Mongolia Properties

A Brief Overview

The Mongolian Property market is in full expansion, all indicators and variable factors point to continued rapid growth, lack of supply and large scale demand keeps the return on investments high. Improved rugulatory system and further confidence in the judicial system makes Mongolians and foreign investors alike confident while the recent introduction of longer term mortgages available to Mongolians has made much of the market within the reach of a larger segment of the population.

The Residential Market

The 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.

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.

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.

The Commercial Market

The Commercial Property Market in Ulaanbaatar is thriving. There are three enormous office and retail development projects currently under construction in the centre of Ulaanbaatar. It is likely that this will bring about an oversupply of grade A office space in this sector of the market. This oversupply is most likely to bring about a drop in rental prices as there is a limited number of companies currently in Mongolia who can afford grade A space. This will eventually be absorbed as the economic expansion of the country proceeds forward and space becomes even more scarce and vaulable.

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