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Friday, 09 November 2018 10:48

Scope of Real Estate Development Licenses for Foreign Investors Just Got Clarity

Ethiopian investment law is structured in a way to reserve some areas to the government, others to domestic investors and Ethiopian nationals, leaving open only some affirmatively listed sectors to foreign investors. One of those sectors open for foreign investors is real estate development. The applicable regulation is the November 2012 Council of Ministers Regulation on Investment Incentives and Investment Areas for Domestic Investors (hereinafter “the 2012 Investment Regulation”).

Until the last couple of days there was lack of clarity on what is allowed for a foreign investors engaged in the real estate development, especially if the foreign investor will be allowed to engage in leasing of the real estate it develops.

Given MLA’s representation of foreign investors in several sectors, including in real estate, we have attempted to find clarity from the Ethiopian Investment Commission. The 2012 Investment regulation under Item No. 7 (“Real Estate Development”) provides “Real Estate Development” and as item No 7 is not one of the areas reserved for domestic investors under article 4 of the regulation the sector is open for foreign investors, without any tax exemption.

In recent days , we observed that foreign investors were increasingly engaging in the sector in an obscure environment that did not explicitly define the scope of their activities, more specifically, whether they would be allowed to lease the property they develop. This issue was adding significant pressure both on those investors, their local advisors and counsel, as well as government officials. MLA’s modus operandi was to advise clients engaged in the sector that leasing of the property they developed is within the scope of their license based on the following two considerations:

  1. There is no law that excludes leasing for a real estate developer and that they should seek guidance from Article 2(6) of the Council of Ministers Building Regulation No. 243/2011 which defines real estate as “… a building built for the purpose of sale, rent or lease services.” This regulation clearly confirms leasing is within the ambit of a real estate license for a foreign investor.

 

  1. The Ethiopian Investment Commission’s previous position of restricting licenses to foreign investors engaged in the real estate sector contravenes legislative intent, which has a net effect of making the sector off-limits and solely reserving it to domestic investors.

 

Following our discussions with the Ethiopian Investment Commission, the EIC’s leadership determined: (1) there is no law which excludes leasing to foreign investors and (2) confirmed permits and licenses it issued for real estate development does indeed encompass the leasing of the property the investor develops.

This is a good news for MLA’s clients and also to all foreign investors in the sector. With the growing interest of big property developers in the market, we believe this will assist, for starters, in the structural and aesthetic transformation of our capital city.

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Mehrteab Leul & Associates is a member of DLA Piper Africa Group, an alliance of leading independent law firms working together in association with DLA Piper, both internationally and across Africa.

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