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he Residential letting market of Ulaanbaatar has consistently grown
over the last few years, with supply still very much struggling to meet
the high levels of demand. The strong growth witnessed within the
Mongolian economy has fuelled demand by local residents for housing as
well as encourage expats to live and work in Mongolia.
Mongolia is quickly becoming the future source of resources for the
growing Chinese economy. This has brought in many mining companies
almost all of which are increasing their number of foreign personnel.
At the moment there are not enough apartments to house them in and
therefore the rental yields in Mongolia are about 15-18% per annum.
This is considerably higher than any other Asian country.
Rental Yields in Asia
(2004)
Source: World Bank regional reports
As
of 1921 in Mongolia, just after the revolution, only 9.0 % of the total
population lived in urban areas and there was almost no civil
infrastructure, except the telecommunications department, newspapers
and publishers.
There were no roads in the country except tracks of
cattle in the vast territory of Mongolia. From the mid-1940’s, the
capital city, Ulaanbaatar, started to thrive and from the beginning of
the 1960’s, the cities of Darkhan and Erdenet were founded during this
period.
Over half of the residents (52%) of Ulaanbaatar are
currently living in their traditional nomadic dwellings, known as gers
while the remaining 48% live in apartments with complete civil
supplies; this is 24% lower than international standards. Despite
Mongolia having one of the lowest population densities of any country
in terms of overall space in the country, it also has one of the
highest population densities per square meter of apartment space, the
living area per person within the city is 31.2 % lower than normal
international levels.
This situation is analogous to Hong Kong in the 1950’s and 60’s when a
large percentage of residents actually lived on junk boats without any
permanent housing.
As the economy in Hong Kong grew and interest rates
came down and mortgage products entered the market place, the demand
for housing became quite substantial.
Subsequently there was a
movement from the junks into apartments. A similar phenomenon is
underway in Ulaanbaatar and therefore the demand for housing is current
very high.
This has affected the property demand, property prices and the plans
for developers who have grasped the implications of this trend. These
trends are also colliding with a fast growing foreign population which
also places demands on apartments in the city. As the number of
apartment’s available increases along with the demand from both locals
and foreigners, the number of property transactions has also increased
in tandem.
Juxtaposed against this high demand however is a nascent construction
industry with insufficient financing and production capacity.
Below is a graph which shows that demand for apartments is estimated at
approximately 8,500 units however last year the construction industry
was only able to produce 3,500 apartments.
This situation has resulted
in a very small amount of apartments available for expatriate renters.
Source: Mongolian Properties
The
remainder of the foreign residents are made up of long term residents
for personal reasons such as marriage to a Mongolian, temporary
residents, immigrants, and other various foreign residents. The number
of expatriates arriving in Mongolia in connection with the mining
industry and its related businesses has increased steadily and is set
to do so for the foreseeable future.
High end apartments, for this
definition, fall into the US$900 per month for rent and upwards.
Generally the range falls between US$900 and US$4,000 per month with
most people having a budget of US$1,600 per month.
This has brought about a strong need for luxury properties on the
letting market. This demand is as of yet not being fully met.
While there are some properties which are adequately furnished or
catered to satisfy the needs of expats, there are very few modern
buildings of high quality and specifications on the current market.
This is set to change with the arrival of a number of large residential
projects.
The Regency Residence, The Olympic Residence, Japan town, Marshall town
and other projects are underway but will not reach the housing market
until the end of 2007 thus creating an enormous gap in the market until
this time.
As the property prices have steadily increased with an average rate of
capital growth around 18%, land has become increasingly unaffordable
and the city is expanding on all sides. Some luxurious developments
have embraced this development by creating gated residential
communities consisting of individual houses and apartment buildings
well outside the city thus necessitating a commute from its
inhabitants.
To many casual observers it would seem that there is a construction
boom going on in Mongolia along with a bubble in the prices of the
apartments. In fact this is not the case. Although the pace of
construction has picked up, there remains inadequate housing for the
inhabitants of Ulaanbaatar.
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