Public authority run housing schemes, first launched in Addis Ababa back in 2005, run as a project under public authority financed in a billion loans, contracting out the construction task to private building enterprise, normally facing or reasonably expected project delays, poor construction quality and lack of adequate infrastructure.
The government is taking a huge risk in choosing to finance with a billion loans for a housing project normally delayed or reasonably expected to be delayed by the contracting private entity, in contractual terms with neither ‘risk’ nor reward for contractual execution. In other words, increasing de facto land ‘prices’ and bureaucracy in accessing land challenged the real estate developer marking housing unaffordable even to the middle and low-income level urban community.
To provide more affordable housing, the role of PPP is crucial, providing effectiveness of housing delivery through transferring risk and sharing of rewards. ‘Private party risk’ refers to the ‘performance’ risk, construction cost directly linked with project span, is inevitable unless the private party is determined and embark on the PPP to avoid public sector setbacks and fulfill, already expected, efficiency and effectiveness in delivering affordable, low cost and speedy delivery of houses to the lower-income community. The private party, unlike the public body, is reasonably expected to prefer construction renovation, innovation, expertise, and technology.
When we talk of real estate public-private partnership, we are talking specifically about the infrastructure partnership type which, based on OECD and World Bank definition, relates to: ‘contractual arrangements … in which the private agent bears significant risk and management responsibility throughout the life of the contract, and remuneration is significantly linked to performance and/or use of the asset or service’’ Ethiopia public-private partnership proclamation defines ‘’a long-term agreement …private party receives a benefit by way of compensation by or on behalf of the contracting authority; tariffs or fees collected by the private party from users or consumers of a service… and generally liable for risks arising from the performance of the activity or use of the state property…’’
What are the success equations of PPP, in particular for real estate? They are clear policy, consistent processes, robust institutional framework, strong political will, adequate project preparation, project risk allocation, competitive tendering, and monitoring. These all need a proper balance, with a sector-specific, in which feasibility shall be designed and sorted among the private and public sector stakeholders.
The PPP model will bring up both public confidence, which had been eroded upon failure of some real estate companies attributable both to the internal and external factors, public sector joins the partnership to avoid and address currently existing land provision, land lease price cap, land certification, and licensing bureaucracy, delay and denial. The private sector joins the partnership for efficiency advantage (capital, technology, innovation) looming the development of the sector in the most sustainable way- affordable, innovative, lower cost, lower bureaucracy, timely and efficient delivery of the house. The PPP model, most importantly, will enable the government to compensate its infrastructure cost on new real estate officially designated areas both attractive in price and seamless infrastructure for this lower-income group’s urban economy. The PPP model will create an opportunity for the government commits itself to reduce or waiving land price for the private sector. There are a lot of success stories including Morocco, Indonesia, and India.
In the same way, the private sector in the PPP will commit itself to providing the house with a set price, affordable to the middle income in either of the total price or payment modality, efficiency, quality, and innovative technology. PPP will change the face of Ethiopian real estate from unaffordable, delayed, and public sector driven to efficient, timely, private sector-led innovative housing schemes.