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 the cities of Darkhan and Erdenet were founded at the beginning of the 1960's.
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 land area, it also has one of the highest population densities per square meter of apartment space, with the living area per person within the city at 31.2 % lower than the average international level.
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, 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 currently 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 colliding with a fast growing foreign population which also places demands on apartments in the city. As the number of apartments available increases along with the demand from both locals and foreigners, the number of property transactions has also increased.
Contrasted 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 was estimated in 2006 at approximately 8,500 units, but the construction industry was only able to produce 3,500 apartments. This situation has resulted in a very small number of apartments available for expatriate renters.

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 and upwards per month for rent. 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 not yet 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 2008, 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 by creating gated residential communities consisting of individual houses and apartment buildings well outside the city thus necessitating a commute for their 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 and space becomes even more scarce and vaulable.