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Can
I buy property in Mongolia
as a non-resident foreigner?
Yes,
this is not a problem. There are no restrictions placed on foreigners
in particular, the same laws apply equally to Mongolians and foreigners. Please visit our Legal guide for further information.
Will
there be restrictions or taxes placed on the repatriation of capital to my home
country?
No,
Mongolia is a free market economy and there is no restriction on the
repatriation of capital either as a foreign individual or a foreign
entity. Foreign entities can sometimes find themselves required to pay
dividend taxes, however this does not apply to the repatriation of
foreign capital by individuals.
Wire transfer is the best means
to take money out of the country and that can be done through any of
the internationally minded Mongolian banks. Please note that although there will
be no taxes on the Mongolian side, this is not to say that the bank
will not charge you for it and that the receiving country will not tax
the amount. Please also note that this is most likely to change within
the year as Mongolia introduces new fiscal reforms.
What
sort of real estate turnover is there in Ulaanbaatar?
The
rate of turnover in the city is very fast, and there is a shortage of
apartments for rent, particularily in the luxury sector. We struggle to
find suitable apartments for rent for corporations and high net worth
individuals. In the sales sector there is some strong demand,
principally in mid range to luxury prices.
What is the demand like?
Demand is extremely high from the Mongolian home
buyers as well as from foreigners living in UB and overseas international investors.
Has the Ulaanbaatar
real estate market developed recently? There seems to be a boom.
Yes, currently the market is
developing and land in the centre of the city has
become rather precious. From sight it looks like a property boom is currently
underway in UB, however we believe this is just a normal expansion of apartments in a city that has a dire scarcity of apartments available for its
citizens.
Can
real estate be used as collateral?
Yes, real estate is often used
as collateral in UB and across Mongolia.
One
of my primary concerns is my status of ownership (i.e. deed), could you tell me
more about how this works in Mongolia?
Foreign
ownership of "immovable property" is allowed in Mongolia, although
ownership of land by foreign investors is not. The owner of an
apartment is issued an apartment ownership certificate which is the
same as local residents' certificates. This certificate can be sold or
even used as collateral with banks. This ownership certificate is
protected by Mongolian law.
What
taxes are applicable on my property upon the purchase and the subsequent rental
of the apartment?
There
are very few taxes currently imposed on foreigners investing in
Mongolia. There is a 2% sales tax which is applicable on the wholesale
value of the property purchased after the building
was completed. For off-plan purchases there is no tax. There is also a 10% VAT tax which is
currently applied to rental payments but it is not currently paid nor
collected.
I
hear you will be doing a REIT on the Regency Residence, what exactly is a REIT?
Real Estate Investment Trusts (REITs) are
tax efficient vehicles that will invest in commercial and residential
properties. They are common in other countries, particularly the USA and Australia,
but were only sanctioned by Gordon Brown in his pre-budget statement in
December 2005. Initially, a REIT will take the form of a quoted company on the stock
market, but which is not liable to tax on its profits itself. Instead,
provided it distributes 95% of its net income to its shareholders, who
will pay tax on their receipts, the company itself will be exempt. There are likely to be limitations on trading (as it is expected that
75% of the income must come from rental income) and gearing is also
likely to be restricted so that may limit the scope for growth funds. REITs will be very useful for investors seeking income directly without
a company taxation structure causing them to lose some irrecoverable
tax before the income reaches them for gross income purposes. REITs
have been very successful in other countries although in most cases
they have taken many years to become well established. Analysts predicted that the size of the listed property sector, which
has shrunk over the last few years because companies were taken
private, would dramatically increase in size with perhaps a doubling of
the sector by the end of 2008.
Why
are Real Estate Investment Trusts good investments?
REITS
are worth hundreds of billions of pounds in countries where large
numbers of investors appreciate the high yield and steady stream of
income. REITS give individual retail investors access to a diversified
portfolio of property without the risks and administrative burden of
direct ownership. Gordon Brown, when in the position of Chancellor, highlighted
REITS as a suitable investment for people wanting to place property
assets in their Self Invested Personal Pensions(SIPPs). He said that
REITs were more suitable as pension investments because they were less
risky than investment in a single property.
I
would like further details about the ownership structure concerning a
building such as the Regency Residence. As foreigners cannot own land
how is the ownership structured?
Ownership
of the apartments is done similarly to condominium projects around the
world where the owners of the individual condos/apartments are issued a
deed. In the case of Mongolia we will refer to it as an ownership
certificate.
Each certificate is issued after the
building has been approved by the relevant authorities at the ministry
of construction at which point an application is made to the "Immovable
Property Office" by each individual tenant. The application includes a
picture of the building with the specific window of the relevant
apartment circled in red. In addition the contract of the owner with
the developer must be submitted. Lastly an application letter asking
for the certificate is needed. After this, the certificate is issued
within two working days.
The certificate is the
ownership of the apartment and can be sold, gifted, or used as
collateral at the bank for a loan. In fact, land ownership has very
little to do with ownership of the apartment.
The
developer is the leaser of the land. Most developers by the "right to
build" on a piece of land and during that time they can lease the land.
After the building is approved most developers give the land back to
the district for management. The reason that they do this is so that
they no longer have to pay the lease on the land.
It
is not possible for the district to resell the land. If another
developer wants the land and to build a building they would need to buy
every apartment in the building before they knock it down.
In
fact the Mongolian government cannot even seem to buy all of the
apartments to tear down a building, so this actually has not
happened yet in UB, but theoretically it is possible.
Do you have a question concerning real estate in Ulaanbaatar?
Please email us at:
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