State-owned commercial property units administrated by the Federal Housing Corporation saw dramatic rental fee increases after 43 years of hiatus. The Corporation informed its commercial tenants that rents were to be increased by as much as 6,784pc in the National Stadium areas and 521pc in the Lancha area. There was a tenant protest and the Corporation plans to meet and discuss the increases with the protesters in early January 2019, writes BERHANE HAILEMARIAM FORTUNE STAFF WRITER.
Alemayehu Befikadu, a deputy manager for a plastics manufacturing factory, was busy organising a demonstration by tenants against rent hikes on a commercial property owned by the Federal Housing Corporation on Monday, December 17, 2018.
A graduate of economics and information technology in his early 30s, he was protesting in support of a firm where he works. The firm which was recently notified of an 11-fold rent increase that put the fee at a whopping 37,680 Br a month. It was not something that he and his co-workers were willing to accept.
“Volunteer friends and I circulated the news on Viber and Facebook, and a day later, we had 3,000 people registered,” said Alemayehu.
After holding an initial meeting between representatives of the tenants, they agreed to demonstrate at the head office of the Corporation last Monday, December 24, 2018, in Leghar.
And demonstrate they did. Beginning at 9:00am, a flock of indignant tenants made their way to the Corporation’s head office. An hour later, the building was surrounded in all directions with crowds eager to hear good news from representatives that had been allowed inside the compound.
At a little past 10:00am, representatives streamed out after their meeting with Reshad Kemal, director of the Corporation, to announce that an understanding has been reached.
“He proposed to meet all the tenants on January 3, 2019, after conferring with the management of the Corporation,” Alemayehu told Fortune. “The time and place of the meeting will be communicated through media outlets.”
Not everyone was satisfied with the Corporation’s response, saying they need something concrete right there and then, but the gathering broke up as the protesters dispersed eventually.
The crux of the demonstrators’ demands is that the Corporation should have discussed the rental hikes with the tenants. They reject prior discussion the Corporation held with tenants at the Capital Hotel saying that it was attended by only a handful of tenants.
They also reason that their rental fees should not be based on market prices, since tenants in most private commercial properties have better facilities, including lifts, generators and parking lots. The tenants also raised the conditions of the buildings to be taken into consideration as well as the type of business being conducted in the units.
This view is considered misguided by the Corporation.
“Parameters such as the convenience of the units for businesses, its condition, and the effective area of the property that is used for the business were taken into consideration,” said Kibrom Gebremedhin, director of communication affairs at the Corporation. “Regarding the market price, we didn’t use it to set the rental fee directly but to make comparisons.”
A survey on commercial rental rates for private businesses in what the Addis Abeba City Administration considers central business districts – Merkato, Piassa, Bole, Stadium and Megenagna – shows price variations based on conveniences, conditions of the facilities and age of the building.
The current average market price for a square metre of floor space is 560 Br in Merkato, 800 Br in Piassa, 950 Br in Bole and 584 Br in Megenagna. These prices do not include the rental fees for cubicles within the buildings, which can range from 3,000 Br to 4,000 Br a month.
For a square metre of commercial floor space for a property in the Stadium area, the average market rental cost stands at 1,275 Br. A similar size space in the same area for a property owned by the Corporation stands at approximately half that of the rental revision.
This is in comparison to a survey conducted by the Corporation, which concluded that 65pc of the tenants have been paying rental rates between 65 Br and 95 Br a square metre for commercial units.
A year ago, the Corporation started constructing 3,200 housing units to be built across the country at a cost of one billion Birr. The construction is part of a 16,000-unit housing development planned in the coming three years.
Notably, the Corporation did not consider floor levels when it revised the rental prices. For instance, for a building around the National Theater, the rent for the first-floor office where Alemayehu works has the same rate as a dental clinic on the fifth floor.
Tenants of privately held properties, however, do not see what demonstrators like Alemayehu are complaining about.
Betelhem Abate, who has a mobile phone and accessories shop at the Rift Valley College Building close to the Stadium, pays 4,000 Br for a two square metre floor place on the ground level.
“The complaints by the tenants are unwarranted since they have used the units for a long time and profited a great deal while their fellow citizens have suffered from soaring rental fees,” she said.
Nonetheless, the average rate of increase by 2,090pc on all commercial properties has raised the ire of many and has garnered criticism, even by those who are not tenants. Commercial properties represent 37pc of the 18,445 units managed and controlled by the Corporation.
The largest increase, 6,784pc, is registered in the Stadium area, while the lowest was for commercial properties in Lancha, at 521pc.
Currently, the highest rental fee paid to the Corporation is 345,509 Br a month. With the rental revision, the first for the Corporation in 43 years, the fees stand at 406,000 Br.
Habtamu Berhanu (PhD), a lecturer at Addis Abeba University’s College of Business & Economics for 16 years, considers these hikes appropriate given that the tenants have benefited for over four decades compared to those that paid market prices.
“The rental fee hike should not be linear and should consider the type of business and the conditions of the units,” he said. “But the Corporation has to negotiate over the prices and reach an agreement.”
He also suggests that the Corporation should conduct continuous property valuations and consider demolishing some of the buildings in severely deteriorated conditions and build new ones.
Meanwhile, some of the tenants are looking forward to January 3 to discuss the issue that they believe to be wrong, although some other tenants have already signed contracts based on the revised figures.
The management of the Corporation has received a daily deluge of grievances over the rental rate hikes for commercial units and promises to consider the complaints prior to the meeting.
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