Beyond the capital: A number of regional centres are growing rapidly

Though investors have tended to focus solely on Ulaanbaatar when it comes to real estate development, the country also has a number of potentially promising second- and third-tier conurbations. Indeed, the nation’s mining surge is increasingly a determining factor in the development of urban centres outside the capital, both as new settlements spring up and old ones expand. The government’s ambitious plans to enlarge the road and rail networks, alongside the development of a variety of domestic, value-added industries, are major factors behind the revived expansion into areas outside the metropole.

SANDS OF THE GOBI: Thanks to recent mineral discoveries at Oyu Tolgoi (OT) and Tavan Tolgoi (TT), a substantial amount of new infrastructure investment is pouring into the South Gobi area. The government is planning a rail link from the mines to Sainshand and, eventually, to the existing Trans-Mongolian railway line. In addition, new roads are being built to link the mines with Sainshand and with the regional centre, Dalanzadgad, the latter of which has benefitted substantially from the recent developments.

Over the past two years, in fact, Dalanzadgad has become a regional boomtown for construction and real estate. The mining companies have their offices there, and there is also an airport with flights to the capital. Average incomes in Dalanzadgad are the second highest in the country (after the capital) and have risen some 38% in real terms since the fourth quarter of 2008. The population has nearly doubled in just two years, rising from 17,000 in 2009 to 30,000 at the end of 2010. In 2011 direct foreign investment in the city – major multinational mining corporations Ivanhoe and Rio Tinto are operating OT while other Western, Chinese, Japanese and Korean giants are expected to come in on TT in the near future – was expected to hit $150m, up from $90m in 2010.

A NEW INDUSTRIAL CENTRE: Sainshand, which lies at the other end of the South Gobi mining axis, is already an established regional centre, lying as it does on the rail and road link from Ulaanbaatar to the Chinese border, but a combination of the mining boom and government plans to develop an industrial park there have resulted in a major surge in development.

HEIGHTENED DEVELOPMENT: Indeed, the population has been expanding in recent years, from 21,000 in 2009 to around 30,000 in early 2011. In 2010 MNT23.3bn ($18.2m) of new construction and renovation work was carried out in the city, according to R2 Research. This included the construction of 66 new apartments, representing 56% of all the apartments built in the 2008-10 period, which highlights the accelerated development.

Meanwhile, the investment target for the Sainshand Industrial Park (SIP) is around $13.9bn, with at least six heavy industrial processing and manufacturing plants planned for the site, primarily in the metallurgical and petrochemicals sectors. If things go according to the plan, Sainshand will also eventually be a rail hub for oil and gas from the east and the possible site of a new refinery. The Ministry of Roads, Transportation, Construction and Urban Development predict these projects could create some 200,000-250,000 new jobs in Sainshand, which translates into almost exponential growth for what will likely become the country’s second top-tier city.

GOING RATES: In early 2011, land in Sainshand’s city centre was selling for MNT144,000 ($112) per sq metre, and 600 sq metres of commercial property close to the centre would bring in MNT60-70m ($46,800-54,600). An older two-bedroom apartment with hot water and heating (Sainshand boasts a thermal power station) was around MNT29m ($22,620) in early 2011, with new two-bedroom apartments going for approximately MNT35m ($27,300).

While these two cities remain major new investment destinations, other cities like Darhan have also profited from the mining prosperity. Other hubs like Erdenet (already wealthy due to its large mine) may eventually benefit from overall GDP growth as well.

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The Report: Mongolia 2012

Construction & Real Estate chapter from The Report: Mongolia 2012

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