OBG talks to J. Od, President, MCS Group

 J. Od, President, MCS Group

Interview: J. Od

What can be done to make affordable housing projects viable for the government and developers?

J. OD: There is definitely a market for affordable housing in Mongolia. At the same time, construction projects have various fixed costs, all of which are going up, including wages. In terms of housing programmes, it is important for the government to be consistent on the infrastructure and the mortgage side, as well as with the criteria that define “affordable housing”.

By my logic, if the per capita cost is high, the only way one can make housing affordable is to build small. There is no sense in calling a three-bedroom apartment aimed at civil servants affordable housing, so it is necessary to limit the size of units to say 30 sq metres. If we can keep the apartments small, it is feasible for the government to offer subsidies to the residents. This would be a very fair system. It would ensure an efficient use of resources and be easy for the government to control without distorting the market for luxury or medium-sized apartments.

How do regulatory issues affect foreign investors and real estate developers?

OD: In most countries you have some ratio standards, like height restrictions, lot ratio, etc. The new city government is quite aware of these issues and it is working together with foreign professionals to improve planning, infrastructure and building codes. We are seeing growing interest from foreign investors and developers in the construction and real estate sector.

The government needs to be very clear and consistent in its programmes to further encourage these capital flows. A big issue here is the lack of land for large industrial projects, such as factories. Hence, it is important for the city government to be very clear about issues like land and infrastructure development. The government could also use sovereign guarantees or other means to encourage foreign developers. In my view, the best way to develop local infrastructure would be through public-private partnerships, which are more efficient than waiting for the government to allocate money for large-scale infrastructure projects.

How do you expect the local building materials market to develop going forward?

OD: Increasing local materials production is obviously good for the national economy, but it does not necessarily mean that we should produce everything. It is very difficult to compete with Chinese producers because of their low prices and high volume of production. This means that imports are often cheaper than local production, but they involve more logistical problems.

In Mongolia, there is a very short construction season during which one needs to import a huge amount of construction products. This is more than our railways and logistics chains can handle, and it creates a bottleneck during construction booms. The planned highway to China, which is estimated to be completed in one to two years, would ease this burden by allowing trucks. Prioritising this project would be the fastest solution to the current logistical issues.

What is your prediction for the real estate market in the next three to five years?

OD: Judging by the buildings being constructed, I see an improvement in quality, as the market demands better materials and designs. Also, due to local weather, I believe that in the future there will be an increasing number of large, enclosed residential areas that are accessible to most necessary services through interconnected corridors without ever stepping outdoors.

Large public infrastructure projects, in my view, will dictate the future of the city. These projects should be realised by foreign professional companies.

Ulaanbaatar has the potential to be a very beautiful city because of its size and geographical location, with the mountains, the valleys and the unpolluted river. In the end everything comes down to proper planning – the Ger District, for example, has a perfect location for investing and developing new real estate projects.

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The Report: Mongolia 2013

Construction & Real Estate chapter from The Report: Mongolia 2013

Cover of The Report: Mongolia 2013

The Report

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