Interview: D. Battur
How can the urban planning process be improved?
D. BATTUR: The public institutions working in relation to the urban development sector should be made more stable. Due to the current election system, the personnel in these institutions are constantly changing and there is a lack of continuity in policymaking. If you change the staff, the objectives change and the policies change. Therefore, in order to improve the urban planning process, we need to facilitate human resources to work sustainably. So, we would like to see more stability to improve urban planning.
What forces are driving construction costs up?
BATTUR: The main problem in the construction sector at the moment is the lack of a qualified labour force. Another issue is the high cost of construction materials, which we usually have to import. A third concern is the unstable cost of fuel, which can change depending on the season. Due to these problems, the prices of buildings are very high at the moment.
The cost of energy depends on many things – starting with the importation of fuel, which includes transportation costs. If we can resolve these types of issues, we will have lower energy costs in the future. Also, we have only one or two main logistics centres at transit traffic borders throughout the country. This increases the burden of shipping, exporting and importing goods, meaning more value is added.
To what extent can increasing local production of building materials contribute to a reduction in the inflation of housing costs?
BATTUR: Currently there are several projects under way to increase the number of factories producing construction materials for the local market. This will naturally reduce overall construction costs by a certain amount. Mongolia also has many mineral deposits, which is something that can help us become more self-sufficient in producing construction materials. Another way of lowering costs would be for the construction companies to buy the materials directly from the factories. This would help reduce inflation and housing prices. In addition, the state needs to build more roads and highways, not just railways. If we had better road networks connecting us with China, local construction companies could buy the raw materials directly from Chinese manufacturers, reducing costs.
Another problem we face is related to human resources; our labour force is leaving to work in countries like South Korea. We need to be able to employ these people domestically and improve the quality of the educational system, which is currently very low.
As a consequence of inflation, mortgage rates are also going up. Currently our company is handing out 10-15% of its profits made from loans invested in manufacturing to the bank. This creates a lot of financial pressure. In my opinion, the Mongolian banks should be more flexible in terms of payment periods. It is obvious, however, that mortgages’ operational leverage for construction companies will bring benefits in the long run. There are only 30,000 mortgages out there at the moment, meaning there is room for growth once they are more affordable.
What housing trends do you foresee in Mongolia in the forthcoming years?
BATTUR: We do not think it is wise to build Soviet-style, small apartments anymore because the country is developing, families are growing and incomes are increasing. We believe that it would be wise to demolish all the old buildings that do not meet the current standards of living. It would also be a good idea to build more near the airport. Even though the number of immigrants from rural areas is increasing, we will be able to satisfy their demand with modern housing solutions that are space-efficient. If the government is able to generate competent policies and stabilise the inflation rate, I believe that there will be gradual development and growth in sight for the real estate sector, especially in the affordable housing segment.
Read More from OBG
