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Economy / Featured News / Mongolia News / Real Estate / November 26, 2014

Housing construction to increase into foreseeable future

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Everywhere across the city in recent years, Central Bank backed housing construction projects have been sprouting up, as the government continues a supply side supportive policy.

Since last year, MNT 582.8 billion in mortgage loans have been issued, plus MNT 872.1 billion in refinanced mortgage loans at a reduced interest rate of eight percent per year, and an additional MNT 296.1 billion to increase construction essential materials manufacturing for dedicated projects by Mongol Bank. Meanwhile the government has spent MNT 429.5 billion increasing the housing supply and another MNT 70 billion on land exemptions.

Total construction work of 16,500 apartment units and houses were completed across Ulaanbaatar last year, as 14,685 residents received a mortgage and real-estate prices rose by 26 percent. This year, 21,540 houses and apartments are scheduled for completion. Local real-estate market experts say that although the prices have fallen since the beginning of the eight percent mortgage loans, they will likely follow the macroeconomic general outlook.

Last year, the construction sector accounted for a great deal of GDP growth, despite a relatively small share of total GDP. Strong sector growth has continued over the past three years, as a total of 40,000 houses and apartments have been built. Local investment pouring into the sector doubled and increased by 2.3 times in just the past year.  Moreover, bank loans issued to the construction sector rose by 60 percent. Unfortunately, foreign investment has fallen, as the investment legal environment has had a huge impact on this matter, says a study by industry company UMC ALPHA.

Of the housing still under construction, 9,507 units, 25.4 percent of the total, are to be completed by the end of this year; the remaining of 27,800, or 74.6 percent, are to soon follow in 2015. The problem with such a boom in available apartments, however, is that there is a lack of infrastructure, particularly electricity and heating, that can meet such a supply of current residence construction projects, according to reports released by real-estate companies. If, for example, there is a problem with the connection to the power stations, all the houses and apartments that depend on this utility will see a shortage of heating and electricity for at least 48 hours.
UMC ALPHA experts say that to tackle the issue, we need to clarify the real demand of residential homes, produce appropriate residential models that fit the purchasing power of citizens, and develop domestic construction materials production—the main factor affecting the price of property.

Director of UMC ALPHA, N.Monsor, insists for the need of coordinating infrastructure engineering with city planning, and developing a better legal environment where construction and investment are favored.
Price and time correlation
The price for per square meter of residences differs depending on their completion time. For a fully finished apartment today, the average price per square meter is MNT 2.4 million, according to Master Properties, a real-estate company. A decade ago the average residence that number was MNT 460,000.
Here is the average price outlook for residential apartments (MNT million)
2014- 4th  quarter    2.1
2015-1st quarter     2.4
2015-2nd  quarter    2.5
2015-3rd quarter     1.9
2015-4th quarter     2.5
2016-1st quarter     3.5
2016-2nd quarter     2.5
2016-3rd quarter     3.7

Source –Master Properties


Looking at the chart above, the highest price reach occurs in the third quarter of 2016, while the lowest is expected to be in the third quarter of 2015. This can be attributed to the fact that 10 out of 12 residential projects planned to be complete after the fourth quarter next year are considered top level luxury residences.

Residences that are completed before the end of this year are predicted to cost more than those that are to be completed within the next two years. The difference in cost is attributed to a difference in grade—standard versus luxury grade apartments. For instance, standard grade apartment projects do not require purchase orders one or two years ahead of time, as they take a shorter time to build and tend to be cheaper, resulting in higher demand from customers.

But for luxury and above-standard level apartments, there is less a correlation between the price and the time when a customer considers buying. Customers who can afford this kind of residence make their choice by looking at non-price factors such as construction quality, the surrounding environment, and infrastructure.

SOURCE: Mongolian Economy

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