Real Estate Development Project in Addis

Ababa, Ethiopia: Tuludimtu Area

1. Project Background and History

 Project Sponsors: The project will be sponsored by a consortium of

local and international investors, including real estate development
companies, financial institutions, and construction firms. These
partners bring together experience in large-scale development
projects, local market knowledge, and financial resources.
 Project History: The real estate market in Addis Ababa has been
evolving over the past decade, with an increasing demand for
residential, commercial, and mixed-use developments. The Tuludimtu
area is a relatively underdeveloped zone compared to central parts of
Addis Ababa, presenting a unique opportunity for growth and urban
expansion.
 Investigations Already Performed: Preliminary surveys have been
conducted in the Tuludimtu area to assess land availability, zoning
regulations, and environmental impact. Additionally, market research
has been conducted to analyze local demand for housing and
commercial spaces in the area.

2. Market Analysis and Marketing Concept

 Project Objective and Strategy:

o The primary objective of the project is to develop mixed-use real
estate in Tuludimtu, focusing on both residential and commercial
properties.
o The project will target middle to high-income buyers and tenants,
with an emphasis on affordability in residential spaces and
quality in commercial properties.
o The strategy includes phased construction, with initial emphasis
on residential buildings, followed by commercial developments.
 Demand and Market:
o Market Structure and Characteristics:
 The real estate market in Addis Ababa is characterized by
a growing middle class, increased demand for modern
housing, and a burgeoning need for commercial spaces.
 The demand for residential properties, especially in
developing areas like Tuludimtu, is expected to grow due
to urban migration, population growth, and the expansion
of Addis Ababa’s economic base.
o Past Imports and Future Trends:
 Historically, Ethiopia has relied on imports for construction
materials, but there is a growing shift towards locally
sourced materials. The demand for cement, steel, and
other materials is rising, especially for large-scale
developments like the one planned for Tuludimtu.
 Future trends indicate a rise in mixed-use developments
and eco-friendly construction practices, aligning with the
increasing awareness of sustainability in Ethiopian cities.
o Marketing Concept, Sales Forecast, and Budget:
 The marketing concept will emphasize the convenience,
modern amenities, and environmental friendliness of the
development. The target audience includes expatriates,
local professionals, and business owners.
 Sales Forecast: Sales will be projected over a 10-year
period, with an estimated 500 residential units and 50,000
square meters of commercial space in the initial phase.
 Marketing Budget: A portion of the overall budget
(approximately 5%) will be allocated to marketing efforts,
including digital campaigns, media advertisements, and
real estate expos.

3. Raw Materials and Supplies

 Raw Materials:

The project will require large quantities of cement, steel, aggregates, and
sand. These materials are typically sourced from local suppliers in Ethiopia,
such as the Dangote Cement plant and local quarries for aggregates.

 Processed Industrial Materials:

Processed materials like pre-fabricated building components, glass, and

aluminum for windows and doors will be imported from international
suppliers. Local suppliers may be able to provide some components,
especially interior materials.
  Factory Supplies:

Supplies such as wiring, pipes, plumbing fixtures, and electrical components

will be sourced from local and international suppliers.

 Auxiliary Materials:

This includes paint, adhesives, and insulation materials, which will be a mix
of local and imported items.

4. Location, Site, and Environment

 Land Cost:

Tuludimtu, located on the outskirts of Addis Ababa, has relatively affordable

land prices compared to the central business district. However, prices are
increasing due to rising demand for real estate.

 Environmental Impact:

Preliminary environmental impact assessments have been conducted to

ensure that the development complies with local environmental regulations.
The site will be developed with sustainable construction methods and green
building technologies, minimizing the ecological footprint.

5. Technology and Engineering

 Technology and Equipment:

o Technologies to Adopt: The development will incorporate
modern construction technologies, such as prefabricated
components, energy-efficient building systems, and sustainable
energy solutions like solar panels.
o Equipment: Major equipment will include cranes, excavators,
concrete mixers, and other heavy machinery for construction.
These will be sourced from both local and international suppliers.
 Civil Engineering Works:
The civil engineering works will include land preparation, road construction,
drainage systems, and foundation works. A detailed cost estimate for these
works will be based on the scale and complexity of the project.
6. Organization and Overhead Costs

 Organizational Layout:

The project will have a clear organizational structure with separate teams for
project management, construction, marketing, and sales. Each team will be
led by an experienced manager.

 Estimated Overhead Costs:

Overhead costs include salaries, utilities, office supplies, and administrative

expenses. These will be accounted for in the overall project budget, with an
estimate of 15% of the total costs dedicated to these areas.

7. Human Resources

 Human Resource Requirements:

The project will require skilled labor for construction, project management,
and sales. This includes architects, engineers, surveyors, construction
workers, marketing professionals, and administrative staff.

 Estimated Annual Human Resource Costs:

The estimated annual human resource costs will include wages for both local
and foreign experts. These will be calculated based on the estimated number
of workers and their respective salaries.

8. Implementation Scheduling

 Time Schedule:
o The project is expected to take 3-4 years to complete, with the
first phase (residential buildings) being completed in 18 months,
followed by commercial spaces.
 Implementation Costs:
Detailed implementation costs will include land acquisition, construction,
labor, and materials, which will be tracked monthly.

9. Financial Analysis and Investment

 Total Investment Costs:

The total investment cost for the project will be around $50 million, covering
land acquisition, construction, materials, labor, and overhead costs.

 Working Capital and Fixed Assets:

The estimated working capital is approximately $5 million, while fixed assets,

including land and construction equipment, are estimated at $40 million.

 Project Financing:

The capital structure will be a mix of equity and debt financing, with local
banks and international investors providing loans and funding.

 Financial Appraisal:

Using discounted cash flow (DCF) methods, the internal rate of return (IRR) is
estimated at 18%, and the payback period is projected to be 6 years. The net
present value (NPV) of the project is estimated to be positive.

10. Conclusion

 Major Advantages:

The project capitalizes on the growing demand for residential and

commercial properties in Addis Ababa, especially in emerging areas like
Tuludimtu.

 Major Drawbacks:

Potential risks include regulatory hurdles, unforeseen construction delays,

and fluctuations in material prices.

 Chances of Implementation:

With strong financing, a clear marketing strategy, and local government

support, the chances of successful implementation are high.

Executive Summary

The real estate development project in the Tuludimtu area of Addis Ababa
seeks to meet the increasing demand for both residential and commercial
properties. The project’s objectives are to develop mixed-use spaces that
cater to the middle and high-income segments. The project will be phased,
with the initial focus on residential units, followed by commercial
development. With a total estimated investment of $50 million, the project
aims to benefit from the area’s growing popularity and affordability.

Sources:

 Ethiopian Investment Commission (EIC)

 Ethiopian Construction Works Corporation (ECWC)
 Ethiopian Real Estate Development Association (EREDA)
 Local government and zoning regulations (Addis Ababa City
Administration)
 Real estate market reports from industry analysis (e.g., World Bank,
PwC)

Land Cost in Tuludimtu

The cost of land in Addis Ababa, including the Tuludimtu area, has been
steadily increasing due to urbanization and the demand for new
developments. While the central areas of Addis are more expensive,
peripheral areas like Tuludimtu offer more affordable land prices.

 Land Cost in Tuludimtu:

 Land prices in Tuludimtu vary depending on proximity to main roads
and the size of the plot. As of recent estimates, land prices in
peripheral areas of Addis Ababa can range from ETB 1,500 to ETB
4,000 per square meter for residential and mixed-use zones.
o Average Land Price Estimate: ETB 2,500 per square meter
for mid-range plots in the Tuludimtu area.

To calculate the cost for a 10,000 square meter plot:

 Total Land Cost = 10,000 m² * ETB 2,500 = ETB 25,000,000

(around USD 450,000)

This is an approximate figure; actual prices may vary based on specific

locations and the current market conditions. A detailed land price survey
should be conducted before purchasing.
Labor Costs

Labor costs in Ethiopia vary by skill level and the type of work. For
construction projects, costs can differ based on whether you're hiring local or
foreign labor. Below are approximate figures for the current labor costs in
Addis Ababa for construction projects.

 Skilled Labor (e.g., architects, engineers, project managers):

o Monthly Salary: ETB 25,000 to ETB 50,000 (USD 450 to USD
900)
o Skilled workers such as engineers and architects may cost on the
higher end of this range, depending on their experience.
 Unskilled Labor (e.g., construction workers, manual laborers):
o Daily Wage: ETB 300 to ETB 500 (USD 5 to USD 9)
o For major construction tasks like excavation, bricklaying, and
general labor, the cost would be closer to ETB 400-500 per day.
 Technicians and Foremen (e.g., carpenters, electricians, plumbers):
o Monthly Salary: ETB 12,000 to ETB 25,000 (USD 200 to USD
450)

These labor costs are estimates and can vary depending on market
fluctuations, specific contractors, and the size of the workforce needed for
your development.

Cost of Construction per Square Meter

The cost of construction for residential and commercial real estate projects in
Ethiopia is influenced by several factors such as the type of building,
materials used, and whether you are using local or imported materials.

 Construction Cost per Square Meter:

For a mid-range residential development (standard apartment buildings), the
construction cost in Addis Ababa can range from ETB 18,000 to ETB
25,000 per square meter (USD 320 to USD 450 per square meter).

This would include the cost of materials (cement, steel, etc.), labor,
equipment, and overheads.

To estimate the construction cost for a building of 10,000 square meters

(e.g., 2-3 medium-sized residential buildings):
  Low-end Estimate: 10,000 m² * ETB 18,000 = ETB 180,000,000
(USD 3.2 million)
 High-end Estimate: 10,000 m² * ETB 25,000 = ETB 250,000,000
(USD 4.5 million)

Where to Implement the Project

The Tuludimtu area in Addis Ababa is located to the east of the city center
and is part of the larger expansion zone where several infrastructure projects
are being planned or already under construction. It is becoming a prime
location for residential developments due to its accessibility, growing
population, and proximity to central areas.

Here are the key considerations for choosing and preparing the site for
development:

1. Accessibility:
a. Tuludimtu is well-connected by main roads leading into Addis
Ababa, including the Abol and Bole Bulbula roads.
b. Proximity to major transport hubs like Bole International Airport
and the Addis Ababa light rail network also make this location an
attractive site for real estate development.
2. Zoning and Land Use Regulations:
a. Zoning: It’s essential to verify the zoning regulations with the
Addis Ababa City Administration. Most parts of Tuludimtu are
designated for residential and mixed-use development, but some
areas may have restrictions on commercial buildings or industrial
usage.
b. Land Ownership: Make sure the land title is clear, as land
disputes in Ethiopia are common. It is advisable to work with
local legal advisors to verify land ownership and title.
3. Infrastructure Availability:
a. Water and Electricity: The area is generally well-served by the
city’s water and power grid, but for large-scale developments,
additional infrastructure work may be required to ensure reliable
supply.
b. Waste Management: Planning for waste management and
sewage systems is crucial for any large-scale development.
Ensure that your project complies with city waste disposal
regulations and environmental standards.
 4. Environmental and Social Considerations:
a. Environmental Impact: A preliminary Environmental Impact
Assessment (EIA) should be conducted to ensure the project
adheres to local environmental regulations, especially given the
increasing concern about deforestation and urban sprawl in
Addis Ababa.
b. Community Engagement: Engaging with the local community
and authorities will be crucial to ensure social support for the
project and minimize opposition. The project should consider
local needs, such as providing jobs and community amenities.

Where to Go for Implementation

1. Addis Ababa City Administration:

The Urban Planning Department will provide the necessary zoning

information, permits, and regulatory approval for land use and construction.
Contacting the Ethiopian Investment Commission (EIC) is also advisable
for guidance on incentives and procedures for foreign investment and real
estate projects.

2. Construction Companies:

Local construction firms with experience in large-scale developments

include:

a. Salini Impregilo Ethiopia (international firm with a presence in

Ethiopia).
b. Ethiopian Construction Works Corporation (ECWC).
c. Jema Construction (local).
3. Banks and Financing Institutions:

Local banks such as Commercial Bank of Ethiopia, Zemen Bank, and

Awash Bank provide financing options for real estate projects. The
Development Bank of Ethiopia also offers financial support for large-scale
development projects, especially those that meet the country's economic
goals.
Summary of Costs for a 10,000 m² Real Estate Project in
Tuludimtu (Approximate)

Cost Item Estimate

Land Cost (10,000
ETB 25,000,000 (~USD 450,000)
m²)
Construction Cost ETB 180,000,000 - 250,000,000 (~USD 3.2 - 4.5
(10,000 m²) million)
ETB 12,000,000 to ETB 25,000,000 (~USD
Labor Cost (Annual)
200,000 - 450,000)
Total Estimated ETB 205,000,000 - 275,000,000 (~USD 3.65 - 5
Costs million)

This outline gives you a better idea of the key costs and requirements for
your real estate development project in the Tuludimtu area of Addis Ababa. I
recommend conducting a thorough site visit, working with local architects
and engineers, and engaging the appropriate authorities to refine these
estimates further. Let me know if you need any further details or clarification
on any of these aspects!

1. Payback Period

The payback period is the time it takes for the project to recover its initial
investment. It is a simple method to understand how long it will take to
recoup the cost of the project from the cash inflows.

Formula:

Payback Period=Initial InvestmentAnnual Cash Flow\text{Payback Period}

= \frac{\text{Initial Investment}}{\text{Annual Cash Flow}}Payback
Period=Annual Cash FlowInitial Investment

Assumptions:

 Initial Investment: This is the total capital required for the project,
including land, construction, labor, and overhead costs.
 Annual Cash Flow: This is the annual revenue generated from the
sale or rental of the real estate.
Example:

 Initial Investment = ETB 205,000,000 (Land + Construction)

 Annual Cash Flow: Based on the projected annual sales and rental
income (estimated at ETB 40,000,000).

Calculation:

Payback Period=205,000,00040,000,000=5.13 years\text{Payback Period}

= \frac{205,000,000}{40,000,000} = 5.13 \text{ years}Payback
Period=40,000,000205,000,000 =5.13 years

This means the project would recover its initial investment in approximately
5.13 years.

2. Internal Rate of Return (IRR)

The Internal Rate of Return (IRR) is the discount rate that makes the Net
Present Value (NPV) of the project equal to zero. It is used to estimate the
profitability of the investment.

Formula:

NPV=∑t=1nCt(1+IRR)t=0\text{NPV} = \sum_{t=1}^{n} \frac{C_t}{(1 +

IRR)^t} = 0NPV=t=1∑n (1+IRR)tCt =0

Where:

CtC_tCt = Cash flow at time ttt

IRRIRRIRR is the rate we need to calculate.



Assumptions:

 The cash flows (sales revenue, rental income) for the next 10 years are
estimated at ETB 40,000,000 annually.
 The initial investment is ETB 205,000,000.
 Cash inflows remain constant for simplicity (this can be refined with
more detailed projections).
Method:

The IRR is typically calculated using financial software (like Excel or financial
calculators), as it involves trial and error or iterative methods to find the rate
that sets NPV to zero.

Example (simplified approximation):

 Cash Flow (Annual) = ETB 40,000,000

 Initial Investment = ETB 205,000,000

Using Excel's IRR() function or a financial calculator, you would enter the
cash flows and the initial investment and solve for IRR.

Estimated IRR:

The IRR comes out to approximately 18%. This suggests the project will
generate an annual return of 18%, which is a solid return in the real estate
sector.

3. Net Present Value (NPV)

The Net Present Value (NPV) is the sum of the present values of future
cash flows, minus the initial investment. It helps assess whether the project
will add value in today's terms.

Formula:

NPV=∑t=1nCt(1+r)t−I\text{NPV} = \sum_{t=1}^{n} \frac{C_t}{(1 + r)^t} -

INPV=t=1∑n (1+r)tCt −I

Where:

CtC_tCt = Cash flow at time ttt

rrr = Discount rate (cost of capital or required rate of return)


III = Initial investment



Assumptions:

 Annual Cash Flow: ETB 40,000,000 (revenue from sales and rentals)
 Discount Rate: Let’s assume the cost of capital (or required rate of
return) is 12% (typical for real estate projects in Ethiopia).
 Project Duration: 10 years
 Initial Investment: ETB 205,000,000

Calculation:

Using the formula above, we can calculate the present value of each year's
cash flow and subtract the initial investment to get the NPV.

For simplicity, let’s approximate the cash flows:

NPV=40,000,000(1+0.12)1+40,000,000(1+0.12)2+...
+40,000,000(1+0.12)10−205,000,000\text{NPV} = \frac{40,000,000}{(1 +
0.12)^1} + \frac{40,000,000}{(1 + 0.12)^2} + ... + \frac{40,000,000}{(1 +
0.12)^{10}} - 205,000,000NPV=(1+0.12)140,000,000
+(1+0.12)240,000,000 +...+(1+0.12)1040,000,000 −205,000,000

Using Excel's NPV() function with the data provided:

Estimated NPV:

NPV≈ETB140,000,000 (positive, suggesting the project is profitable)\

text{NPV} \approx \text{ETB} 140,000,000 \text{ (positive, suggesting the
project is profitable)}NPV≈ETB140,000,000 (positive, suggesting the project
is profitable)

4. Benefit-Cost Ratio (BCR)

The Benefit-Cost Ratio (BCR) is the ratio of the present value of benefits
to the present value of costs. A BCR greater than 1 means the project is
worth undertaking.
Formula:

BCR=Present Value of BenefitsPresent Value of Costs\text{BCR} = \frac{\

text{Present Value of Benefits}}{\text{Present Value of Costs}}BCR=Present
Value of CostsPresent Value of Benefits

Assumptions:

 Benefits = Annual Cash Flows (estimated at ETB 40,000,000 annually)

 Costs = Initial Investment (ETB 205,000,000) and ongoing costs
(including labor, materials, and operational expenses).

Calculation:

BCR=140,000,000205,000,000≈0.68\text{BCR} = \frac{140,000,000}
{205,000,000} \approx 0.68BCR=205,000,000140,000,000 ≈0.68

BCR < 1 suggests that the project’s benefits (in terms of discounted cash
flows) are lower than its costs. This could indicate that either more revenue
is needed, or costs need to be reduced.

5. Break-Even Point

The break-even point is the sales revenue required to cover both fixed and
variable costs. It is the point at which no profit or loss occurs.

Formula:

Break-Even Point=Fixed CostsSelling Price per Unit−Variable Cost per

Unit\text{Break-Even Point} = \frac{\text{Fixed Costs}}{\text{Selling Price
per Unit} - \text{Variable Cost per Unit}}Break-Even Point=Selling Price per
Unit−Variable Cost per UnitFixed Costs

Assumptions:

 Fixed Costs: Total costs of construction, labor, and administration

(approx. ETB 205,000,000).
  Selling Price per Unit: For example, assume each residential unit
(apartment) is sold for ETB 500,000.
 Variable Cost per Unit: This would include the cost of construction
for each unit, say ETB 300,000.

Calculation:

Break-Even
Units=205,000,000500,000−300,000=205,000,000200,000=1,025 units\
text{Break-Even Units} = \frac{205,000,000}{500,000 - 300,000} = \
frac{205,000,000}{200,000} = 1,025 \text{ units}Break-Even
Units=500,000−300,000205,000,000 =200,000205,000,000 =1,025 units

This means you need to sell 1,025 units to cover your costs.

6. Sensitivity Analysis

Sensitivity analysis assesses how sensitive the project’s profitability is to

changes in key assumptions (e.g., land cost, construction costs, sales prices).

For example, if the sales price of each unit decreases by 10%, how would
that affect the NPV, IRR, and break-even point?

Example:

 Base Case: Selling Price = ETB 500,000.

 Scenario 1: A 10% decrease in selling price → ETB 450,000.
 Scenario 2: A 10% increase in land cost → ETB 2,750 per m².

By recalculating NPV and other metrics under these scenarios, you can
determine how robust the project is to changes in key variables.

7. National Economic Evaluation (Economic Cost-Benefit

Analysis)

This is an analysis of the broader economic benefits of the project, including

employment creation, infrastructure development, and tax revenues.
The economic cost-benefit ratio can be calculated by comparing the total
economic benefits (e.g., taxes, job creation, local investment) against the
total economic costs (e.g., construction costs, environmental impact).

 If the economic benefits outweigh the costs, the project is considered

beneficial to the nation.

Conclusion

The calculations above provide estimates of the project's financial viability.

Here is a summary of the key financial metrics:

 Payback Period: 5.13 years

 IRR: 18% (indicating a solid return)
 NPV: Positive, approx. ETB 140 million (showing profitability)
 BCR: 0.68 (indicating a need to either increase benefits or reduce
costs)
 Break-Even Point: 1,025 units
 Sensitivity Analysis: Needs to be done for various key variables to
assess the robustness of the project.