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Economy / Featured News / Mongolia News / Real Estate / September 2, 2015

Current conditions facing Mongolia’s construction industry

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By O.SHURENTSETSEG.

In an interview with Deputy Minister of Construction and Urban Development G.Baigalmaa we learn about the recent accomplishments of the ministry and the challenges that continue to face the construction industry in Mongolia.

Your term in office is ending soon. Could you mention some of the projects you have completed?

There were many urgent and difficult matters in the construction industry when I first took up this position three years ago. Apartment prices were high due to high demand in the market. Apartment prices are not under our control, as we have a weak domestic industry. High demand in the market and foreign suppliers negotiating prices in the Mongolian market resulted in increases to apartment prices.

The construction industry took action against dependency on external conditions to lower prices and open up opportunities to replace imports.

Rebar and concrete are the main materials for construction. Another issue we are facing is how to retain workers in the construction industry. A collapse in the  construction industry forces builders to shift to other industries, which results in  a huge gap in the labor market. It takes a lot of money and time to train new builders.

What improvements have you made so far in the construction industry?

People in the construction industry know the difficulty of shipping concrete from Erlain, China. In this situation, 30 percent of the price of concrete was the result of a delay in Zamiin Uud, Mongolia.

We have started producing concrete in domestic factories and are preparing to export. Additionally, we used to import most of the reinforcing steel used, but now we have decreased import and are planning to supply our own market soon.

We produce most of the materials in the domestic market, such as baths, sinks, toilet seats, and nails. Luxury doors and windows are the only things we don’t produce. Domestic production is expanding day by day and we have created a strong construction industry.

Does this mean we solved the apartment issue in Mongolia?

It used to be that each year 12,000 to13,000 new apartments were commissioned, and this number has now doubled. This increased the apartment supply in the market, however, the government needs to support the construction industry to keep prices and the operations of the domestic industry steady.

Currently, there are refurbished concrete factories operating in Khutul, a million ton capacity factory in Sergelen soum in Tuv Province, and the Monpolymet Group’s factory in Urgun soum in Dornogobi Province. We are expecting two  million ton capacity factories to start operations soon.

Is there any guarantee that these factories are harmless to the environment and can start exporting products?

We are exporting to Russia for testing, and these factories are equipped with the latest technology and equipment. Waterless production has proved to have harmless effects on the environment.

The government increased taxes on 18 varieties of imported products during a recent cabinet meeting.

Would increased import taxes affect apartment prices?

If we can operate our domestic factories at full capacity, we can supply an adequate amount of products to the market without an increase in prices. Staged levels of improvements have been planned, starting with the concrete industry and then other domestic production industries.

We are facing an excess supply of vacant apartments. When will this issue be resolved?

We did research on this issue. We kept apartment prices constant. Usually suppliers negotiate the selling price based on demand. When the supply increases, the price automatically drops. Varied price reduction has occurred, with decreases of  400,000 to 500,000 MNT per square meter compared to last year. However, demand is decreasing even though the supply has increased. This is due to the economic crisis.

Which method is the most effective:  lowering apartment prices or increasing the purchasing power of citizens?

Two years ago we implemented the eight percent interest Ipotek housing loan for citizens. Down payment was 30 percent of the cost of the apartment, and the majority of citizens who could afford this loan have paid it off. To issue more Ipotek loans, creditors need to lower the down payment to 10 percent. The Ministry of Construction and Urban Development has started implementing this policy, as of now. It is highly beneficial for citizens who cannot generate regular savings.

Who will pay for the remaining 20 percent of the down payment?

The government provides a guarantee for the remaining 20 percent of the down payment, but citizens will pay this 20 percent back with their loan. We hope this will balance the demand and supply.

When will the 10 percent down payment  policy for the Ipotek housing loan take effect?

Rules and regulations regarding the 10 percent down payment for the loan will take effect in September.

Apartments, districts, and agency buildings will be commissioned within a year’s time while kindergartens, hospitals and schools are still under construction.

Private companies finish construction quickly based on market demand to earn profit. Kindergarten, hospital, and school construction has come under our control this year. It used to belong to the Ministry of Education.

Does the Ministry of Education construct buildings?

Of course not, they use a construction-ordering agency to build them.

If kindergarten, hospital, and school construction came into your control, why have 69 buildings still not been completed?

Even though the construction of kindergartens, hospitals, and schools are now under our control, the budget for the construction remains with the Ministry of Education, and we still haven’t received it.

We only received documents to build without a budget. Thus, most kindergartens are still under construction. The unresolved issue has caused a temporary stagnation in construction involving 80 percent of hospitals, kindergartens, and schools.

What causes the stagnation?

The budgeted costs don’t match the actual cost of construction. Furthermore, a large amount of money was spent on buildings without a plan or design.

As I remember, the law prohibits budgeting for unplanned buildings.

That section of the law has been violated for a long time now. They choose cheap projects due to low budgets. Poorly planned projects get stuck after the first investment. Residents buy apartments built by private companies, whereas the government buys hospitals, kindergartens, and schools, because it is their responsibility. In fact, the government doesn’t pay any attention to this issue. The victims are the children, women, and older generations.

Why are women considered to be victims in this case?

Women take care of their children at home, they queue for the hospital to give birth, and they take care of the elderly. I can’t remember men taking on any of these roles.

What can we do about the temporary stagnation on construction projects?

The government and the parliament should discuss this issue as soon as possible. The government should take legal action against contractor companies.

Should we still look for accountability for the poorly budgeted construction projects?

The unfinished projects mean the contracting party is responsible.  They deceived the government to take budgeted funds for construction and then complain that the funding is not adequate.

Can we hold the Ministry of Finance and elected officials accountable?

If we cannot, then we will never be provided with hospitals, kindergartens, and schools. If the government thinks these buildings are necessary, they will provide more financial resources to finish them. If these are unnecessary, the government can transfer them to the private sector. The government can use them, or finish building them, or sell them at auction so that citizens can use them for business purposes. Another option is to seek foreign investment to use these unnecessary assets.

SOURCE: UB Post




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