30” to 13036’52” latitude and
39025’30” to 39038’33” Longitude. It lies in an altitudinal range of 2150 - 2270 meter above sea
level. The city is bounded in the north and east by hills while in the south and west it consists of
relatively flat topography. The eastern ridge known as Choemea is the highest pick of the city.
The city is rapidly expanding toward north, North West, and Western direction.
During the reign of emperor Yohannes the IV, the city was relatively equivalent to a small
village. After 140 years, the city has expanded tremendously by engulfing many small villages
and towns up to 30 km surrounding the center of the palace (RUPI, 2010). Table 3.26
summarizes the spatial growth of the city in the past 55 years.
Table 3.3: Mekelle City Expansion Pattern at Different Periods of time

Year Hectare km2 Source Physical Growth

MU Structure plan
1963 240 2.4 Base year
preparation
1984 1,600 16 1993 plan 566.7% in 21 years
1994 2,304 23.04 1993 plan 44% in 10 years
2004 5,300 53 Mekelle city 130% in 10 years
2006 7,400 74 Mekele city 39.6% in 2 years
 2014 9,815 98.15 Mekele city 32.6% in 8 years
Mekelle city (2010EC/
2018 11,221 112.21 14.3% in 4 years
2018/19 report)
Source: Urban rural linkage /TUDO/ (2008); Mekelle University, Structure plan preparation
(2014); Mekelle city Administration Finance and Economic Development Report
(2010/2018/19)

As can be seen from Table 3.13, the land area of Mekelle city, which was 240 hectare in 1963,
has increased by more than fiftyfold to 11,221 hectare in 2018, representing unprecedented
4,575% increase within 55 years, which is equivalent to a compounded average growth rate
(CAGR) of 83.19%, which makes Mekelle the fast expanding city in Ethiopia.
 Figure 3.1: Mekelle City Spatial Growth Trends

c) Size of Population and Growth Rate

Over the past decades, Mekelle has experienced rapid growth as the capital of Tigray Regional
State. In parallel with its growth the population size of Mekelle has also increased rapidly.

According to the first national population and housing census, the population of Mekelle as of
1984 was estimated to be 61,583. During the second national population and housing census
(1994) the total population was estimated at 98,825 which is a 60.47% increase (in ten years
period) compared to 1984. During the third national population and housing census (2007) the
population size is estimated at 215,546, which is a 118.11% increase compared to the population
size of 1994. Accordingly, between 1984 and 2007, the population of Mekelle city has more than
tripled, increasing by 250% or at a compounded average growth rate (CAGR) of 10.87%.
Moreover, by 2016, the population of the city has increased to 310,436 1. Hence, as compared to
2007 in 2016, the population of Mekelle city has increased by 44.02%, registering a CAGR of
5.50, which is higher than the national average urban population growth rate (4%). In terms of
sex, the female population takes the largest share, as of 2016, accounting about 55% of the total
population. The male population accounts 45%.

As of 2016, the total and urban population of Tigray region is estimated at 5.17 million and 1.25
million, respectively. Therefore, during the same year the population of Mekelle city accounts
for 6.0% and 24.67% of the total and urban population of Tigray region, respectively.
1
CSA’s 2015/16 Ethiopian Household Consumption Expenditure Survey, Results for Tigray Region
Based on the projection of the 2007 Population and Housing Census, the population of Mekelle
is projected to grow by 6.3%, 5.4% and 4.4%, of high, medium and low variant of growth.

The effect of demography on the residential real estate market depends on the population’s age
structure because people from different age groups may have different effect on the real estate
market. In Mekelle the age structure of the population is of pyramidal type, which is typical of a
developing country that is wide at the base and sharp at the tip due to the large number of
children under 15 years of age. Children under 15 years of age account for 25% of the
population, a feature of high fertility level. The economically active age group of the population
i.e. 15 – 64 accounts for about 69% of the population, while the population with the high
probability of new household formation i.e. between the age of 20 and 40, accounts for 42% of
the total. Accordingly, it can be concluded that the city’s fast-growing young population will
drive the demand for residential real estate. The age distribution of the population is shown in
Table 3.27.

Table 3.4: Population of Mekelle by Age Group (2016)

Age Number of %
Group Population Share
0-9 55,292 17.81
10 - 14 30,659 9.88
15 - 19 45,774 14.75
20 - 24 43,556 14.03
25 - 29 38,416 12.37
30 - 34 25,295 8.15
35 - 39 22,121 7.13
40 - 44 9,783 3.15
45 - 49 9,540 3.07
50 - 54 7,031 2.26
55 - 59 6,882 2.22
60 - 64 5,660 1.82
65 + 10,427 3.36
Total 310,436 100
Source: CSA’s 2015/16 Ethiopian Household Consumption Expenditure Survey, Results for
Tigray Region
Therefore, considering that demographic situation is one of the most influential factors that affect
the real estate market, it can be concluded that the large and progressively growing population of
the city coupled with economic growth will become an essential factor in influencing the overall
growth in the real estate sector.

d) Economic Performance
Among the factors that influence the demand for real estate, economic growth in general and
growth in disposable income of the population are found to be the most important. The reason is
simply that when per capita incomes are rising in lower income countries such as Ethiopia, the
middle class expands much more rapidly than the economy as a whole leading to growth in the
demand for residential house. One of the factors which indicates a country’s economic
performance and wellbeing of its population is the performance of GDP.
At national level the economy has experienced strong, broad-based growth. During the period
2000 – 2017 real GDP has increased from Birr 67.15 billion to Birr 1.81 trillion, registering
consecutive year to year growth except for year 2002 (-2.16%). On average during the period
under consideration (2000 – 2017) the country’s real GDP has registered an average annual
growth rate of 9.02%, which as compared to the sub-Saharan African average of 4.88%, during
the same period can be considered exceptional.
Industry, mainly construction, and services accounted for most of the growth. Agriculture and
manufacturing made lower contribution to the growth. Private consumption and public
investment explain demand-side growth, the latter assuming an increasingly important role.
The rapid growth in real GDP has also translated to a significant growth in per capita income.
During the period 2000 – 2017, per capita real GDP, which more accurately reflects the
underlying economic performance, has increased from Birr 1,009.36 to Birr 17,213.23,
exhibiting an average annual growth rate of 6.13%. Moreover, higher economic growth has
brought positive trends in poverty reduction in both urban and rural areas. The share of the
population living below the national poverty line has decreased from 30% in 2011 to 24% in
2016.
Similarly, Tigray region has experienced a rapid growth in the past decade. According to the
regional Plan Commission Bureau, the RGDP has increased from Birr 29.759 billion to Birr
56.132 billion in the eight years ending in 2016/2017, registering an average annual growth rate
of 9.5%.
Moreover, the regional economy has exhibited signs of gradual structural shift away from
traditional and primary sectors and towards secondary and tertiary sectors. During the period
under consideration, the contribution of the service sector to the REGDP has increased from
35.8% to 37.45%. Similarly, contribution of the manufacturing sub sector has increased from
20.6% to 25.98%; while the contribution of the agricultural sector has declined from 43.6% to
36.57%.
Regarding Mekelle, owing to the city’s superior access to transport infrastructure, utilities, ICT
services and other infrastructure compared to the other regional cities and towns the economic
agglomeration effect is significant. Agglomeration economies occur where transport
infrastructure “clusters” economic activities and connects firms at lower cost. This typically
leads to higher productivity. Agglomeration benefits are also derived from the concentration of
population through common infrastructures, increasing the availability and diversity of labor and
market size.
Consequently, due to the existence of wide market, relatively more developed infrastructure,
availability of human and financial resources as well as location advantage, Mekelle has emerged
as an investment destination. In 2017/18, Mekelle has licensed investment projects with a total
capital of Birr 9.966 billion, which is a more than eight fold increase as compared to year 2005
(Birr 1.223 billion). As of 2017/18, from the total licensed investment project, industry accounts
for the highest share (79.75%) followed by construction (18.9%). As a result of the various
incentives provided by the government, the high growth rate of investment activity witnessed
during the past few years is expected to continue in the future.
3.3.4 Demand for Housing
Housing need is the result of the combination of previously unmet housing needs and future
housing needs. The expression “previously unmet needs” means unmet housing needs at a given
time i.e. housing deficiencies concerning households living in under-standard conditions.
The assessment of previously unmet housing need appears to be a more complex and uncertain
operation, especially when it is sure that, as in the case of Ethiopia, a large proportion of the
population lives in under-standard conditions. In these cases, establishment of quantitative and
qualitative standards is required.
Future housing needs arise from two demographic components: the natural one and the social
one. In order to evaluate the increased need due to natural demographic movement, the increase
of households due to the formation of new entities net of terminations is analyzed. The
assessment of the social demographic movement concerns the estimate of migration flows, either
international or domestic (rural-urban and urban-urban migration).
a) Unmet Housing Need
 Assessment of Overcrowded Housing
The first factor creating unmet housing needs is overcrowding. This aspect can be approached
from two points of view i.e. households and housing units and number of rooms and number of
people.
In general terms, cohabitation can be voluntary or forced (because there is not enough housing to
accommodate all the households or because some households cannot afford the cost of an
independent dwelling). Assuming that the standard to be pursued is that of one household per
housing unit, the number of households exceeding the number of housing units is the first
indication of previously unmet needs.
The comparison between number of rooms and number of persons allows categorizing housing
units into under-occupied, adequately occupied, and overcrowded. Overcrowded housing units
show the existence of unmet housing needs.
Accordingly, applying the above discussed methodology and based on the result of the 2007
Population and Housing Census, comparison between housing units and households shows that
in Mekelle there were a total of 54,709 housing units and 56,754 households, which shows a
surplus of 2,045 households, equal to 3.60 percent.
Cohabitation, that is, the average person per room is estimated to be 1.037 in 2007 census, which
can be considered as relatively sufficient as compared to the standard. On the other hand, during
2013, referring the structural master plan document prepared by Mekelle University has found
that out of the plots from which respondent households are sampled, 61% were cohabited
ranging from 2-12 households. In effect 20,233 household were found to live in a 7,133 plots.
This leads to 13,100 households that look for a housing units or plots. When this figure is further
calculated for the total household size of the city, it can be arrived at 48,613 households looking
for housing units.

This figure reveals the dimensions of cohabitation: currently no surveys or estimates exist to
evaluate the level of forced cohabitation, as distinct from voluntary cohabitation, and they would
be useful because only the former deals with unsatisfied housing needs. However, it can be
assumed that most cohabitation is forced due to lack of housing units and/or lack of economic
means. Hence, in order to eliminate cohabitation, in Mekelle an additional 4,861 house units are
required yearly for the ten years to alleviate the backlog only, which does not include yearly
demand.
 Assessment of Qualitative Under-Standard Housing
A second factor of housing needs stem from qualitative under-standard housing units. Qualitative
standards in two categories: those concerning the construction materials, and those concerning
supply of essential facilities such as running water, indoor toilet, bathing facilities, and
electricity.
When facilities such as electricity and running water are absent, what is needed is readjustment
of existing housing stock, but it does not require any replacement of the housing units or adding
of newly built room. However, accessing facilities such as indoor toilet requires additional
rooms.
As for the construction materials of housing units, the census data describe a situation in which
there has been an overwhelming use of “traditional materials” for the construction of walls or
roofs or floors. Traditional construction materials are incompatible with the basic qualitative
housing standard need of the population; therefore, it is assumed that in due time the replacement
of all the housing units built with those materials is inevitable.
Another component of the assessment of the unmet housing needs is construction material of the
housing unit’s wall. The roof and the floor can be replaced with modern construction material
without resorting to replacement of the housing unit. In the case of the wall however, the use of
modern materials requires the replacement of the existing housing unit.
Accordingly, in order to determine the number of housing units that require additional supply of
a facility and those that need substitution of housing stock two parameters are considered. One is
the absence of any type of toilet, and the other is the construction material used for the walls of
the housing units. Accordingly, a total of 54,710 housing units (37.14% of the total housing unit)
in Mekelle do not have any kind of toilet facility.
The assumption that all housing units with walls made of traditional materials (that is, all except
concrete, bricks and hollow blocks) are under-standard, and therefore to be substituted,
dramatically increases the previous unmet need. In fact, 85.56% of all housing units in Mekelle,
which correspond to 46,810 housing units, have been constructed with traditional materials
(wood and mud, wood and thatch, reed and bamboo, stone and mud, stone and cement,
corrugated iron sheet). Accordingly, assuming that the existing under standard housing units will
be replaced within ten years, there is a need to construct 4,681 housing units annually for the
next ten years.
b) Future Residential House Needs
Future housing needs depend on the population dynamics, which result from natural and social
movements. The natural movement is based on the difference between birth and death rates as
factors of population, and on the difference between the household formation and dissolution in
terms of households.
Accordingly, based on CSA’s census projection and the headship rate reported by the same
census (2007) the estimated annual house hold increase in Mekelle is shown in Table 3.28.

Table 3.5 : Projection of Population, Headship Rate and New House Hold Formulation in
Mekelle

Projected New Increase in

Headship
Year Urban House New House
Rate
Population Hold Holds
2018 427,757 0.29 124,050
2019 454,706 0.29 131,865 7,815
2020 483,352 0.29 140,172 8,307
2021 513,804 0.29 149,003 8,831
2022 546,173 0.29 158,390 9,387
2023 580,582 0.29 168,369 9,979
2024 617,159 0.29 178,976 10,607
2025 656,040 0.29 190,252 11,275
2026 697,370 0.29 202,237 11,986
2027 741,305 0.29 214,978 12,741
2028 788,007 0.29 228,522 13,544
2029 837,651 0.29 242,919 14,397
2030 890,423 0.29 258,223 15,304
As could be seen from Table 3.28, the demand for new residential housing in Mekelle city is
projected to increase from 8,307 housing units in the year 2020 to 11,275 housing units and
15,304 housing units by the year 2025 and year 2030, respectively.
3.3.5 Present and Projected Demand for Residential Houses in Mekelle City
In the past 10 -15 years the housing sector of Mekelle city has registered a remarkable growth.
The observed increase in the scope and scale of real estate activity has been driven by multiple
factors. Foremost among these has been overall economic growth, demographics, a long-
standing backlog of unmet housing demand, the provision of lease land for developers,
cooperatives and individuals, the expansion of Mekelle city’s roads and infrastructure (such as
roadways, the improvement of numerous neighborhood roads, and the wider reach of electricity
and water services to the edges of the city); and tax and investment schemes, involving a
broadening of investment areas, extended lease periods, and reduced income tax incentives.
However, despite the recent improvement, due to the huge backlog, it is widely accepted that in
Mekelle city new housing supply levels are still highly insufficient to meet the ever-expanding
demand. Accordingly, the housing sector in Mekelle city is still characterized by massive
shortages, poor quality, and haphazard or unplanned settlement. Housing related amenities are
also characterized with inadequacies and poor quality, which coupled with the growing
population, and growing middle class in particular has created immense demand for housing,
putting significant pressure on existing accommodation.
Moreover, shortage of housing is likely to worsen as population growth continues and the supply
response remains sluggish. Latest household projections suggest that housing supply would have
to increase very significantly in order to meet rising demand.
As indicated earlier in order to only alleviate previously unmet housing demand there is a need to
construct 95,423 housing units, equates to an annual demand of 9,542 housing units to the next
ten years. New demand for housing also arises due to population growth, which leads to new
house hold formation. Accordingly, the demand for housing units emanating from new house
hold formation is projected to increase from 8,307 housing units in the year 2020 to 11,275
housing units and 15,304 housing units by the year 2025 and year 2030, respectively.
Accordingly, it can be concluded that there is a huge and progressively increasing demand for
residential houses in Mekelle. Nevertheless, due to affordability of residential houses vis-a-vis
the earnings of the majority of individuals, a significant number of households cannot afford to
own residential houses without some form of support. Unfortunately, currently, access to
consumer lending in general mortgage financing in particular is very low.
Hence, currently, the upper middle and higher income population is the target market for real
estate developers. A recent study by the African Development Bank (AfDB), entitled the Middle
of the Pyramid: Dynamics of the Middle Class (2011), defines the middle class broadly to
include a group of people who spend (on per capita basis) USD 2 – USD 20 daily. AfDB further
divides the African middle class into three groups: floating class (just crossing pass the poverty
line) (able to consume USD 2 to USD 4), lower-class (USD 4 to USD 10), and upper class (USD
10 to USD 20).
The AfDB report indicates that there are 17.2 million Ethiopians in the middle class group (out
of the than population of 80 million), which equates to 21.5% of the population, although 10.8
million or about 63% are in the floating class, which means that they could be vulnerable to
income loses swing back to “poor” status. As a group, this Ethiopian middle class population
could represent diverse backgrounds including construction workers, medical doctors, university
instructors, senior bureaucrats, political elites, NGO workers, foreign embassy workers, business
elites, among others.

Figure 3.2: Size of Middle Classes in Total Population (2011)

Source - African Development Bank (AfDB) - the Middle of the Pyramid: Dynamics of the Middle Class
(2011)

One of the factors which indicate wellbeing of a nation’s population is GDP. In this regard
Ethiopia has made impressive strides along its developmental path. During the period 2000 –
2017 real GDP has increased from Birr 67.15 billion to Birr 1.81 trillion, registering consecutive
year to year growth except for year 2002 (-2.16%). On average during the period under
consideration (2000 – 2017) the country’s real GDP has registered an average annual growth rate
of 9.02%. Since taking off in 2004, the growth rate achieved by Ethiopia’s GDP has not only
consistently exceeded other low-income countries and Sub-Saharan Africa average but also the
average for middle income countries and other high performing countries such as China and
India.
According to World Bank’s, WDI Ethiopia’s final household consumption expenditure has
almost doubled within five years increasing from USD 26.44 billion in 2011 to USD 61.11
billion in 2017, registering an average annual growth rate of 15.26%. Accordingly, as of 2017,
among peer countries, Ethiopia’s final household consumption expenditure is much higher than
the combined figure for Uganda and Rwanda and it is surpassed by only Kenya.
Figure 3.3: Final Household Consumption in 2017 (In Million USD)
- 20,000 40,000 60,000 80,000

Kenya 70,877

Ethiopia 61,112

Ghana 44,646

Tanzania 36,045

Uganda 21,614

Rwanda 8,328

Source – World Bank’s, WDI

Accordingly, by giving due consideration to the above factors, in Mekelle city, it is assumed that
the share of commercial residential real estate from the total projected demand for housing will
be about 25% share.

Based on the above assumption the estimated present and projected total demand for residential
houses in Mekelle city and the share of private real estate developed residential houses is
presented in Table 3.29.
Table 3.6: Estimated Present and Projected Demand for Residential Real Estate in Mekelle
(Housing Units)

Demand for
Total Demand
Private Real
Year for Residential
Estate Developed
Houses
Residential Houses
2020 17,849 4,462
2021 18,373 4,593
2022 18,929 4,732
2023 19,521 4,880
2024 20,149 5,037
2025 20,817 5,204
2026 21,528 5,382
2027 22,283 5,571
2028 23,086 5,772
2029 23,939 5,985
2030 24,846 6,212

As could be seen from Table 3.29, the demand for residential houses constructed by private real
estate developers in Mekelle city is projected to increase from 4,462 housing units in the year
2020 to 5,204 housing units and 6,212 housing units by the year 2025 and year 2030,
respectively.
IV. OPERATIONAL PLAN
4.1 Construction Service
4.1.1 Projected Construction Turnover
Market share is how much of the market a business, product or brand has relative to the total
market. Market share is expressed in terms of percentage and is calculated by dividing either the
total sales or volume of a business, product or brand by the combined total sales or volume of all
the industry. Accordingly based on construction turnover of TFEC and the construction industry,
the market share of TFEC can be estimated.

Accordingly, during the period 2012 -2017, from the total projects awarded to TFEC, in terms of
value the great majority (56.80%) were accounted by road projects followed by water related
projects (35.61%) and social and industrial buildings (7.59%).

Hence, assuming the above proportion in the construction turnover generated by TFEC, the
Company’s market share by major market segments of the construction sector is estimated as
shown in Table 4.1.