Bill for Residential Housing Development, Transactions

Legal Draftspersons have obviously been busy demonstrating the urgent need for regulating housing development and related transactions. FORTUNE STAFF WRITER, DAWIT ENDESHAW discusses the draft legislation and obtains the views of various stakeholders.  

A new Bill to guide residential housing development and transactions is to be tabled for Parliament, covering real estate developers, buyers and those who rent houses from landlords.

It is for the purpose of determining the rights and obligations of parties and creating a predictable and uniform system in the housing lessee-lessor relationship.  A recent report by the World Bank shows the number of urban household by 2028 will be nine million, up from three million in 2007.   The 10 year old government housing project, which is now only implemented in Addis Abeba and which is in its tenth round is also the part of the Bill. In this regard among others, it gives a clear direction about cancellation of registered house seekers from the scheme.

“Whoever fails to save for a consecutive six months or fails to save the amount of money he ought to have in six months, will be cancelled from the scheme and reimbursed with the amount saved,” the Bill reads.

Moreover, the Bill has also tried to address issues in rented houses provided by individuals.

The Bill limits the contract period, which may be not less than six months in lease agreements, unless it is with the consent of the one who rents.

“Unless there is an agreement to the contrary, the lessor may not request an advance payment of rent more than three months,” the Bill reads.

The landlord may not increase more than 10pc of the previous rent price, according to the bill, when he renews the former contract agreement or when he enters a lease contract with a new tenant.

The Bill has introduced a regulatory framework to the sector that is known for its volatility and controversy between developers and buyers mostly because of unfulfilled commitments by developers. There have been longstanding litigations involving such companies as Access Real Estate, Habitat Real Estate, May Real Estate developers, all related to failure to deliver houses to buyers. Earlier cases involved Ayat Real Estate and Jakros.

Such patterns have led to the regulatory framework to administer the sector and make the relationship between developers and buyers accountable and transparent, according to those close to the sector.

In dealing with registration, the draft legislation states that a developer shall get a certificate of competency from the Ministry of Urban Development & Housing before any registration is made.

It has obliged developers to make a project based registration – demanding developers to register for each project carried out in different locations and even different phase in same location demands re-registration.

The usual trend in the sector was for the investor to also be the developer without obligation to any criteria. But four years ago, a new trade licensing system came into effect and developers acquired licences specific to the sector in which they were engaged.

This Bill, if approved, will reduce several court battles been witnessed over the years, said Biruk Shimelis, deputy manager for Development at Flintstone Real Estate.

Developers have the right to get lands within 30 days of making the required payments to government. The government in turn, has the obligation to build infrastructure or deduct the cost of it from the lease price of the land which the developers is requested to pay.

Real estate developers canannounce via mass media and register and receive a down payment from home buyers only after specific authorisation of the advertisement from the city administration. This comes after the lease contract, title deed and building permit are finalised. The administration will check if requirements are met.

“There have been cases where real estate developers have sold houses that do not exist, through false advertisements and because of lack of regulations in the sector, Biruk told Fortune.

In some cases as many as 6,000 people were found to be registered while the developer had only 600 housing units, says Tsedeke Yehunie, CEO of Flintstone and deputy chairman of construction of the Contractors Association of Ethiopia.

The new Bill prohibits developers’ registration of house seekers beyond their capacity and obliges them to utilise the land for the permitted purpose, with timely construction and quality in reference to the contract entered into. It also obliges them to have detailed plans and building permits.

Public private partnerships (PPP) are also incorporated in the Bill. Article eight of the draft law recognises such arrangements prescribing a separate regulation to guide the relationship.

Beegizabher Alebel(PHD), a consultant with experience of working with real estate developers, finds this opening of door for such partnership a good chance for the industry to be more competitive.

“This is a good thing for customers to have more alternatives,” he said.

Twenty-seven companies – local, private and joint ventures have participated in a bid for the construction of government housing. Fourteen of them considered competitive enough for a bid, were shortlisted earlier in may this year.

This bid was announced and conducted with the assumption that this Bill would be passed into law and become effective this year, a source told Fortune.

“Because this Bill is yet to be approved we are waiting for a direction to be given,“ said the same source.

The bid was announced by the Ethiopian Construction Management Institute.

Articles to regulate a contract between the developer and its clients for the construction and delivery of the houses are also part of the Bill. A contract has to be submitted and authenticated by the relevant government entity.

Developers have expressed concern that this might limit the freedom of contracting parties and suggested that it should not be mandatory.

“This has to be optional; it is only when one of the contracting parties needs the transaction to be authenticated by the government or needs services from the government, that it has to be obliged to certify the transaction,” according to Tsedeke.

When it comes to the transfer of any house to the client upon the sale of the house, it has to be authenticated. In Tsedeke’s opinion, it would be tiresome for a developer to go and have authentication for every single transfer.

The Bill has now been submitted by the Ministry of Justice (MoJ) to the Ministry of Urban Development & Housing, which is expected to hand it over to the Council of Ministers.

Penalities for violation of the proclamation, if proved, include temporary suspensions and revocation of licences.

As a way of incentivising those who propose to build not less than 1,000 houses at once, land will be transferred via limited auction.

It has been almost three years since the comments were given on the draft proclamation, said Biruk, expressing hope the Bill will reduce conflict and court cases around real estate development.


Published on Oct 19,2015 [ Vol 16 ,No 807]



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