By Daniel Behailu Gebreamanuel (PhD)
Appraisal of property is a frightening business in Ethiopia, while it is one of the most cherished and lucrative companies in every nation with a well-performing economy. It is a formidable challenge in Ethiopia due to, among other things, a lack of a well-developed country market. That is why a correct valuation of, for example, a certain market value (market value) for a given property can be quite confusing. Because there is no developed market for the country on which such properties are established or developed; the valuation would not be so complete and easy. The market problem arises as a result of the land policy that has been pursued since the last four decades since it was first proclaimed in 1975.
In Ethiopia, land and all natural resources are owned by the government and the people of Ethiopia. What is counted as a private interest in land & # 39; is therefore a land use right; whether it concerns usage rights (only usage rights) or lease rights. As such, the market price of a given plot of land under urban municipality can be calculated on the basis of the applicable lease price or can be deduced from the valuation processes of the government, while real estate that has been expropriated by the government will be compensated for & # 39 ;. Again, all land ownership under urban land ownership is not yet under lease system.
There are three different holdings: these are lease holdings, license holdings and informal land positions. Thus, valuation of objects under the licensing system, among other things, is not an easy undertaking. The reality on the ground is that a considerable number of properties (both private and public) are still being kept under the licensing system of the period; what appreciation makes a challenging company. Again, the reality on the ground is that the most valuation takes place on the basis of the market value that the current leasing system has generated.
Mapping the issue for legal analysis:
The question of valuing property under government ownership (more specifically, every private property with a licensing system) is just as difficult, because these properties are inherited from the regime which in turn was either forfeited by the imperialist regime or by the new was confiscated. The current government has inherited such properties for billions of birr (for example, property under Federal Housing Corporation (FHC)) and again many private property owners are not only in legal limbs but also insecure to deal with them.
The current challenge arose with regard to the demand from the federal housing company and that it commissioned a private consultancy firm to value its properties under its ownership. The FHC owns 18,900 properties in Addis Ababa and Diredawa and has instructed the consultant to value such goods so that the company would know the fair market value of the properties that are in their possession. But many property owners also wanted to value their property at the current market value, so that they would appreciate the market value of their property and would trade with it.
The many appraisers / consultants and the government-appointed committee for the same purpose routinely appraise real properties using the market value of the investment properties and have given a significant share in the valuation processes to the land rights on which such properties are based. So, what is the legal basis for the use of market value that also includes land value?
The most important rule for assessing the compensation (and valuation) for the expropriated property is the market value (Denyer-Green, 1998; Kalbro, 2001). In the assessment theory, the market value can be determined by using three valuation methods. These are cost approach, sales comparison approach and approach to income capital. The appraisers, also in Ethiopia, routinely use the valuation method for cost approach. It is usually used when the assets are "special", that is, they do not produce any income and they have little or no comparable sales, such as churches, public schools, historic buildings, mosques, water treatment plants, etc. Like other methods, cost approach also used in mandatory purchasing when determining values that can be used in compensation payment, as well as the main method in determining the values as well as supporting method, depending on the circumstances of each case. The valuation system is reasonably suitable in Ethiopia due to the lack of a well-developed land market and therefore the difficulty of accurately achieving the market value of a particular property.
Similarly, the real estate of the FHC and many other private properties are largely based in the era of ex-government on a country that may or may not have been acquired under the licensing system. The current urban land management is under a leasing system. Again, the valuation of the property is done using the current land value; that is more on the basis of the rental price of the land on which such properties are located.
The core of the case for this legal analysis is therefore that; there will be a justification for the valuation carried out (and in the future) on the basis of the prevailing market value or the appraisers / the committee can justify their work under the applicable legal system. In other words, there will be a space for a lease-price quotation and a value of such a property that is held under public ownership / private ownership and that land ownership itself is not covered by a leasing system.
Thus, udder is the essence of the current land management with regard to lease policy and urban land management and thus the legal basis for valuation work in Ethiopia.
Essence of land administration in Ethiopia:
The embodiment of the land administration in general and the urban management of the land in particular is provided under the FDRE constitution. The constitution not only that it has provided for the overarching policy line, but also defined what amounts to & # 39; private property & # 39 ;. The definition does not include land and that country can not be privately owned and can not be transferred in any way, unless the law provides otherwise.
Yet, the constitution provides for compensation of ownership interest in land; that is, compensation is for development that only land or buildings are brought on land. For these properties, with the exception of the country itself, a proportional / correct compensation must be provided by expropriation. Now the question is what a proportional amount is and whether that amount also includes the value of the country itself.
The answer to this question is rather difficult and subtle. The demystified approach to achieve land valuation is that the country belongs to the state and that the state should not compensate anything for its own property but private properties on the land could be compensated for from the definition of private property given through the constitution. But this is an exaggerated simplification of the case and that the state compensates land use rights, albeit not enough.
As far as urban land is concerned; the leasing system has brought the positive characteristics of the land market to urban areas. Hence urban land can be valued through the competitive leasing price and the lease price is determined taking into account the location of the country as such.
That is why the appraisers / the committee have often used a leasing system in this case to value the land that is not a foreign concept for Ethiopian land management. The properties of the FHC (and many other private properties) are, however, kept under the permit system, which requires further explanation of the matter and requires a little procedural work to get to the leasing system. The assignment is rather for the owners of real estate who want to trade with their property (or so want to know the market value of their property in general) than for the advisor. That is why the consultant is well advised to advise the company to achieve the following and to lay the legal basis for the purpose of its creation.
Ways ahead for the FHC
First, as it stands now, urban land can only be kept under a leasing system and all other forms of property are prohibited. For companies that are part of the ex system; the rule of conversion is what works. The holders of the land are required in accordance with the proclamation of the lease to convert the licensing system into a lease agreement to their first convenience. For example, it meets the requirement of the new law that keeps their country under the lease system. What is, of course, feared here is what the government could call a lease price in the contact with the lease; again it is open for negotiations, especially for property due by the government. After all lease is a contact and contact is until the agreement of the contract parties.
Hence, given the intention of the FHC and its legal mandates, it meant business with these qualities; it is good to convert the company to the lease system at the earlier convenience and negotiate for a minimum / minimum lease price. Even if it fails to do so, the body concerned will come in due time to implement the law in force.
Secondly, whenever a transaction takes place, in particular when real estate is transferred by sale or otherwise; the conversion is automatic, except in the case of an inheritance that the government / FHC should not damage, except in cases of winding-up which form a point of concern in the present case.
For example, the valuation carried out with the help of the lease value of the land on which this property is situated is very acceptable and in fact in line with the intention of the new lease purchase declaration and the attached regulations.
Daniel Behailu Gebreamanuel (PhD) is an Asst. Professor of law at the University of Hawassa. He could be reached at: [email protected]
Note from the editors: for quotes and references of this academic article, view the PDF version.
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