BUSINESS PLAN

FOR REDI ALI REAL-ESTATE

DEVELOPMENT
TO BE IMPLEMENTED IN ADDIS ABABA CITY
ADMINISTRATION; KOLFE KERANIYO SUB-
CITY, WOREDA 3

PROMOTER- TEMESGEN M

January, 2024
Addis Ababa, ETHIOPIA

1
 Contents
Executive Summary..................................................................................................................... 4
1.INTRODUCTION .................................................................................................................... 5
1.1. Business plan Background and Justification .................................................... 6
2.DESCRIPTION OF THE BUSINESS PLAN ................................................................... 8
2.1. Objective of the Business plan ............................................................................... 8
2.1.1. General Objective ............................................................................................... 8
2.1.2. Specific Objectives ............................................................................................ 8
2.2. Significance of the Business plan ........................................................................... 8
2.2.1. Provide Quality Residential House and Service ....................................... 8
2.2.2. Source of Revenue............................................................................................. 8
2.2.3. Employment opportunity ................................................................................ 9
2.2.4. Benefit For the Local Community .................................................................. 9
2.2.5. Add to the beauty of the city ........................................................................... 9
2.3. Location, Infrastructure and land .......................................................................... 9
2.3.1. Location .............................................................................................................. 9
2.3.2. Infrastructure ................................................................................................... 10
2.3.3. Land Use Plan.................................................................................................. 10
3.MARKET STUDY ..................................................................................................................... 12
3.1. General considerations ........................................................................................ 12
3.2. Contribution of the Real Estate Sector ............................................................. 12
3.3. Regulatory Experience ......................................................................................... 13
3.4. Demand For Residence and Non-Residence Housing in Addis Ababa .... 14
3.5. Demand and Supply Analysis ........................................................................... 15
3.5.1. Demand Determination ................................................................................ 15
3.5.2. Demand and Supply Gap ............................................................................. 15
3.5.3. Market Prospects ............................................................................................ 16
3.5.4. Target Customers ........................................................................................... 17
3.5.5. Marketing Strategy ........................................................................................ 17
4.TECHNICAL DESCRIPTION OF THE PROJECT ............................................................... 18
4.1. Product Mix.............................................................................................................. 18
4.2. Machineries and Equipment ................................................................................ 18
4.3. Project Implementation .......................................................................................... 18
5.ORGANIZATIONAL STRUCTURE ....................................................................................... 19
5.1. Organization and Management .............................................................................. 19
5.2. Man Power Requirement ........................................................................................ 19
5.3. Organizational Structure ........................................................................................ 19

2
6.FINANCIAL ANALYSIS ........................................................................................................... 21
6.1. Total Investment Cost ............................................................................................. 21
6.1.1. Construction Costs ........................................................................................... 21
6.1.2. Machinery and Equipment .............................................................................. 21
6.1.3. Vehicles............................................................................................................. 21
6.3. Summary of Total Investment Costs .......................................................... 24
7.FINANCIAL ANALYSIS AND STATEMENTS ......................................................... 25
7.1. Underlying Assumption ....................................................................................... 25
7.1.1. Construction and Finance .............................................................................. 25
7.1.2. Depreciation..................................................................................................... 25
7.1.3. Sources of Fund ................................................................................................ 26
7.1.4. Bank Loan Reimbursement Modality ............................................................. 26
7.1.5. Annual depreciation ....................................................................................... 26
7.2. Financial Statement ............................................................................................... 27
7.2.1. Balance sheet (Beginning of operation) .......................................................... 27
7.2.2. Income Loss Statement, projected Profit/ Loss statement ....................... 27
7.3. Profitability Analysis ............................................................................................. 28
7.3. Pay-Back Period ..................................................................................................... 28
8. ENVIRONMENTAL IMPACT ASSESSMENT ......................................................... 29

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 Executive Summary
Name of the Business plan: - Redi Ali Real Estate (RARE)
Owner of the real Estate: - Redi Ali
Location of the Real Estate: - Addis Ababa City Administration; Kolfe Keraniyo
Sub-City, Woreda 3
Business plan Type: - Real Estate Development
Total Area of Land Required: - 2,460m2
Composition of the Real Estate:
- A G+6 Residential Apartment containing 42 houses with an area of 90
m2/each on a 540m2 plot of land
- A G+8 residential apartment containing 90 houses with an
area of 72m2 each on a 720m2 plot of land
- A G+12 commercial building having 260 business rooms with an area
of 75 m2 each on a 1,200m2 plot of land

Total Investment Cost: - ETB 1,259,122,480.00

Source of Fund: - ETB 881,385,736.00 (70%) from bank financing and
ETB 377,736,744.00 (30%) owner’s equity.
Social and Economic Benefit of the Real Estate: - The real estate will create job
opportunities for 525 people (65 permanent and 460 temporary) in the area. It also
complements government’s effort to reduce residential house problem
transcended for long in the city. Furthermore, it will leverage the dramatic increase
in change of life style of citizens and create better access to better house; generates
higher income to the sub-city and the city administration in term of taxation and
stimulates the city economy and benefits the local community.

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 1.INTRODUCTION
Real estate refers to land and everything made permanently a part thereof, and
the nature and extent of one’s interest there in (Encarta Reference Library, 2006).
Real estate may be acquired, owned and conveyed (or transferred) by any legal
entity as determined and defined by law. This entity may take the form of
individuals, businesses and nonprofit corporations.

As a sub-sector of the construction sector, real-estate development is dramatically

increasing in Ethiopia. However, the sector is entangled by different obstacles,
including the high cost of construction materials, the slow and limited supply of
serviced plots, and delays in the implementation of the lease system in plot
allocation.

More investment in this area is required to meet the high demand. In this regard,
the Government of Ethiopia has conducive investment policies and regulations to
attract the private sector involvement in the economic development through
various investment and business endeavors including real-estate development.

To this effect, the owner Redi Ali Wajera is interested in real estate development
by investing on his existing land in Addis Ababa, Kolfe Keraniyo Sub-City.
Assessment has been conducted on the technical and financial feasibility of this
Business plan; Environmental and Social impact of the construction on the
surrounding area and on the current real estate market situation has also been
made. The output of the assessment is very encouraging and promising for the
owner to develop the intended real Estate in the area.
The owner of the intended Business plan has great interest and determination to
commence the Business plan soon. Hence, he expects to get the necessary support
from the City and Sub-City Administrations to materialize this Business plan.

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1.1. Background and Justification of the Business plan

Shelter/Housing is one of the basic necessities of human beings and hence all
citizens need a house to live in. However, many of the citizens do not have their
own residence. The rapid growth of urbanization and population explosion in
every corner of the country has worsened the challenge to make citizens have their
own houses/shelter.

In Ethiopia the demand for house in urban areas has become very high. This is
higher in Addis Ababa since number of people migrate looking for better job
opportunity every year. The uninterrupted inflow of migrants from rural towns to
Addis Ababa has made the exact population of the city untraceable. Number of
individuals in a household has dramatically increased and house rent pushed up.

Real estate and condominium development has become common solution to the
prevailing residential house challenge in the city. However, still a lot remains to
address the demand of the citizens.

The property (residential and commercial) market in Ethiopia remained under

developed for several years but the relatively good performance of the macro-
economy in the last five years has stimulated unprecedented investment growth in
the property sector. Despite, positive track records, the sector are still constrained
by a number of barriers detrimental to its growth.

There is higher demand for residential house in Addis Ababa while the supply is
very low. To narrow the gap between demand and supply aside from
condominium residential houses/buildings are under construction both in the
main city of Addis Ababa and its surrounding areas, stimulated by the initiative of
the government and the sharp rise in demand and disposable income of the
society.

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In addition to the facts above, the following promising situations have initiated the
owner of this Business plan for investment on the envisioned real-estate
development;

• High economic growth and Investment activities in Addis Ababa and

surrounding areas.
• High population in Addis Ababa and surrounding area, which is potential
market for the envisioned Business plan.
• Existence of better infrastructural development in the city
• Conducive investment packages for real Estate development and residential
house construction.
• Proximity of the Business plan area to Marcato, a market from where consumer
goods and others can easily be found in wholesale and retail basis.

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 2.DESCRIPTION OF THE BUSINESS PLAN
2.1. Objective of the Business plan

2.1.1. General Objective

The general objective of this Business plan is to construct quality residential
and commercial buildings and contribute to the ongoing efforts of the
government and reduce the burden of the City Administration by bridging the
persistent gap between demand and supply for residential house and also to
avail a standard and attractive commercial center for the residents of the city.

2.1.2. Specific Objectives

In addition to the above noted main objective, the Business plan has the
following specific objectives;
• To take part in the developmental endeavor of the city administration
• To create better opportunity for citizens in accessing residential house with
better reasonable price,
• To provide commercial center where residents of the city can find variety of
items at one neat and tidy place,
• To be profitable and sustain in the rea estate development business.

2.2. Significance of the Business plan

The envisaged real estate development deemed to add to the socio-economic
development of the nation in general and the city in particular in the following
ways:

2.2.1. Provide Quality Residential House and Service

The project will contribute to the efforts of the city administration to crab
residential house problem in the city by developing real estate (constructing and
selling best quality of G+6 and G+8 residential apartments and a G+12 commercial
building.

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2.2.2. Source of Revenue
As public policy of any nation, the government collects different forms of taxes
from different business organizations and individuals. Among the different forms
of taxes, business income taxes, payroll income tax and VAT are major ones.
Therefore, the building will serve as sources of revenue for the Sub-City and the
City Administration at large.

2.2.3. Employment opportunity

Unemployment is a serious problem at national level. This is more sever in Addis
Ababa than rural towns and need due attention. Therefore, the current trend to
tackle the problem of unemployment and fostering the development process is
either creating self-employment or employment opportunity in government and
private organizations.
Development activities specifically construction sector will definitely create
temporary job opportunity in the construction process and permanent post
construction for job seekers in the project area. To this end it is assumed that the
project will create job opportunity for about 523 persons (56 permanent and 467
temporary) living in the project area.

2.2.4. Benefit For the Local Community

To discharge its corporate responsibility RARE will actively take part and
contribute in development activities of the community in the Business plan areas.

2.2.5. Add to the beauty of the city

The real estate sector by its nature has multi-dimensional contribution to a place.
The buildings (G+6, G+8 and G+12) will be modern and standard. This will add to
the beauty and sanitation of the city. Above all it will also introduce new and more
modern life style to the public in the city as well.

2.3. Location, Infrastructure and land

2.3.1. Location
The intended real estate will be developed in Addis Ababa, Kolfe Keraniyo Sub-
City, Woreda 3. Ato Redi Aman, the owner of the Business, has his own plot of

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land which is 2,790 m2 in the area. The project area is very convenient for
residential purpose. It is surrounded by different residential houses and is very
near to the main asphalt road.

2.3.2. Infrastructure
A. Accessibility: - The exact location of the owner’s plot of land on which the
real estate development will take place is at the heart of Kolfe Keraniyo
Sub-City in Woredaa 3.
B. Power and Water Supply: - Addis Ababa, being the capital of the country
where number of diplomats and international and regional organizations
are living in, has sufficient power and water supply. Nonetheless, due to
improper usage there is frequent power and water supply interruption.
This, nevertheless, do not have significant effect on the real estate
construction process and service delivery then after.
C. Other Socio-economic services: - These include education & health
services, transport facilities, financial institutions and government offices
etc.…. All these are available in the area.

2.3.3. Land Use Plan

As noted above the owner of this real estate has already a land, which is estimated
2,790 m2. It is assumed to enough to construct the intended residential and commercial
buildings. In this regard the land use plan is shown in the table below.
Table Land utilization Plan
S Description UM Qty Required Land in m2 Total Land
N in m2
1 Residential Apartment 1
1.1 Residential Apartment (G+6) M2
1.2 Service room (Ground) M2 6 90 540
1.3 Green area, Spacing and Parking M2
Total (G+6) M2 6 90 540
2 Residential Apartment 2
2.1 Residential Apartment (G+8) M2 8 90 720
2.2 Service room (Ground) M2

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2.3 Green area, Spacing and Parking M2
Total (G+8) 8 90 720
3 Block 2
3.1 Commercial Center (G+12) 10 120 1,200
3.2 Service room (Ground)
3.3 Green area, Spacing and
Parking
Total (G+12) M2 10 120 1,200
Total (all buildings) 2,460

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 3.MARKET STUDY
The market study conducted for the Business has considered major factors that
affect the real-estate sector in Ethiopia. Besides, the study compiled primary and
secondary sources of data studied by different organizations with similar
engagement.

3.1. General considerations

Investment and property development play an important role in any emerging
market or economy. Property generally comprises residential houses and
commercial real estate and property developed for rental business and sale. The
property investment market in Ethiopia remained under developed for several
years. As a consequence, the supply of residential houses and non-residential real
estate that can be used for residence, office space, shopping malls and catering
services in the urban centers of the country is disproportionately low to cope with
the growing demand in the country spinning from the average growth in GDP of
5.5 percent over the last ten years and population increase. The relatively good
performance of the macro-economy (real growth in GDP, low inflation rate and
growth in investment and export sector) has stimulated unprecedented investment
growth in the property sector over the last five years.

Looking at the past trends and permits issued by the Government to the
construction of real estate properties in the major urban areas of the country, one
can easily conclude that the momentum is more likely to continue.

3.2. Contribution of the Real Estate Sector

During the period, the real estate sub-sector has made very significant contribution
to the Growth of Domestic Product (GDP) of the country. The real estate industry
contribution to the gross domestic product at constant factor cost averaged 7
percent per annum over the period. The 7 percent average contribution of real
estate to GDP is very significant and consistent with trends in growth in
investment on real estate development in the country.

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3.3. Regulatory Experience

Real estate business in Ethiopia is at a very low level of development

compared to many other countries found at a more or less similar stage of
economic development. In Ethiopia, this mainly owes to the fact that it is a
business with less than a decade history. By the same token, the law
governing the business and its financing aspect are much less
underdeveloped. For instance, this sector is regulated by law and directives
have been issued for banks in the People’s Republic of China. In practice
finance is crucially needed to operate property development and personal
housing consumption. In countries like China, the growth of property
development loans outpaced the growth of total lending of financial
institutions markedly.
Mature real estate financial market provides various intermediary financing
products. These include the issuance of public stock, corporate bond, equity
financing and real estate trust. A mature real estate finance market is
featured by secondary market of asset securitization. This improves
liquidity of real estate assets and provides means for stabilizing financing
sources for the real estate sector.
Underdeveloped real estate development has a very high reliance on the
banking finance. Such loan is mainly used for the purpose of land
acquisition, real estate property development and house sales. As the
business has developed for just few years some problems are prone to be
concealed. The difficulty in obtaining individual credit information has
created the problem of monitoring credit standing and debt servicing
capability.

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Legally, the word ‘real- property’ is never used except in connection with
land. In its strict sense, it denotes only a particular class of interest in land,
real is synonymous with free hold property and it does not include
leasehold interest.

3.4. Demand For Residence and Non-Residence Housing in Addis Ababa

A housing survey made by the Addis Ababa City Administration Housing

Agency estimates the current demand for residential housing units in Addis
Ababa at 300,000 housing units. The survey reveals that 300,000 dwellers of
the city do not have defined shelter. The demand by the business
community for shopping, office space and other catering businesses is also
very significant with considerable backlog of unmet shop seekers
registration by the Agency for the Administration of Rental houses.
The City Administration’s study of the housing needs in Addis Ababa
further elaborates, that it is absolutely necessary to construct 468,668 houses
over six years (2004-2009) to cope with the demand for housing.

The market survey made by the consultants of the proposed shows that
there is wide opportunity for investment in real estate in Addis Ababa. The
findings are consistent with the Addis Ababa City Administration housing
survey studies. Several factors can be cited for this optimism in real estate
development, the following are however very important:
• Persistent growth in GDP and stable macroeconomic environment,
which stimulates demand for real estate property (office space,
shopping mall and catering services);
• Expansion of the existing banking and insurance industry with
opening of new Branches at different locations of the city;
• Emerging new Banks in the pipeline that have acquired licenses and
those that are under the process to acquire;

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 • Proliferation of private colleges, primary and secondary schools;
• Increase in the number of foreign investors starting business in
Ethiopia; and
• Improved performance registered in the tourism sector in terms of
annual increase in the number of tourists that arrive in the country
for leisure

3.5. Demand and Supply Analysis

3.5.1. Demand Determination

Considering the annual housing need estimates of 78,000 units by the City
Administration, to provide for the City’s population growth, relief of
overcrowding, replacement of dilapidated houses and space for office,
shopping etc, a 10% growth rate in the demand for residential and non-
residential housing units is anticipated that spin off from economic growth.
Therefore, the demand for housing (residential and non-residential) in
Addis Ababa is shown in the table below:

Table 3.5.1. Demand for housing units (residential and non-residential)

in Addis Ababa
Year Housing units
2007(backlog) 468,668
2008 85,800
2009 94,380
2010 103,818
2011 114,200

3.5.2. Demand and Supply Gap

The demand for housing is anticipated to grow from 85,800 units by 2008
fiscal year to 199,400 in 2024. Against this growth in housing demand, the

15
City Administration planned to construct 35,000 units every year to
partially meet the demands.
Comparison of demand and supply of housing shows that despite the fact that the
Government is investing on condominium construction to provide shelter to
middle and low-income urban population, there is still a large gap that must be
filled by the private sector such as land developers who are investing on
commercial property for profit. The table shows the excess demand that must be
bridged by land developers and individuals and institutions.

Table 3.5.2-Demand and Supply for housing units (residential and non-residential)
in Addis Ababa

Year Demand Supply Gap b/n SS & DD

2020 468,668(backlog) 33,000 435,668

2021 582,868 33,000 549,868
2022 635,668 35,000 670,668
2023 765,048 35000 730,048
2024 833,866 35,000 798,866

As can be observed from the above table, the overall trend regarding residential
and non-residential need in the city is increasing at an increasing scale. Therefore,
it needs the involvement of the private sector in real estate properties to cope with
the demand for residential and non-residential buildings in Addis Ababa.

3.5.3. Market Prospects

Based on market study, the demand of residential and non-residential houses in

Addis Ababa is very high. Therefore, entering in to this market (the envisioned
real estate development) will be profitable.

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3.5.4. Target Customers
The target customers of the Business plan are people with higher and middle level
income earners and the payment will be finished within 10 years. Besides, for the
commercial center’s owners of different businesses in the city are considered as
target market.

3.5.5. Marketing Strategy

To reach customers different marketing ways will be used. Among the different
marketing strategies and tools for promotion controlling the market:

➢ Printed and non-printed forms of advertising,

➢ Sponsorship of key government activities and public support mechanism.
➢ Commissioning
➢ Long term payment mood

The Business plan under discussion has diversified marketing strategies that could
enable it to come up with the different competitors in the market. Moreover,
customer satisfaction at reasonable payment and giving due respect mood will be
the key marketing strategy of the house.

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 4.TECHNICAL DESCRIPTION OF THE PROJECT

4.1. Product Mix

The real estate under consideration will be for construction of residential houses
and commercial centers. Under this Business Plan two residential and one
commercial building will be constructed, i.e., Block 1-G+6 residential; Block 2
G+10 Residential and G+ 12 commercial buildings will be erected. These are more
described below;

i. Residential Apartment Building 1:

This is a G+6 building constructed on a 540 m2 plot of land consisting of 42 rooms
with 90m2 area each.

ii. Residential Apartment Building 2:

This building will be a G+8 residential apartment constructed on a 720 m2 plot of
land consisting of 90 house with72m2 each.
iii. Commercial Block
This block will be a G+12 building constructed on a 1,200 m2 plot of land
consisting of 136 business rooms with houses with 75 m2 area each.

4.2. Machineries and Equipment

Basic machinery and equipment will be purchased from local market while most
required machinery and equipment for the real estate will be rented.

4.3. Project Implementation

The project's implementation is expected to be after 30 months. The major

activities include Bank loan processing, construction of the building, cleaning the
area around the building, procurement of equipment and start rendering services.

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 5.ORGANIZATIONAL STRUCTURE

5.1. Organization and Management

The organizational structure should be in a way that the it can accommodate

required professional and non-professional staff to achieve set objectives as well as
the satisfaction of standard requirement.

5.2. Man Power Requirement

The total manpower required for the real estate will be 525 (60 permeant and 465)
temporary persons.

5.3. Organizational Structure

The organizational structure of the real estate designed by including all the
necessary personnel under the right division. At the top of the organizational
structure, there will be General Manager with the responsibility of supervising the
overall activity of the plant. Depending up on the nature of the center and the
amount of work to be performs; there exist auxiliary units under the general
manager.
Employees under each unit will be supervised by the department head that is
accountable for the general manager. General Manager is appointed by owners.

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 6.FINANCIAL ANALYSIS

6.1. Total Investment Cost

The total amount of money that is required to establish the envisaged Real estate is
estimated to be birr 556,800,000.00 This amount is treated separately below

6.1.1. Construction Costs

No Description Area (M2) Unit cost Total cost

1 Residential Apartment 1: G+6 540 x 7 40,000 151,200,000.00

2 Residential Apartment 2: G+8 720 x 9 40,000 259,200,000.00
3 Commercial Center 2 (G+12) 1,20 x 13 40,000 624,000,000.00
Total 1,034,400,000.00

6.1.2. Machinery and Equipment

SN Description Measurement Qty Total cost

1 Generator (High horse power) Unit 1 2,500,000

2 Construction machineries (different type & Capacity LS 1 30,010,000
3 Construction tools LS 1 25,812,000
4 Worker Safety Equipment’s Ls 1 6,322,000
Total 64,644,000

6.1.3. Vehicles

No Description Qty Unit Price in br. Total Price in br. Remark

1 pick up 2 1,500,000 3,000,000 Duty free
2 Forklift 2 1,250,000 2,500,000 Duty free
3 Dumper (Sino Trucker) 1 5,300,000 5,300,000 Duty free
Total 10,800,000

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 6.1.4. Office Furniture and Equipment

No Description Qty Unit cost in Br. Total cost in Br.

1 Managerial Tables 5 170,000.00 170,000
2 Secretarial chairs with table 10 420,000.00 840,000
3 Managerial Chairs 5 125,000.00 125,000
3 Computer and Printer 8 240,000.00 450,000
4 Shelf 10 180,000.00 360,000
5 Filing Cabinets 10 120,000.00 360,000
6 Customer Chair 20 40,000.00 80,000
7 Television 5 200,000.00 200,000
8 Assembly chair and table(set) 500,000.00 500,000
Total 1,995,000.00

6.1.5. - Man power list, qualification and salary expenses

SN Position No Qualification Monthly Annual

salary in Br Salary in Br
1 General Manager 1 MSC/Construction management 50,000 600,000
2 Operational Manager 1 BSC in Mechanical/Industrial
20,000
Engineering 240,000
3 Civil engineer 2 BSC in civil Engineering 20,000 480,000
4 Senior engineer 1 BSC in civil Engineering with
20,000
extensive exp 240,000
5 Architect 2 BSC in Architecture 20,000 480,000
6 Senior architect 1 BSC in Architecture with
20,000
extensive exp 240,000
7 Drafting 2 Diploma in drafting 20,000 480,000
8 Human resource manager 1 BA in Management/HR 20,000 240,000
11 Finance Manager 1 BA in Mgt/Acct 20,000 240,000
13 Marketing Manager 1 BA in Marketing 20,000 240,000
14 Sales 2 Diploma in Sales Mgt 12,000 288,000
15 Accountant 1 BA In Accounting 10,000 120,000
16 Cashier 2 Level 4 TVET in Accounting 7,000 168,000
17 Secretary 2 Diploma in Secretarial science 5,000 120,000
19 Store keeper 1 Diploma in Supplies mgt 5,000 60,000
20 Purchaser 1 Diploma in Supplies Mgt 5,000 60,000
21 Guard/Security 4 Basic 3,000 144,000
22 Janitor 3 Unskilled 3,000 108,000

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23 Driver 2 10 completed + certification 5,000 120,000
24 Machine operator 1 10 completed + certification 8,000 96,000
Sub-total 4,640,000
Social Security Fund 11%
510,400.00
Contribution
Total 5,150,400
25 Daily Labor (For 300 Basic
3,000 10,800,000
construction temporary)
Grand Total 330 15,950,400

6.2. Initial Working Capital

Prior to the commencement of operation owner of the real-estate requires initial
working capital as operating expenses estimated to be birr 16,867,400.

6.2.1. Pre-Operating Expenses

No Description Cost in br.

1 Business Plan 60,000
2 ESIA 560,000
3 Licensing fee and others 40,000
4 Staff Capacity Building 1,500,000
5 Promotion 2,000,000
6 Lease 4,000,000
Total 8,160,000
6.2.2. Other Operating Expenses
Sr.
Description Annual Cost in Br Assumptions Used
No
1 Property Insurance 5,000,000 0.032% of fixed Investment Cost
2 Audit & Legal Fee 120,000 10.000 per month
3 Uniforms 200,000 100*2,000br
4 Telephone, fax and postal 24,000 2,000 per month
5 Cleaning materials supplies 60,000 5000 per month
6 Repair and maintenance 1,000,000 2 % of the Fixed Investment Cost
7 Advertisement 250,000 % of sales
6 Stationery and other office supplies 48,000 4,000 per month
8 Electricity 904,400 0.335*225,000KW per month
9 Water 45,000 1.5*3,000m3 per year
10 Fuel 960,000 12.000 lit*80 per year
11 Oil and lubricant 96,000 10% of fuel cost
12 Miscellaneous Expense 36,000 3000 per month
Total 8,707,400

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6.3. Summary of Total Investment Costs

No Description Cost
1 Fixed Investment
1.1 Construction 1,034,400,000.00 .00
1.2 Machinery and Equipment’s 64,644,000 0.00
1.3 Vehicles and Motors 10,800,000 0.00
1.4 Office Furniture and Equipment 1,995,000 0.00
Total Fixed Investment Cost 1,111,839,000.00 0.00
2 Operating Expense 0.00
2.1 Salary Expense 15,950,400 0.00
2.2 Other Operating Expense 8,707,400 0.00
2.3 Pre-operating Expense 8,160,000 0.00
Total Operating Expense 32,817,800 0.00
Total Cost 1,144,656,800.00
114,465,680.00 18,139,680
Total Investment Cost 1,259,122,480.00 0.00

6.4. Selling Price

Based on the market price of similar residential real-estate around Addis Ababa
and surround area, the envisioned Business plan set the price for its services as
indicated below;
Type of House UOM # of houses Average Total Price
price
Residential Apartment Unit 42 30,000,000.00 1,260,000,000.00
Residential Apartment Unit 90 20,000,000.00 1,800,000,000.00

Commercial Building Unit 136 15,000,000.00 2,040,000,000.00

Total 5,100,000,000.00

6.4. Terms of payment

The mode of the payment of the Business plan will be 20% initially and the
remaining will be covered within 10 years from the start of operation.

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 7.FINANCIAL ANALYSIS AND STATEMENTS

As per the presumption the following factors the intended real estate development Business
Plan is profitable and sustainable as well. The following financial analysis and financial
statements show this fact more clearly.

7.1. Underlying Assumption

The financial analysis of the Business Plan is based on the data computed in the
preceding sections and the following assumptions.

7.1.1. Construction and Finance

Construction period 30 months

Source of finance 30% equity and 70% loan
Tax Holiday 2 Years
Bank interest rate 9.5 %
Land lease 8.4 Br per year/m2 for 99 years
Lease payment period 10 years

7.1.2. Depreciation

Assets especially fixed assets by nature depreciate through their respective

operating time. Therefore, it is important using the following standard rates to
compute their respective depreciation value.
Building 5%
Vehicles 20%
Building, Machinery and equipment 10%
Office furniture and Equipment 10%

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 7.1.3. Sources of Fund

No Description % Share Amount (in birr)

1 Bank Financing 70 881,385,736.00
2 Owner’s share 30 377,736,744.00
Total 100 1,259,122,480.00

7.1.4. Bank Loan Reimbursement Modality

Principal Total Annual Remaining

Year Interest (9.5%)
Payment Payment Balance
0 - 0 0 1,259,122,480.00
1 125,912,248.00 119,616,635.60 245,528,883.60 1,133,210,232.00
2 125,912,248.00 107,654,972.04 233,567,220.04 1,007,297,984.00
3 125,912,248.00 95,693,308.48 221,605,556.48 881,385,736.00
4 125,912,248.00 83,731,644.92 209,643,892.92 755,473,488.00
5 125,912,248.00 71,769,981.36 197,682,229.36 629,561,240.00
6 125,912,248.00 59,808,317.80 185,720,565.80 503,648,992.00
7 125,912,248.00 47,846,654.24 173,758,902.24 377,736,744.00
8 125,912,248.00 35,884,990.68 161,797,238.68 251,824,496.00
9 125,912,248.00 23,923,327.12 149,835,575.12 125,912,248.00
10 125,912,248.00 11,961,663.56 137,873,911.56 0.00

7.1.5. Annual depreciation

S. Depreciati
Description Cost in Birr Deprec. / Year
No on Rate %
1 Building 1,034,400,000.00 5 51,720,000.00
2 Equipment and Machinery 64,644,000 15 9,696,600.00
3 Vehicles 10,800,000 20 2,160,000.00
4 Office furniture and fixture 1,995,000 15 299,250.00
Total 63,875,850.00

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 7.2. Financial Statement

7.2.1. Balance sheet (Beginning of operation)

Balance Sheet
Asset
Current Asset
Cash 147,283,480.00
Inventory of raw materials and inputs
Total Current Asset 147,283,480.00
Fixed Asset
Building 1,034,400,000.00
Machineries and Equipment’s 64,644,000
Office Furniture & Equipment 10,800,000
Vehicles 1,995,000
Total fixed Asset 1,111,839,000.00
Total Asset 728,482,480
Liability
Account payable 881,385,736
Owners’ Equity
Capital 377,736,744
Total Liability & Owners’ Equity 1,259,122,480.00

7.2.2. Income Loss Statement, projected Profit/

Loss statement

Revenue Year 1 Year 2 Year 3-10

Sales 5,100,000,000.00 5,355,000,000.00 5,622,750,000.00
Sales expenses (5%) * 25,500,000.00 26,775,000.000 28,113,750.000
Gross profit 5,074,500,000.00 5,328,225,000.000 5,594,636,250.000
Expenses
Salary Expense 15,950,400 16,030,152 16,110,302.76
Operating Expenses 8,707,400 8,750,937 8,794,691.69
Pre-operating Expense 8,160,000 8,200,800 8,241,804.00
Deprecation- Building 27,600,000.00 28,152,000 28,715,040.00
Deprecation-Equipment 9,696,600 9,745,083 9,793,808.42
machinery
Deprecation Vehicles 2,160,000 2,422,050 2,434,160
Deprecation office Equip 299,250 465,064 467,389

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Lease Expense 15,060,000 15,135,300 15,210,976
Loan Reimbursement 13,967,553 14,037,391 14,107,577
Interest Expense 13,269,175.92 13,335,522 13,402,199
Total Expense 114,870,379.52 116,274,299 117,277,950
Profit Before Tax 4,959,629,620.48 5,211,950,701.000 5,477,358,300.000
Tax (30%) 1,487,888,886.14 1,563,585,210.30 1,643,207,490.000
Net Profit 3,471,740,734.34 3,648,365,490.700 3,834,150,810.000

7.3. Profitability Analysis

According to the projected income statement, the real estate will start generating
profit in the 1st year of its operation. Important ratios such as profit to total sales,
net profit to equity (Return on equity) and net profit plus interest on total
investment (return on total investment) show an increasing trend during the
lifetime of the project.

The income statement and other indicators of profitability show that the Business
is profitable and viable.

7.3. Pay-Back Period

The investment cost and income statement projection are used to know pay-back
period. The building’s total investment will be fully recovered at the 10 years of
operation.

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 8. ENVIRONMENTAL IMPACT ASSESSMENT

It is the business owners’ social obligation to consider the environmental and

social impact the real estate entail during construction and after. Thus, the owner
will hire a consultant to conduct ESIA prior to the beginning of the construction.

The real estate will have drainage system that carries all liquid wastes that empty
to central drainage point. The mitigation of the effects of the waste begins by
collecting it in a pit of sufficient size to handle the amount of waste generated.
Such a pit should be lined appropriately to render it impervious so that no used
water escapes to the environment.

Generally, the owner of the Real estate will give due consideration to maximize his
efforts of waste disposal in a safe and environmentally sound manner. As to real
estate service, due to the very nature of the operation, the business itself requires
keeping the environment tidy and beautiful. Therefore, due to their vested interest
real estate operation has to keep the environment friendly and attractive. To this
end the real estate will have no adverse impact on resident of nearby and to the
overall environment.

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