Diaspora Mortgages

One of the defining features of the real estate market in Ethiopia has long been the lack of affordable means to owning a home. And the biggest part of the affordability problem isn’t that homes are too costly (although that also plays its own part), it is that financial intermediation for buyers has been both scarce and inadequate to enable home ownership in any significant way. That has changed in a big way over just the past few months. The change isn’t exactly what we might have wanted – it is neither generous enough nor as widely applicable as we would have liked – but it is a significant move in the right direction and we hope one will be expanded going forward.

The Dark Days

Previously, mortgage facilities for the general public (as opposed to those for certain groups of people such as bank employees who are still entitled to some of the most favorable terms) were restricted to medium term instruments with high interest rates for not much more than 50% of the assessed value. So a buyer looking to purchase a 3 million birr apartment might have been able to secure a mortgage for 1.5 million birr at 17% interest over a 5 year period. Which means the buyer would need a down payment of 1.5 million birr and monthly payments of 30,653. It’s better than paying 3 million birr at once but still nothing like a 30 year mortgage at 5% interest for 90% of the purchase price (just 300,000 down and 14,494/month) as many homebuyers in the US for instance, would likely be able to access. It may yet be some time before we get to see mortgages quite as generous as that, but the changes afoot are encouraging at the very least.

A New Era?

Today, we can observe a number of banks (including the state owned CBE) offering mortgage instruments for some of the public for as long as 20 years and for as much as 90% of the assessed value. Interest rates range from 8.5 – 18.5% with the best terms going for attraction of all important foreign currency, which is why Diaspora get amongst the best deal. Not the absolute best though, a distinction afforded to employees of international NGOs or other such organizations who regularly receive their operating budgets from abroad in hard currency.

Why have banks decided to get into the mortgage business in earnest at this time? A big reason is in order to attract much needed foreign currency into the country. The second reason, is to try and poach existing sources of forex (i.e. NGO accounts) from competitors. A third reason may be to move some of the excess liquidity banks are currently sitting on due to generally soft business and investment conditions.

But we’re talking just about Diaspora mortgages for now as we get a tremendous number of questions as to the what, how and why of what these programs are about. And we have to warn you that program details are somewhat fluid right now with banks clearly not well prepared yet to handle the larger volumes of mortgage inquiries they are getting right now. So we will continue to refine and update our information as we become aware of changes. Which can be frequently given the level of our general interaction with various banks on behalf of clients. But for now, here goes:

For all of the banks covered in our surveys, you have to be a bona fide resident abroad. Meaning that you have to have a residency permit or foreign citizenship (with Ethiopian Yellow Card) in order to qualify.
You must generally make both your initial down payment and monthly payments, in hard currency. However, there are some banks which will allow you to start making your payments in Birr although changes to your loan terms will apply, most notably interest rate increases by varying points.
Note that in almost every case, the bank will make its own assessment of the property’s value and decide to give you a loan based on that rather than what the selling price is. Be aware that there can be significant differences between these values, sometimes as much as 50%.
A title deed is required to originate a mortgage loan meaning that you cannot lean on a mortgage to purchase a property for presale (buying a home under construction for future delivery).
The exact procedures by which each bank conducts the process by qualification and loan origination are done, differs from one to another but in most cases (with the exception of CBE), the process starts with a securing a contract (can be a draft) from a developer or other seller which is then taken to the applicable bank branch to start the application process.
While there is a misconception that applications can be initiated abroad (and in some cases, the earliest stages of them can be started there but the bulk of the processing will happen in country), only a foreign currency account can be opened at Ethiopian Embassy locations where the applicable bank may have agents. While opening such an account is indeed part of the requirements for a mortgage, actual applications must mostly be filed and processed in Ethiopia.

There may still be details which are not quite clear with regards to each bank’s program(s) which we expect will be clarified as more and more applicants are taken through the application process. We will update this table as such information becomes available.

For prospective buyers in the Diaspora, we urge you to take advantage of these opportunities while they last. Most Ethiopians who live in Ethiopia, can only dream of these same opportunities; if they are lucky enough to be able to secure a mortgage, it is usually at much less favorable terms such as 17-18.5% interest rates for example.

The below is a description of the main points from each of the banks operating in Ethiopia that were able to respond to our queries before publication. Others will be added to this table as they come in which we encourage you to check for updates on our website on a regular basis.

Abay	Awash	CBE	Dashen	United	Zemen
% of assessed value	50%	80%	80%	80%	70-80%	60%
Loan term	18 years	20 years	15-20 years	20 years	15-25 years	5 years
Interest rate	17%	11%	8.5-11.5%	12%	8.5-10%	18.5%
Types of Property	Residential & commercial	Residential & commercial	Residential upgrade or new purchase	Residential & commercial	Residential & commercial	Residential & commercial
Income verification	Tax return	Income tax return and bank statement	Notarized employment verification & tax returns	tax documents, employment verification	Tax return and letter, length of year for retirement	salary or based on financial statement
Income qualification guidelines	One third of the salary	One third of their income	One third of their income	Letter from the company,	50% of the income	One third of the salary
Residency requirements	Must be a resident of a foreign nation.	Must be a resident of a foreign nation.	Legal residency abroad or foreign citizen with Ethiopian origin card	Must be a resident of a foreign nation.	Must be a resident of a foreign nation.	Must be a resident of a foreign nation.
Document requirements	Tin, marriage certificate, yellow card or financial statement	Tin, marriage certificate, yellow card or financial statement	Notarized letter from employer stating income and tax return	Tin, marriage certificate, yellow card or financial statement	Tin, marriage certificate, yellow card or financial statement	Tin, marriage certificate, yellow card or financial statement
How and where to apply	Abay bank	Awash bank and Ethiopian Embassy	At CBE branch in Addis in person or via POA	Any branch or Ethiopian Embassy	Ethiopian Embassy	In person of through legal representative, Ethiopian Embassy
Property value estimation info	Need title deed	Maximum value estimated to date is 16,000/m 2	Title deed	Title deed	Title deed is a must , Location and finishing is considerable
How and where to make payment?	Transfer	Transfer	Transfer	Transfer	Transfer	Transfer
Open Diaspora account? Where?	In any branch	Awash bank and Ethiopian Embassy	CBE branch or any Ethiopian Embassy	Ethiopian Embassy	Ethiopian Embassy	Zemen bank applied and not yet approved.
Charges for payment transfers	No charge by Abay	No charge by Awash	Not by CBE	No charge	No charge	No charge by Zemen
Early termination	None	None	No penalty	4%	2-3% if it’s between 7-10yr loan	2%
Paying in ETB	Possible	With 14%	With higher interest	With 17.5%	10.5-12.5%	18.5%
Moving to Ethiopia	Possible	Possible	Possible with 17.5%	Possible	Interest will be 18.5%

Have a question on a particular bank’s programs or how you can qualify for one of these plans? Drop us an email (info@PresidioEthiopia.com), call us (0967 001705, 011 8 223679) or visit our office on the 1 st floor of Public/Civil Service Building next to World Bank, above Tomoca Café on Bole Road (just prior to the Wollo Sefer roundabout).