Mongolia is described as one of the most exciting investment prospects for the year ahead by foreign investment agencies, as it continues to hold strong GDP growth despite suffering economic difficulties in the last few years. Particularly, the real estate sector has become a “hotspot” for foreign investors, as the sector is receiving high demands from young people interested in moving from extended-family households to nuclear ones or living independently.
Christopher de Gruben, co-founder and managing director of M.A.D. Investment Solutions, said that although the real estate sector is an attractive sector for investment in Mongolia, it hasn’t become well known.
“Mongolia has rocketed from being a largely nomadic and relatively unknown country, at least in investment terms, to being a key hotspot due to the discovery of its incredible mineral reserves, worth an estimated 1.5 trillion USD,” says the Global Property Markets 2014 report published by the investment agency Property Frontiers.
Some international real estate experts believe that Mongolia’s growth in the construction sector, particularly in real estate, in recent years will continue to increase rapidly. The primary housing needs of residents in the capital will be completely supplied by 2025 if this sector can maintain its current speed, according to a Japanese expert. President of the Mongolian National Construction Association G.Tumenjargal clarified that an annual procurement demand of 1.5 to 2 billion USD has been estimated based on the studies of Mongolian and foreign experts. He pointed out that this prediction shows that Mongolia has great potential and numerous opportunities in the property market.
Population density is dramatically impacting the demand for real estate and increasing apartment construction. In other words, the “leverage” of the property market is households in ger areas looking to move into apartments. With GDP per capita rising by two to 2.5 times in the last five to six years, purchasing power for real estate has been observed to have grown dramatically in Mongolia. Experts expect this rise to double by 2020.
Mongolia’s housing loans are a huge factor for raising ratings in the construction sector. Procurement demand has tripled within the last three years. Despite this astonishing improvement, it’s still not the time for housing needs to decelerate. As of last month, commercial banks received requests for mortgage loans totalling to over two trillion MNT from residents eager to purchase apartments and houses. This clearly proves that the real estate market is yet to satiate.
The government has shown its support for demands by dropping down payments for mortgage loans from 30 percent to 10 percent, and issuing guarantees for 20 percent of applicants. Presently, the number of mortgage loan holders has reached over 70,400 people. According to market studies, it’s possible for this number to increase to more than 15,000 people.
The mortgage loan balances of banks reached 3.08 trillion MNT, equalling 13.5 percent of Mongolia’s GDP, as of April 2015. Repayment for housing loans with eight percent interest, a program enforced since mid-2013 by the government and Mongol Bank , is at a normal rate. Housing loans make up 2.1 percent of all overdue balances and 0.5 percent of non-performing loans. Economists don’t consider this a risk to bring immense burdens on the banking sector at the moment.
The number of borrowers is constantly growing, simultaneous to GDP growth. In fact, the rent of offices has increased by three times in three years, and the prices for offices has become 11 times higher within 12 years, granting three to ten times more monetary value than their initial investment to people who put their money in real estate.
The National Statistical Office of Mongolia reported that Mongolia’s housing supply has seen a 4.5 times higher increase in 2014. The government is aspiring towards housing 30 percent of Mongolia’s population in apartments and house this year and to provide modern housing for 67 percent by 2021. These sectors are well aware of the fact that big opportunities bring big risks. Still, experts in the field remain optimistic about the future.
“We foresee a bright future for the construction and real estate sectors,” noted UMC Alpha LLC, a company specializing in real estate investment banking and management.
According to Minister of Construction and Urban Development D.Tsogtbaatar, there’s a wide range of opportunities for investing in properties using Mongolia’s investment funds. He also mentioned an open opportunity for investment in the secondary market of mortgage loans by purchasing guaranteed bonds with mortgage loans and acquiring adequate funds for investment.
The real estate market has prospects for buying, renting, and foreclosing on real estate. Moreover, there’s a practically new market for maintenance and management services for commissioned buildings and facilities. Housing needs have always exceeded supply, but the two are expected to meet in the future.
The private sector has invested 4.5 trillion MNT in the property market in the past two years. This sum will multiply by four to five times, at minimum, if calculated with the multiplying effects of investment.
If the economy recovers, the real estate and construction market will pick up their pace, since their risks and opportunities are clear. Although the development of this market hasn’t stopped, it’s stagnating and facing a funding shortage. Once these challenges have been overcome, the future appears very bright for the real estate and construction sector, as the value of construction bonds -which are in the process of being traded through the Mongolian Stock Exchange – will hike. This will provide adequate conditions for generating investment from the Mongolian Stock Exchange with cheap sources that can substitute bank loans.