Rising high: Solid fundamentals and demand bode well for future growth

The rapid expansion of Mongolia’s economy in recent years has fuelled rising per-capita incomes and, consequently, steadily increasing demand for high-quality real estate of all types. Supply in most segments, meanwhile, has remained fairly limited, which has contributed to demand-driven increases in rents and sales prices, particularly since early 2011. Despite a considerable amount of new construction activity – primarily at the higher end of the market – most local players expect demand for new space to continue to outstrip supply for the foreseeable future, particularly in the residential housing segment.

Capital Attraction

Ulaanbaatar, which was home to more than half of Mongolia’s population of around 3m as of the end of 2012, according to data from the Ministry of Construction and Urban Development (MCUD), is the nation’s most important real estate market by a wide margin. The city is home to all of Mongolia’s grade-A retail, office and hotel stock, and the great majority of the country’s high-end residential developments. The capital city is expected to grow in size considerably over the course of the coming decade, primarily as a result of the steadily increasing number of rural Mongolians who have chosen to relocate to the capital in recent years.


While the prospects for future growth are clear, the real estate sector currently faces several pressing challenges. Ulaanbaatar is surrounded on three sides by mountains, which means that in the capital area land is fairly limited and increasingly expensive. New development is also constrained by the country’s long, cold winters, during which construction work must be put on hold. Additionally, sourcing affordable financing for real estate development and consumer property purchases also remains a major hurdle.

Finally, while the government was in the process of revising and updating Mongolia’s property-related legislative framework at the time of publication, according to local players the legal environment is relatively underdeveloped. “Transparency is a big issue in the local market,” Christopher de Gruben, the managing partner at M.A.D. Investment Solutions, an Ulaanbaatar-based property research firm, told OBG. “Navigating the legal framework for mortgages, for example, is complicated, lengthy and expensive.”

Despite these hurdles, most local players are looking forward to continued expansion for years to come. Nearly half of Ulaanbaatar’s current residents live in gers (traditional felt tents) or other types of informal housing, the great majority of which are located in a series of rapidly growing unofficial neighbourhoods on the outskirts of the city.

According to some estimates, around 300 new families relocate to the capital from the countryside every day. While this steadily expanding population represents a serious short-term challenge for the city’s urban planners, it is also widely considered to be a major long-term source of demand for all types of real estate development in the Ulaanbaatar area.

So long as income levels continue to rise going forward, the country’s newly urbanised population has the potential to drive real estate development in Mongolia for years to come.


Prior to the fall of the Soviet Union in 1991, private property was illegal under Mongolia’s socialist government. During this period housing was allocated to citizens based on a complicated bureaucratic system that took into account employment history and public achievements, among other metrics. Under Article 5.1 of the nation’s first post-Communist constitution, which was passed in 1992, the state recognised the legal validity of public and private property. In the years that followed the new government enacted additional related laws, including the country’s first land law in 1994, the law on the registration of immovable property in 1997, the law on cadastral survey and land cadastre in 1999, and the second land law in 2002, among other laws. From 1997 onwards the government undertook a far-reaching privatisation project, transferring a wide variety of state-owned property assets into private hands, including the country’s entire housing and apartment supply.

Consequently, as of the mid-2000s a considerable number of Mongolians had become property owners. By 2004, for example, more than 70,000 flats had been privatised in the capital and the northern city of Darkhan, according to data from the German Agency for Technical Cooperation, which assisted with the privatisation project.

Major Projects

Amidst rising demand for real estate in the late 1990s and early 2000s, the government implemented a number of major housing and infrastructure development projects. In 2000 the state launched the “40,000 homes” initiative, under which the government set out to boost the country’s residential housing supply. In particular, the state aimed to improve access to affordable housing among Ulaanbaatar’s rapidly expanding informal ger-dwelling population, which had been increasing since the 1990s. Through the early and mid-2000s the government drove the development of new residential capacity in Ulaanbaatar and secondary cities, while a small number of private sector developers made a handful of targeted investments in other segments. Rising levels of inflation and speculation-driven investment contributed to the development of a real estate bubble in Mongolia, which burst in 2008-09, roughly in conjunction with the international financial downturn that swept through Western markets during this period. Since 2011 the real estate market has once again been on a tear, driven largely by revenues associated with activity at the Oyu Tolgoi copper and gold mine and the Tavan Tolgoi coal project, both of which are located in the Gobi desert in southern Mongolia.


The real estate market is concentrated almost entirely in Ulaanbaatar. The centre of the city can be divided into six key neighbourhoods, which are loosely organised along Peace Avenue, the crowded two-lane, east-west road that serves as the capital’s sole uninterrupted thoroughfare. The Sukhbaatar area, which is built up around the square of the same name, is home to a slew of government buildings and almost all of the country’s grade-A office and retail space, and is considered to be Ulaanbaatar’s central business district (CBD).

Directly to the west of Sukhbaatar along Peace Avenue is the Chingeltei district, which is home to the State Department Store, a local landmark, and other shops, entertainment facilities, restaurants and cafes. Other key neighbourhoods of Ulaanbaatar include Bayangol, Songion Khairkhan, Bayanzurkh and Khan Uul. The majority of the formal residential and commercial real estate in the capital is located in one of these six districts.

Ger Districts

The growth of the ger districts over the past few decades is a uniquely Mongolian phenomenon. Located primarily to the north – but also to the east and west – of Ulaanbaatar proper, the older, more established ger districts are relatively built up, with many residents living in brick, concrete or wood buildings of various types. Some of these relatively central informal neighbourhoods have recently been connected to the utilities grids – a luxury not yet afforded to the majority of the more remote areas, where many residents live in portable ger year round. Access to utilities and other amenities is severely limited throughout the ger districts in general, with most residents simply going without public transport links, paved roads, electricity, water, sewage and, perhaps most importantly, heat.

During the winter months temperatures in Ulaanbaatar can drop as low as -40°C. In order to stay warm ger residents burn low-grade coal in stoves, which they also use for cooking. This is a major cause of the extremely high levels of air pollution in the capital. According to WHO research carried out between 2003 and 2010, Ulaanbaatar ranked second in the world in terms of air pollution, with the number of particles smaller than 10 micrometres on a parts per million basis at 279 on average, compared to a global average of 71. Over the past 15 years a variety of government and private-sector led programmes have been put in place to redevelop the ger districts, though as of mid-2013 very little progress had been made, and the number of new ger residents was still on the rise. According to data from the National Statistical Office of Mongolia (NSOM), in 2012 around 81,600 Ulaanbaatar households lived in gers year-round, while 100,300 households lived in gers on a part-time basis, generally during the winter months, as a result of the fact that much of the alternate informal housing lacks a connection to the power grid, and, unlike a ger, does not have a stove.


In Mongolia land is handled somewhat differently than in many other countries around the world. Due in part to the high percentage of citizens that live in portable gers, land and property (i.e. buildings or other structures built on the land) are considered to be individual legal entities. This has given rise to a tiered system of land use, ownership and control, not to mention the relatively unique legal category of “immovable property”, which is defined as any structure that – unlike a ger – is not portable. Only Mongolian citizens are currently allowed to own land, and ownership rights can only be exercised in the country’s designated urban areas. Foreigners cannot own land in Mongolia, but they can obtain usage rights to land and they can own buildings and other structures. The government owns almost all of Mongolia’s rural land and much of the urban land in Ulaanbaatar and the various smaller cities in the country’s 21 aimags, or provinces.

Around 74% of Mongolia’s 1.6m sq km of land is classified as agricultural land or pastureland, all of which is owned by the government, though use-rights are commonly held by the entire population. The Mongol steppe is the largest stretch of uninterrupted common grazing land in the world. The government also owns the great majority of the land in the urban areas, though in many cases private citizens or corporations hold possession or use rights to this land, or own a structure on the land.

Under a 2008 amendment to the 2002 Law of Mongolia on Citizen’s Ownership of Land, which is still in place today, private citizens are entitled to lay legal claim to a plot of publicly owned land. The land issued under this programme is generally sold by the state at heavily discounted prices, in some cases less than 5% of the market value. The plots available under the privatisation programme vary in size depending on the location. In Ulaanbaatar, for example, a private citizen can acquire 700 sq metres under the programme, whereas in other areas plots of up to 5000 sq metres are available. The land privatisation programme has been a popular means of acquiring land in the rapidly expanding ger districts.

A new land law, which is currently in draft form, would reportedly boost access to land and property for private citizens and foreigners alike. The new law would also likely introduce new standards and regulations in terms of land valuation, property development and corruption. “The lack of a proper land valuation framework is one of the key challenges currently facing both the government and private sector developers in Mongolia,” M.A.D.’s De Gruben said. “Hopefully the new law will address this issue.”

Paying For It

Obtaining financing for real estate development is another major challenge currently facing local developers and other market players. Mortgages and other types of property-related lending are generally expensive and, for many firms, simply unavailable, as most local banks shy away from the real estate market due to perceived financial and legal risks. With this in mind, most commercial – as opposed to government-funded – projects are pre-financed, either via capital from a previous project or an international developer, or else by pre-sales of individual units to end-users.

As a result, activity tends to stop and start and ebb and flow based largely on public sentiment and Mongolia’s overall macroeconomic indicators. This volatility is particularly apparent at the higher end of the market. “In 2011, for example, the economy was growing rapidly, and work started on a number of major new projects,” said M.A.D.’s De Gruben. “More recently, however, financing has dried up somewhat, and a substantial number of projects have been put on hold for lack of funding.”

Over the past decade the government has introduced several projects aimed at improving access to consumer mortgages. Under the most recent initiative, launched in mid-2013, the state is offering subsidised mortgages at an 8% interest rate through the commercial banking sector. As of mid-November 2013 the programme – which is meant to encourage ger-district dwellers, in particular, to purchase on-the-grid housing – has attracted a considerable number of participants (see analysis).

Major Players

While the government dominates the housing sector, a variety of other development and construction companies are active in other real estate segments. MCS Property, a subsidiary of local conglomerate the MCS Group, has completed a handful of major commercial and office projects in recent years, including, in 2010, Central Tower, a high-end mixed-use building located at the heart of the CBD, next to Sukhbaatar Square. In conjunction with the Hong Kong-based company Shangri-La Hotels & Resorts, MCS is currently in the midst of work on a new mixed-use tower that will house a Shangri-La Hotel. Upon completion, this new project, which is located a short distance south of Sukhbaatar Square, is expected to be the tallest building in Mongolia.

Another one of MCS’s major ongoing projects is Vivacity, a large-scale residential development located just outside Ulaanbaatar proper, which is being developed in conjunction with the Puma Group.

Chono Properties, a subsidiary of the Chono Group, completed work on the iconic Blue Sky Tower in 2011. Located directly opposite Sukhbaatar Square, the structure is currently both the tallest and, as a result of its wave-shaped outline, one of the most recognisable buildings in Mongolia. Along with Central Tower, it is also one of only a small number of structures that houses grade-A retail and office space. The Max Group, which was established in 2006, has overseen the development of a handful of large-scale projects in the capital, including Max Tower, Max Mall and the Ramada Hotel.

“We are currently working on two major projects: the Crown Centre, which is mostly an office development, and the Elite Residential project, a luxury project near Sukhbaatar Square,” B. Munkhbat, the company’s business development manager, told OBG. Other major real estate developers and construction firms operating in Mongolia include Bodi Construction, a subsidiary of the Bodi Group, a local conglomerate; Altai Construction; Nomin Construction; and the Bridge Group, among others.

Residential Market

The most desirable residential property in Mongolia can currently be found in Ulaanbaatar’s central Sukhbaatar and Chingeltei districts. These neighbourhoods are home to the majority of the “First 40,000” apartments, which are generally considered to be the country’s most sought-after residential spaces thanks to their central location, good build quality, high ceilings and low running costs. Constructed mostly in the 1950s as housing for government workers, the First 40,000 flats, along with the nearby Second 40,000 and the newer 50,000 apartments – all of which were constructed in central Ulaanbaatar prior to 1991 by the country’s communist government – are currently among the best-performing units in the capital, both in terms of sales and rents.

“The concept of quality in the local market is growing and expanding,” O. Batmunkh, CEO of Premium Concrete, told OBG. “Until recently, price was the main concern for both companies and clients. However now, with the participation of more foreign firms in Mongolia, quality is rapidly becoming a must for all construction materials companies, and overall industry standards are increasing.”

While the city centre contains the majority of Ulaanbaatar’s grade-A residential units, since 2009-10 a handful of other areas have become popular as residential neighbourhoods. The Zaisan area, which is technically part of the Khan Uul district, has seen a substantial amount of new upscale development in recent years, for example. Located to the south of the Tuul River – which runs to the south and roughly parallel with Peace Avenue – since the mid-2000s the area has attracted wealthy Mongolians and management-level expatriates, who have built gated villas and compounds in the foothills of Bogd Khan Mountain, which overlooks Ulaanbaatar.

The vast majority of Ulaanbaatar’s population – an estimated 60%, according to figures from the World Bank – lives in the ger districts. Supplying residents of this expanding area with upgraded housing and services is considered to be one of the greatest challenges currently facing residential planners in the country. The government, in addition to a wide variety of private non-governmental organisations, have recently developed strategies to try and address this issue. In 2010, for example, the government launched the “100,000 houses” project, under which the state is currently working to build 75,000 new residential units in the capital and 25,000 elsewhere in the country.

Additionally, over the past decade the government has worked to extend the capital’s power, water and sewage networks into the most densely populated ger districts. This project has moved forward only intermittently, however, as a result of bureaucratic delays and the fact that for much of the year the ground in Mongolia is frozen solid, which makes most infrastructure work impossible.

Market trends

With the exception of a slight price dip in 2008-09, from 2005 onwards steadily increasing demand for residential property has resulted in consistent and considerable appreciation across the market. Rising demand and a lack of new supply in the residential segment since 2010 has resulted in especially dramatic price increases among the First 40,000 apartments.

According to data from M.A.D., recorded purchase prices for these units reached a high of around $2491 per sq metre in 2012, up from around $2000 per sq metre in 2011, $1000 per sq metre in 2010 and just $800 per metre in 2009, for example. Second 40,000 apartments, meanwhile, the majority of which are located slightly north of Peace Avenue in the University district, were selling for around $1535 per sq metre as of the end of 2012, according to M.A.D., up from around $800 in 2010. Both residential rents and sales prices are expected to level out somewhat in 2013, primarily as a result of slowing overall economic growth in Mongolia.

New residential real estate development in Ulaanbaatar has traditionally been centred on the CBD and surrounding areas. Since 2007 the number of newly built residential units has expanded substantially on an annual basis. A considerable amount of new high-end development kicked off in late 2010 and 2011, in conjunction with the rapid expansion of Mongolia’s economy as a result of major discoveries in the mining industry.

Since then this new supply has been coming on-line slowly but steadily. As of the end of the third quarter of 2012 residential units were on sale in more than 140 recently built residential developments, mostly high-rise apartment buildings. The majority of this new capacity was located in the Bayanzurkh and Khan Uul neighbourhoods, the former of which is home to a number of state-led projects under the 100,000 houses scheme.

According to a survey of local developers carried out by M.A.D., in the second half of 2012, around 13,500 new residential units were expected to come on-line before the end of 2014. The great majority of these residential units were being developed to cater to demand at the low-end or mid-tier of the market. Nearly 70% of this upcoming supply was located in either the Bayanzurkh or Khan Uul areas.

Office Space

Only a handful of buildings in Mongolia – almost all of them located in Ulaanbaatar’s Sukhbaatar and Chingeltei areas – offer international-standard grade-A office space. Central Tower and Blue Sky Tower, which were completed in 2010 and 2011, respectively, together house a sizeable percentage of the country’s best office space.

According to M.A.D. data, as of the end of 2012 the nation boasted a total of 410,000 sq metres of space in the A, B and C grades. A considerable percentage of this supply was developed during a period of rapid economic growth in the mid-2000s, and completed in 2008-09, just before the domestic real estate sector was hit by declining global commodities prices and the international credit crunch. Demand grew slowly through 2010 and then took off again in 2011, driven largely by activity in the mining sector. Consequently, in 2011 and 2012 local developers began work on a substantial amount of new office space, which is expected to begin coming on-line in the near future.

Mining or mining-related companies reportedly occupy more than 50% of the country’s current high-grade office space. While occupancy rates are currently high across the board, some local developers have expressed concerns about the potential for oversupply in the coming years. Indeed, provided ongoing projects are completed on time, the office supply pipeline through 2017 is equal to 44% of total extant supply of grades A-C, which makes Mongolia one of the fastest-growing office markets in the world. Projects with major office components that have either recently been completed or are under way include Peace Tower, with 16,000 sq metres of office space; the Shangri-La building, with around 25,000 sq metres; MAK Tower, with 30,000 sq metres; and the International Finance Centre, with some 31,000 sq metres, among others.

Commercial Retail

Rising per-capita incomes over the past decade have driven the development of Mongolia’s retail real estate segment. As of the end of 2012 only a handful of buildings – among them Central Tower and Blue Sky Tower – offered true grade-A commercial space. This limited high-end supply has been snapped up by a handful of international luxury retailers, including France’s Louis Vuitton and Italy’s Emporio Armani.

Much of the remainder of Ulaanbaatar’s graded retail space is located in individual street-facing buildings on Peace Avenue, or in popular department stores. The State Department Store, for example, which was built in 1961 and has been under private control since 1999, is a popular shopping destination for upper-middle class and wealthy Mongolians, in addition to foreign tourists and expatriates. Other major retail destinations include the Ulaanbaatar Department Store, Max Mall and Naran Plaza, among others (see analysis).


Over the course of the past decade the number and quality of hotels in Ulaanbaatar has increased dramatically, driven by an influx of foreign tourists, workers, investors and consultants. According to data from the National Centre of Tourism, visitor arrivals topped 476,000 in 2012, up nearly 10% from a decade earlier.

The government and a wide variety of other organisations are currently working to develop the country’s tourism industry, which, in conjunction with steadily rising levels of foreign direct investment (and, consequently, corporate visitors), points to considerable long-term demand for hotel rooms in the capital. According to data from the NSOM, there were more than 20 three-, four- and five-star hotels operating in Mongolia as of the end of 2012, in addition to a large number of one- and two-star motels and guesthouses. Occupancy rates in the nation are highly seasonal, with most visitors arriving during the warm summer months.

The first internationally branded hotel to set up shop in the city was the Kempinski Khan Palace, which opened for business in 2005, and is located around 1.5 km to the east of Sukhbaatar Square on Peace Avenue. The five-star Kempinski, which was developed in conjunction with the local Tavan Bogd Group, remains one of the best performing hotels in the country, posting an average occupancy rate of around 70% in 2012.

Other top performing hotels in terms of occupancy rates include the Blue Sky Hotel, which is located in the Blue Sky Tower and is operated by the Chono Group, the local development company that built the tower, and the Corporate Hotel, a domestically operated property located in the CBD that opened for business in 2007.

A considerable number of new three-, four- and five-star properties are under construction in Ulaanbaatar. According to projections compiled by M.A.D., an estimated 1235 new rooms are expected to come on-line between 2013 and 2016, which will effectively double the number of high-end rooms available in Ulaanbaatar.

Major upcoming hospitality projects include the Shangri-La Hotel, which is currently being developed as a joint venture by the local MCS Group and Hong Kong’s Shangri-La Hotels and Resorts, and the Best Western Tuushig Hotel, which is being developed by the US-based Wyndham Hotel Group, among others. A number of the ongoing hotel projects in the country have been delayed repeatedly over the years, in conjunction with delays in the local mining sector. With this in mind, while there is currently a considerable amount of supply in the pipeline, the short-term prospects for the hospitality segment remain somewhat unclear.


While a number of challenges remain, most local players expect Mongolia’s real estate sector to continue to grow for the foreseeable future. The lack of supply in most areas – particularly the housing segment – and steadily increasing levels of urbanisation point to significant latent demand for property in Ulaanbaatar and other urban areas. A wide variety of as-yet undiscovered or untapped mineral wealth is expected to underpin the expansion of Mongolia’s economy for many years. Recent estimates put the total value of the country’s top 10 mines in excess of $2.5trn.

While the mining sector is expected to be a major economic driver for years to come, concerns about Dutch disease have contributed to recent economic diversification efforts, and the government and private sector alike are now focused on developing a number of other sectors, including tourism, agriculture, and information and communications technology, among others.

This new activity bodes well for the country’s long-term real estate development prospects. “Mongolia’s rising reputation as an economic player is not only the result of all the new mining activity in recent years,” M.A.D.’s De Gruben told OBG. “There are many challenges, but in general this country’s economic fundamentals are strong and getting stronger.”

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The Report: Mongolia 2014

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