Mongolia: Hot property
The real estate market in Mongolia is expected to expand significantly in the coming years, thanks in part to increasing incomes and rapid urbanisation created by the country’s mineral wealth.
With the capital city expected to be home to more than half of the population by 2030, Ulaanbaatar will be the focus of this surge in real estate growth. There are several factors expected to lead people to leave traditional nomadic herding lifestyles and move to the city.
According to the World Bank, revenues from Tavan Tolgoi, a coking coal mine, and Oyu Tolgoi, a copper mine, are expected to propel real GDP growth from the current level of $7bn to $24bn in the next decade. GDP per capita, meanwhile, is expected to soar from $3000 to $8000 by 2016. The government has also pledged to increase the salaries of state workers by 53% in 2012.
To prepare for the expected influx of people into the city, the government is developing a “100,000 Apartments Programme” that will see 75,000 homes built in the city and 25,000 constructed in the countryside. In January, city officials also announced a series of projects aimed at improving Ulaanbaatar’s infrastructure, with MNT70bn ($51.28m) allocated for road repair and construction, MNT45.3bn ($33.19m) for public transportation and MNT330m ($241,758) for the construction of 40 kindergartens.
In September 2011, the US Agency for International Development and the Mongolian Mortgage Corporation announced a guarantee facility that will cover approximately $4m in mortgage-backed bonds, of which the US Treasury guaranteed 50%.
When speaking with the media in August 2011, Kh. Battulga, former minister of roads, construction, transportation and urban development, stated that the country’s Development Bank is backing the 100,000 Apartments Programme, adding that citizens with low and average incomes will be able to take part in the programme with 12-year loans at 4% a year. “It is estimated the project will cost MNT800bn ($586.08m),” he said.
According to data from the National Statistical Office released in May 2011, housing prices in Ulaanbaatar ranged from MNT850,000 ($623) per sq metre to MNT1.48m ($1084) per sq metre, while luxury apartment prices ranged from MNT2m ($1465) per sq metre to MNT10m ($7326) per sq metre.
“The high-end real estate market is displaying remarkable growth,” noted local real estate firm MAD Investment Solutions in its 2012 report. “Prices for [high-end residential] units ... nearly doubled from the first quarter of 2010 to the first quarter of 2011.”
MAD said some of the highest prices it has seen were among units in the city centre’s 40,000-apartment area, adding that the knowledge-based economy that is being created by the influx of international capital has resulted in an increase in demand for office space.
“Grade-A offices in the city experience high occupancy rates, typically over 85%, although new developments such as Blue Sky Tower are presently exhibiting higher vacancies – 10% or more. Over 73% of the total grade-A office supply in Ulaanbaatar is located within the Sükhbaatar district, at the heart of the central business district,” the report noted.
The expected influx of foreign workers, entrepreneurs and investors from major firms such as Rio Tinto, Ivanhoe Mines and Peabody Energy should also create an increase in demand for the hotel and serviced apartments segments.
Research firm R2 predicts there will be 130 serviced apartments available by 2013, but that this will expand once the Hong Kong-based Shangri-La Group opens its 273-room hotel, scheduled for the same year. Hyatt Regency Ulaanbaatar is also scheduled to open in 2014 with 259 rooms, including 43 suites and 22 serviced apartments.
Other areas expecting to see growth are towns located near the country’s vast mining projects. Indeed, the government announced in January 2012 that 3000 apartments, roads, a school, kindergarten, hospital, hotel and shopping centres will be built near Oyu Tolgoi, with the MNT100bn ($73.26m) project to be financed by Ivanhoe Mines, Rio Tinto and the state-run Tavan Tolgoi firm.
While Mongolia’s mineral wealth is generating unprecedented optimism in the country’s property sector, key infrastructure will need to be built at a parallel speed to new housing construction. If the government’s plans for infrastructure works continue on schedule, there should be plenty of opportunities in accommodations development.