Ethiopia’s Mortgage Gap Can’t Wait

A new refinancing company can give banks longer-term money. It cannot by itself make homes affordable.

The National Bank of Ethiopia and the International Finance Corporation (IFC) signed an agreement on September 3 to set up the country’s first Mortgage Refinancing Company, with Br 100 billion in initial capital and at least $200 million from IFC. The government links it to a plan for 1.5 million affordable homes but has not published a timeline. The move comes against a housing market where demand has long outpaced both supply and access to long-term finance. Formal mortgage borrowing remains limited, leaving many households reliant on savings, relatives, friends and other informal sources.

Why it is urgent

The World Bank’s 2019 housing study puts urban housing need, including replacement of worn-out stock, at about 486,000 units a year on average to 2035. It estimated supply at about 165,000 units a year, measured between 2007/08 and 2013/14. At those rates, the gap is roughly 321,000 units a year, or about 3.2 million over a decade (Banks Ethiopia calculation). Both inputs are old, so the result shows scale, not a current count. World Bank estimates put urban population growth at about 4.7 percent a year.

486,000 units a year, average urban need to 2035, incl. replacement

165,000 units a year supplied, 2007/08 to 2013/14

about 60% of households’ rent (World Bank)

Br 24.1bn mortgages outstanding, about 69% at CBE

 

Addis Ababa shows the strain. Addis Fortune reports that nearly 650,000 people have waited under the 20/80 and 40/60 condominium schemes, some for close to two decades. City officials say 480,000 homes were delivered over the past five years and 165,903 more are under construction. The World Bank estimated that the government-led housing programme was meeting only about 10 percent of annual demand, based on its 2019 figures.

How lending works today

Formal mortgage lending is small and concentrated. Outstanding mortgages are estimated at Br 24.1 billion, with the Commercial Bank of Ethiopia (CBE) holding roughly 69 percent. Addis Fortune, citing the World Bank study, reports that mortgages were about 4.4 percent of bank credit, and that only 9.4 percent of surveyed homeowners in Addis Ababa, Adama and Mekelle had borrowed to buy, with more than half of them from relatives or friends.

Bankers point to a structural mismatch: banks fund themselves with short-term deposits, which makes 20- or 30-year loans hard to write, and down payment affordability will be decisive for who can borrow. Cooperative housing requires half the construction cost in a blocked account at CBE before registration. The 2025 Banking Business Proclamation provides for specialised banks, but analysts say a dedicated mortgage regulatory framework is still missing and has constrained the few specialised lenders that have started operating.

What the refinancing company changes

It will work as a wholesale lender. Banks pledge eligible mortgage loans and receive longer-term funds, freeing balance sheets for new lending. It will not build homes or lower construction costs. Regional experience suggests refinancing infrastructure alone does not guarantee a deeper mortgage market:

• Egypt (2008 to 2011). Its refinancing company lifted mortgage origination and prompted legal reform, but fell short of its goals amid weak macroeconomic conditions, an undeveloped bond market with no institutional buyers, and political turmoil.
• Tanzania. Conservative banks were unwilling to hold mortgages long enough to qualify for refinancing. A 2012 restructuring added concessional pre-financing. Mortgage providers grew from three in 2010 to 31 in 2025, and maximum maturities increased from 7 to up to 25 years.
• Kenya. An affordable product was capped at KSh 3 to 4 million at 7 percent, with SACCOs included and a guarantee trust for informal earners. Uptake was still minimal because of limited housing supply, mortgage costs, and low awareness.

The lesson is that banks must still originate qualifying mortgages, and borrowers must be able to afford them.

What is available to the diaspora

Several banks already offer diaspora mortgages to buy, build, complete or renovate property. Published terms typically require a diaspora foreign-currency account, at least 20 percent equity in foreign currency, and repayment in foreign currency, with loans of up to 80 percent of the bank’s valuation and terms up to 20 years. Rates and conditions vary widely by bank, and some listings are years old, so buyers should confirm current terms directly.

What would help buyers?

• A dedicated mortgage regulatory framework and support for specialised lenders.
• Credit information and property valuation systems that let lenders price risk.
• Affordability built in early, through income caps or rate discounts, with SACCOs and microfinance included.
• Lower upfront cash requirements, cheaper land and lower construction costs.
• Rental and self-build options for households whose mortgages will not reach.

Bottom line. The refinancing company is still being set up, so its effect cannot yet be judged. Whether it deepens the mortgage market will depend on bank appetite, the supply of homes buyers can afford, land and construction costs, and household incomes. For buyers today, terms are unchanged: compare down payments, tenors and rates across banks, and confirm current diaspora conditions before committing foreign currency.