Introduction from the editor
When I first came to Ulaanbaatar just four years ago, I found a very different
city to the one I work in today. The Mongolian growth story had not yet
begun and it showed. The buildings were decrepit, foreigners were a
novelty, and the food was predominantly mutton.
Just four years on, none of these remain true. Fast paced construction
fueled by massive inflows of Foreign Direct Investment have allowed large
structures such as the The Monnis Tower, The Blue Sky, and the Central Tower
to dominate the city’s skyline. The expatriate population has swollen over
recent years, with thousands of professionals having located to the steppe
in order to make the most of the country’s considerable opportunity.
These changes have taken place against the backdrop of unprecedented
economic development. Having achieved a real GDP growth rate of 17.3%
over 2011, the Mongolian economy is outperforming every one of the BRIC
economies. Mongolia is predicted by the World Bank to be the world leader
in economic growth over the next two decades.
This momentum appears to have transferred effectively into the real estate
sector, with many property assets facing double-digit value appreciation
over recent years. Although huge gains have already been realized, it
appears the market is only just beginning to gather momentum. As the
country continues its rapid growth trajectory and urbanization, immigration
and upward mobility spur demand for all types of real estate, a combination
of unique conditions is also limiting the growth of an inadequate supply.
The Mongolian real estate market however continues to face a chronic
information deficit, resulting in many of these future price drivers yet to be
priced into the market. Asia Pacific Investment Partners and Mongolian
Properties seeks to bring some clarity to investors looking to enter this exciting
market by publishing this Mongolian Properties Real Estate Report 2013.
This book is the first comprehensive piece of research into Ulaanbaatar’s
real estate market that is backed by local data and ten years of direct
Drawing upon the combined wisdom of all of Mongolian Properties, the
oldest real estate agency in the country, the Mongolian Properties Real
Estate Report 2012 aims to convey a decade of expertise to the reader in a
relatively simple document. With thoughts, reflections and forecasts having
been recorded in a comprehensive series of interviews with each member
of the company’s team, we are confident that the reader could not be in
Additional data for the Mongolian Properties Real Estate Report 2013
was sourced from Tenkhleg Zuuch, Mongolia’s leading real estate trade
This report is divided into three sections: a country overview designed to
guide those new to the country through its politics, macroeconomic
situation, and legal and tax regimes; an analysis section that describes and
examines many of the trends and drivers that have, and should continue to
shape the real estate over the coming years and finally an examination of
the real estate market detailed into the six key districts of Ulaanbaatar – with
some ideas of future price trajectories.
However you are thinking of investing in the Mongolian growth story, Asia
Pacific Investment Partners is confident that the Mongolian Properties Real
Estate Report 2013 is the most comprehensive examination of market drivers
currently published. We hope you find it a useful tool in determining your
investment strategy for Mongolia!
Editor – Joe Holloway
Design & Production - Urtnasan Erdenebileg
Art Director – Naranmunkh E
Editorial Assistant – Yanjindulam Tuvd
Editorial Assistant – Saruulzaya Bayarsaikhan
Marketing Manager - Buyanhishig
International Distribution – Stuart Evans
Financial Analyst – Locke Brown
Editorial Contributor – Evan Casey
Operations Coordinator – Andrew Bergman
Administration – Kevin Trzcinski
Business Development Director
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Every effort has been made to ensure the
accuracy of the information and data
contained in this book however, the editors
and the publishers accept no responsibility
for any errors it may contain, or for any loss,
financial or otherwise, sustained or incurred
by any person or entity using this publication.
All rights are reserved in this publication. No part of this publication can be
re-produced displayed, stored, or transmitted in any manner without the prior
written consent of Mongolian Properties.
Photographers: Hamid Sardar /Khasar
To order a copy of this report,
Kevin Trzcinski, Group Sales & Marketing
Table of contents
Map of the city.......................................................................................p2
DISCLAIMER: CERTAIN STATEMENTS IN THIS DOCUMENT ARE ‘‘FORWARD LOOKING STATEMENTS’’. THESE FORWARD LOOKING STATEMENTS ARE NOT BASED ON HISTORICAL FACTS BUT
RATHER ON MANAGEMENT’S EXPECTATIONS REGARDING FUTURE GROWTH, RESULTS OF OPERATIONS, PERFORMANCE, FUTURE CAPITAL AND OTHER EXPENDITURES (INCLUDING THE
AMOUNT, NATURE AND SOURCES OF FUNDING THEREOF), COMPETITIVE ADVANTAGES, BUSINESS PROSPECTS AND OPPORTUNITIES. SUCH FORWARD LOOKING STATEMENTS REFLECT
MANAGEMENT’S CURRENT BELIEFS AND ASSUMPTIONS AND ARE BASED ON INFORMATION CURRENTLY AVAILABLE TO MANAGEMENT. FORWARD LOOKING STATEMENTS INVOLVE
SIGNIFICANT KNOWN AND UNKNOWN RISKS AND UNCERTAINTIES. A NUMBER OF FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE
FORWARD LOOKING STATEMENTS INCLUDING RISKS ASSOCIATED WITH VULNERABILITY TO GENERAL ECONOMIC MARKET AND BUSINESS CONDITIONS, COMPETITION, ENVIRONMENTAL
AND OTHER REGULATORY CHANGES, ACTIONS BY GOVERNMENTAL AUTHORITIES, CAPITAL MARKET CONDITIONS, RELIANCE ON KEY PERSONNEL, UNINSURED AND UNDERINSURED
LOSSES AND OTHER FACTORS, MANY OF WHICH ARE BEYOND THE CONTROL OF THE COMPANY. ALTHOUGH THE FORWARD LOOKING STATEMENTS CONTAINED IN THIS DOCUMENT ARE
BASED UPON WHAT MANAGEMENT BELIEVES TO BE REASONABLE ASSUMPTIONS THE COMPANY CANNOT ASSURE INVESTORS THAT ACTUAL RESULTS WILL BE CONSISTENT WITH THESE
FORWARD LOOKING STATEMENTS. THE COMPANY HEREBY EXPRESSLY DISCLAIMS ANY LIABILITY FOR ANY INACCURATE OR OUT OF DATE INFORMATION PRESENTED IN THIS DOCUMENT
AND THE COMPANY SHALL HAVE NO OBLIGATION TO CORRECT, AMEND OR UPDATE THIS DOCUMENT IN THE FUTURE FOR WHATEVER REASON.
THIS PRESENTATION IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER OR SOLICITATION FOR AN OFFER WITH RESPECT TO THE PURCHASE OR SALE OF ANY
SECURITY. NEITHER THIS DOCUMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS OF, OR BE RELIED UPON IN CONNECTION WITH ANY CONTRACT OR COMMITMENT
ATA R M A P
Mongolia t building
Thoughts from the CEO
Ulaanbaatar: The changing face of one of Asia’s most vibrant frontier cities
The view from the top of one of Ulaanbaatar’s newly built skyscrapers offers a cityscape
markedly different from that of only a few years ago. Numerous luxury high-rise buildings have
sprung up in the centre of town, and construction of new high-end residential, commercial
and mixed use developments continues apace. Several leading international hotel brands
have moved into the market and, in addition to the existing Kempinsky, Shangri-La and
Hilton are now also building new five star hotels in the city centre. The stock of housing
catering to the demands of the middle and low income sectors of the city is also increasing
dramatically, under pressure both from an increasingly affluent middle class, and high levels
of immigration from the Ger district into formal brick and mortar structures. In addition to
rapid development within the city, new residential developments are also springing up in
the valleys of Zaisan, Nukht, and Ikhtenger, pushing the boundaries of the city outwards.
Following a decade of chaotic development the government is now also beginning to
take a more considered approach to the city’s development, and is implementing an
aggressive infrastructure program to improve traffic, water and heating conditions.
Driving these changes in the cityscape is a highly eclectic and rapidly changing population.
As the capital of one of the world’s fastest growing economies, Ulaanbaatar is currently
witnessing a rapid influx of highly educated overseas Mongolians returning home, together
with rapid ongoing urbanisation as a result of migration from the countryside. Added to this
the city is also becoming increasingly cosmopolitan, with large numbers of investors and
bankers from global financial centres such as Hong Kong, London, Singapore and New
York mixing with miners from Australia and Canada. The result is a highly energetic and
entrepreneurial culture that manifests itself not only in business, but also in the city’s vibrant
cafés, bars and nightspots.
As a result of the country’s mining boom, combined with rapid improvement in the level of
human resources, Ulaanbaatar is now benefitting from a spillover effect into other areas of
the economy, leading to rapid growth across numerous industries, in particular real estate,
construction, manufacturing, and tourism. Combined with these positive forces are also
a number of constraining factors, in particular the city’s fixed heating grid, the scarcity
of parking, and the overloaded road network, all of which conspire to create pockets of
extraordinary opportunity for real estate investors in specific locations across the city.
We hope that this real estate report will shed light on some of the key industry dynamics at
play and provide investors and family planners alike with a useful guide to the opportunities
currently available in the real estate market in Ulaanbaatar, as well as pointers as to which
areas to avoid. A special thanks to Joe Holloway, the research team at Mongolian Properties
and our friends at TenchlinZuch for all of their research and hard work, without which this
report would not have been possible. We hope you find this report useful and look forward
to assisting you further as you explore the opportunities available in Ulaanbaatar.
Lee Michael Cashell
Chief Executive Officer
Mongolian Properties LLC
Just twenty years ago, a newly democratized Mongolian state was struggling to survive a
transformation recession as its previously subsidized agricultural enterprises were forced to
face international competition.
Today, through market liberalization, democratization and a certain amount of geographic
good fortune, the country is recognized as one of the world’s fastest growing economies.
Mongolia achieved real GDP growth of 17.3% in 2011, significantly outperforming every
one of the BRIC economies. The World Bank estimates suggest 2012 will play out in much
the same way; based on Q1 observed data real GDP growth is forecast to be 16.7%, in
comparison to 5.8% across the BRICs, and 2.5% worldwide.
Despite demand from China appearing somewhat weakened according to Q2 2012
metrics, growth in Mongolia’s industrial output remains healthy. The mining sector that
underpins Mongolia’s growth saw output rise by 10% y-o-y in April 2012 according to the
World Bank. The potential for increases in industrial output remain substantial in the medium
term, with Oyu Tolgoi already having begun to stockpile ore from its open pit, being on
track to begin commercial production in Q1 2013.
Investment Basics: The Mining Sector
The estimated value of Mongolia’s resource wealth is approximately US$1.3trillion.
According to ResCap, a Mongolia-focused investment bank, there are
approximately 6,000 known deposits of over 80 different minerals in the country,
including gold, copper, coal, uranium, molybdenum, tin and iron. However as
just 27% of the country has been surveyed to a scale of 1:50,000. The country’s
exploration potential is vast.
Of the many operations currently in the country, two deserve a specific mention.
The first of these, the internationally renowned ‘Oyu Tolgoi’ (OT) representing the
largest undeveloped copper deposit worldwide, situated 80km from the Chinese
border. The project is managed through a joint venture between Ivanhoe Mines
and Rio Tinto, who have a 66% stake, whilst the Mongolian government controls the
remainder. Research by Ivanhoe
Mines estimates that the deposit
contains around 37 million tons of
copper and 1,431 tons of gold and
is considered to be worth USD$350
billion (around 50x the value of
Mongolia’s current GDP).
Commercial production at OT is set
to commence in Q1 2013 at the
Southern Oyu open pit mine, whilst
the Hugo North division (a black
rock cave mine) is on track to
extract its first ore in 2015.
Photo by Hamid Sardar / Khasar Sandag
Despite deposits of copper and gold playing a crucial part in Mongolia’s economic
development, coal looks to be the country’s most important resource over the
coming years, possessing an estimated 163.2 billion tons of the mineral as opposed
to just 77.3 million of copper. The largest operation is the ‘Tavan Tolgoi’ (TT) project,
located just 200 km from the Sino-Mongolian border. The site is believed to be the
second largest untapped reserve in the world and is made up of over 6.4 billion
tons of coking coal. Extraction began as far back as 1960, but until recently, the
mine has been functioning subject to severe inefficiencies and output constraints.
To unleash the coalfield’s true potential, the government has decided to split the
project in two; one half it will develop alone, the other being opened up to foreign
investment. The public sector operation is to be financed through a three way
international equity IPO that will list shares in London, Hong Kong and Ulaanbaatar
in Q1 2013, whilst international players are currently being courted to fund the
development of the private ‘West Tsankhi’ venture.
Located between Russia and China, Mongolia has the potential to supply two of
the world’s largest growth economies with the raw materials needed to sustain
development. The Chinese are dominant in the consumption of Mongolia’s
resources, receiving more than 90% of its exports. The currently dyadic Mongolian
current account is cause for concern, with resource revenues perceived to be at
the mercy of protectionism, infrastructural bottlenecks and imperfectly competitive
price setting regimes.
A project of rail network renewal is currently underway in order to ease some of
these concerns and it will expand the service links to both China and the TransSiberian Railway, which will logistically connect OT and TT to the ports’ of Russia’s
Pacific Coast. Access to naval trade through both of Mongolia’s neighbors is
expected to ensure a fair price is met for the country’s extracted minerals. Avoiding
the potential threat of Chinese monopsonistic abuse is thus greatly reduced, as the
goods are allowed to face internationally competitive commodity prices.
The extraction of Mongolia’s previously latent resources have allowed deposits to be
converted into tangible wealth, as exports reached a record high of US$4.8bn at the end
of 2011, up from just US$2.5bn four years earlier. Coal outflows were valued at US$2.2 billion
in 2011, more than twice the total of the previous year (US$0.9 billion), whilst the contribution
of copper to the Mongolian current account increased by 25% over 2011 (although much
benefit was derived from the commodity’s price increase over the period).
Growth has been facilitated by the easing of the country’s production constraints by
capital and expertise inflows from a number of multi-national mining corporations. Levels of
FDI have surged, reaching 39% of GDP in 2011. Forecasts based upon Q1 results expect this
figure will be exceeded in 2012, as foreign direct investment is predicted to be US$4.4bn
(roughly half of the country’s GDP).
Despite a strong performance over recent years, recent data has upset the trend of
positive export growth. Exports contracted by 2.8% for the first time in two years in April,
whilst coal exports, representing the Mongolian external sectors largest earner, have
displayed negligible growth in recent months. Copper prices have been falling since
January, which has translated into a 19% y-o-y drop in the goods total revenue.
The short-term vulnerability of Mongolia’s export performance is connected to a number
of worldwide phenomena. Pessimism and uncertainty borne out of the current Eurozone
crisis has created volatility in world commodity markets, directly impacting Mongolian
China’s Consumption of Mongolian Exports
As resulting global trade slows, continually disappointing growth figures reported in China
(which currently consumes 93% of Mongolia’s total exports) has led to slackening demand
growth for Mongolian commodities.
Investor Insight: Can Chinese Growth Sustain Mongolian Exports
Q2 2012 saw Chinese real GDP growth at its lowest level in three years. After reachieving double-digit rises in gross domestic product from Q4 2009 to Q2 2010 as a
result of decisive counter-cyclical fiscal policy in the wake of the global economic
crisis, the Asian giant has recently seen figures slip unusually low. Part of this is due
to deliberate tightening of monetary conditions, shifting domestic policy from
‘relatively loose’ to ‘prudent ’ in order to subdue high levels of inflation and fears of
an overheating real estate market.
Slowing growth across the world’s high income economies have continued to
depress economic activity worldwide; in 2011 growth decelerated to 1.6%, about
half the value recorded in the previous year.
Concerns over China’s economic stability are only natural for those with vested
interests south of the Mongolian border (as indeed they are for the majority of
Asia). Despite a bleak global economic outlook, there are however positive signs
that suggest a further deterioration of the Sino-Mongolia commodity dyad may be
With China’s inflation hitting 30-month lows in July 2012 and consumer prices rising
by just 1.8% compared to a year earlier, CPI looks set to fall significantly below
the yearly target price increase of 4 percent according to Zhang Zhiwei, Chief
Economist at Nomura in Hong Kong. This may well be the catalyst needed to
facilitate the main body of the Chinese counter cyclical effort. The PBoC’s inflation
aversion being the key motivation for the reasonably tight policy witnessed towards
the beginning of 2012. Policymakers are now faced with increased room for
maneuver; with inflation control no longer their most pressing issue, the government
will be able to shift its focus to securing growth.
With these factors taken into consideration, the international outlook on the Chinese
economy is perhaps more bearish than is justified. Key indicators from the OECD,
China’s National Statistics Bureau and the official purchasing managers index have
all showed a downward trend since early 2010. However each metric has declined
much more gradually then was observed in 2008, whilst the rate of deceleration has
slowed in recent months, suggesting the economy may be beginning to stabilize.
As fiscal policy is rolled out in the near future, and the monetary changes enacted
earlier this year feed through with the usual lag to the real economy, the Chinese
look set to reestablish their growth momentum in the medium term.
This should offer much comfort to Mongolian exporters. A Chinese stimulus founded
upon infrastructure spending and increased business credit has the potential to
steady the commodity demand forming Mongolia’s major export channel. Asia
Pacific Investment Partners remains cautiously optimistic for Mongolia’s export
revenues in the medium/long term, considering that the power of the Chinese
policy response should not be underestimated.
Foreign Direct Investment: Facilitating export growth
Extraction of mineral wealth, the major force behind Mongolia’s GDP growth, has been
funded by aggressive Foreign Direct Investment over recent years, which looks set to
continue well into the future.
With the exception of 2009, where conditions were weakened due to international financial
instability, total FDI flows to Mongolia have increased consistently on a yearly basis.
Investment Basics: FIFTA Registered Companies
Much Foreign Direct Investment in Mongolia begins as foreign entities start a FIFTA
(Foreign Investment and Foreign Trade Agency) registered company. With the
exception of land ownership , FIFTA registered companies face identical legal
and tax regimes and enjoy exactly the same rights as Mongolian incorporated
Registration with FIFTA costs approximately $1000 (including registration fees, stamp
fees, notary costs, and administrative charges), however before the process can
commence it is necessary for the company to prove that they are in possession
of a minimum of $100,000 of available assets. FIFTA registration requires the
submission of the following documents:
the application form; the company’s
charter; a document to confirm the
company address; the minutes of the
sheet confirming the required minimum
amount of owners’ equity; a letter
from the banking institution stating the
shareholder has maintained its accounts
in good standing; documents confirming
the identity of founders; and payment
of the required fee for state registration.
Once an application is received, FIFTA
will usually issue a company its certificate
within 7-14 working days.
Photo by Hamid Sardar / Khasar Sandag
For these reasons, FIFTA registration is
seen as a simple and cost effective way
of allowing foreign direct investments to
compete on a level playing field with
Mongolia’s desirability as an investment location for many has stemmed from: interest in
its under-utilized mineral wealth; combined with its reputation for democratic and stable
politics , investor friendly legal system, and attractive tax environment. The OECD FDI
Regulatory Restrictiveness Index measures statutory restrictions on foreign direct investment
in 55 countries worldwide, based on data drawn from across 22 sectors. Mongolia’s rank
of 0.096 represents an economy considerably more open to FDI than in many comparable
macro investment cases, its score being lower than Russia’s 0.189, China’s 0.408, and both
the Non-OECD and World averages.
The Oyu Tolgoi project, finalized after six years of negotiation in 2009 has spearheaded the
development of Mongolia’s investment inflows. The mine’s construction budget for 2011
alone was $2.3 billion (over 1/3 of the country’s 2010 GDP), the operations total assembly
costs being estimated to have required $7 billion of foreign capital. The apparent success
of Oyu Tolgoi has led to a significant rise in FDI flows into the country from resource-focused
A stabilization in Foreign Direct Investment is expected by Asia Pacific Investment
Partners over the coming years. Capital flows to the mining sector are set to decrease
somewhat, as the first stage of Oyu Tolgoi is completed in Q3 2012 and the financing of
operational equipment for the open pit mine begins to drop off. Despite this, investment
in the country’s foremost mining project looks set to support growth well into the medium
term. Development of the mine’s two capital intensive, high tech block cave mines are
set to continue until 2015 and 2017 respectively, whilst the financing of considerable
infrastructural expansion is required if the capacity constraints currently limiting the mine’s
efficiency are to be eased.
Mongolia’s resource led growth has begun to spill over across the economy, with increased
growth and Foreign Direct Investment expected to face many industries other than those
directly related to mineral extraction.
As opportunities in these sectors are appreciated by international entities increasingly
aware of Mongolia as an investment location, it is predicted that FDI flows will remain
buoyant, with everything from luxury consumer brands, to insurance, to multi-nationals
looking to break into the high growth market.
Recent years have seen government spending growth outpace increases in the country’s
revenues. Although a country in Mongolia’s position may be expected to run deficits now
to facilitate immediate infrastructural development and poverty alleviation, many are
concerned that if the government is not able to reduce its deficit, fiscal sustainability may
Source: NSOM, IMF, BoM, World Bank
The first four months of 2012 saw government spending increase 32% in nominal, and
13% in real term compared to the previous year. Revenues cannot seem to keep pace,
growing just 21% in nominal terms over the same period and 4.2% if inflation is taken into
The withdrawal of customs and excise taxes last year on petrol and diesel products has
drastically weakened Mongolia’s domestic tax base. According to y-o-y estimates from
data obtained in April, the former are to expect a 26% reduction, whilst the latter are
likely to fall by as much as 50%. This is a substantial loss given that the combination of
the two items accounted for around 8% of total revenues in 2011. On top of these more
recent developments, the Mongolian treasury is still feeling the effects of its 2011 decision
to abolish its Windfall Profits Tax, which was responsible for roughly a fifth of government
revenue last year.
These pressures have been somewhat offset by maintained growth in tax revenues derived
from personal, corporate and domestic goods markets, and VAT on capital goods imports.
These however do not look capable of filling the deficit in the medium term.
To add to its problems the Mongolian government is finding policy increasingly constrained
by its long-term commitments. A share of future tax revenues have already been received
in the form of pre-payments from the developers of Oyu Tolgoi and Tavan Tolgoi, meaning
Photo by Hamid Sardar / Khasar Sandag
a proportion of potentially taxable revenue in the future has already been accounted
for. Furthermore, over 1.5 million of the population have opted to trade their state issued
Erdenes Tavan Tolgoi shares for MNT 1 million per person. The state has already started
selling 10% of its 51% holding of the venture to local companies; a successful sale would
raise more than enough capital to cover the government’s fiscal liabilities, however if the
actual sum achieved is insufficient, then the state would be liable to cover the amount
Despite continued spending increases in Q1 2012, over the medium term the Mongolian
government clearly appreciates the need to adjust government expenditures. The FSL
(sometimes called the Fiscal Responsibility Law) passed in June 2010 sets out strict fiscal
rules, requiring all government budgets to ensure they do not allow the country’s structural
deficit to exceed a limit of 2% of GDP after the law becomes binding in January 2013. As of
April, the fiscal deficit lies at 4.2% of GDP, whilst the structural deficit is 6.1 % of GDP.
Although hitting its self-imposed target will be a challenge, certain conditions in Q3 and Q4
2012 should help the government make the crucial cuts. The Integrated Budget Law was
passed in December 2011 in order to support fiscal sustainability and to aid the successful
implementation of the FSL. The legislation is designed to strengthen the public sector’s
investment framework by requiring more rigorous feasibility studies, whilst implementing
increasingly demanding checks on planned expenditure programs to ensure they are
necessary in accordance with national priorities.
Like many emerging markets with credible democratic institutions, Mongolia is affected
by a politically motivated fiscal cycle. The proximity of the June parliamentary election
undoubtedly inflated the government’s budget early in the year, as politicians attempted to
enact populist policies in an attempt to sure up their chances of reelection. This is reflected
in particular by
P a r t n e r s
that Q3 and
Q4 will be a
period of fiscal
Photo by Hamid Sardar / Khasar Sandag
negligible rate of growth, whilst revenues continue to be driven up by Mongolia’s double
digit growth. Public sector wage increases from the start of the year will have largely been
eroded by inflation, whilst the new parliamentary cycle should provide a combination
of incentives and constraints for policymakers, which will hopefully encourage fiscal
Inflation is the largest challenge for the Mongolian economy at present, as increases in
the price level remain both high and volatile. Peaking at over 30% in the summer of 2008
before turning briefly negative the following year, Mongolia’s inflation as of April 2012 was
estimated to be 16% y-o-y, much higher than the Bank of Mongolia’s target of 10%.The
situation is slightly worse in Ulaanbaatar, being the epicenter of the Mongolian economy.
The city’s headline inflation rate climbed to 17.8% y-o-y from 9.4% in December.
Current high inflation is being fueled by both core inflation and increases in the price of
food, most notably meat.
Prices of ‘core’ goods rose by nearly 13% y-o-y in April 2012 this was responsible for roughly
half the increase in headline inflation. Food prices however account for about 40% of
Mongolia’s basket of goods, and represent the key driving force behind inflation and its
volatility. Increases in meat prices have been borne out of supply shocks to the agricultural
industry, most notably harsh weather conditions. As the breeding of new livestock takes
time, the supply lag has pushed up the prices of meat nationwide.
The continuation of rapid growth in government expenditure has however contributed to
the generalized wage and price pressures. Increases in cash handouts (such as the Tavan
Tolgoi share option program, effectively giving MNT 1,500,000 to each citizen) and growth
in public sector wages in 2012 have drastically increased inflationary forces. The resulting
changes in civil servants wages are seen as particularly damaging, causing many private
sector firms to immediately raise wages by a proportional amount in order to remain
Reacting to these conditions, the Bank of Mongolia’s benchmark rate was raised by 50
basis points in March 2012 and 50 basis points again in April 2012, setting the interest rate
However, these bold policy prescriptions appear to have little effect with the headline
national rate of inflation at 17.8%, the real policy rate is negative in real terms, creating no
incentive for the cooling off of demand side pressures, as both investment and consumption
remain high. Combined with consistently high fiscal spending, the Bank of Mongolia is
considered by most commentators to be largely powerless in achieving its target.
Headway is likely to be made in the coming periods however as the new parliament (the
furthest it is possible to be away from the next electoral cycle) begin to cut back their
expenditure in order to reduce the structural deficit down to the 2% level stipulated by the
FSL. This will likely ease many of the demand side pressures underlying Mongolia’s recent
inflationary experience, giving the Bank of Mongolia room to effectively maneuver policy.
Wage Growth: The emergence of the Mongolian Middle Class
Mongolia’s rapid economic growth has led to considerable increases in the wage rates
across many groups of society. The average national wage according to the National
Statistics Office of Mongolia rose by 24% between 2011 and 2012 alone, from MNT 341.5
thousand to MNT 424.2 thousand, a 13.8% increase in real terms.
Increases in the wage packages outside of the mining sector are also considerable, with
average incomes across the economy increasing by 17.3% over 2012. As Mongolia’s growth
continues on its double-digit path, practically every industry is expected to maintain wage
This upside potential is particularly striking in the financial services industry, which saw
average real incomes expand by 16.3% over the period, and the infrastructure sector,
whose workers saw their real incomes increase by 21.0% last year.
A wage rate increase in these key industries has been accompanied by an expansion in
the labor market size, as high demand incentivizes the rapid expansion of capacity. The
number working in the mining and quarrying sector has increased by 34,900 in 2009 to
45,100 in 2011, the number in financial services from 12,300 to 16,200 over the same period,
whilst the quantity of those with careers resting within the infrastructure has expanded from
18,700 to 75,800.
These factors point to the emergence of a wealthy class that represents an increasingly
large proportion of Mongolian society. As the economy provides opportunity, more and
more citizens are prepared to enter into increasingly white-collar industries. The growth of
wages have fueled consumer demand primarily focused upon the purchase of increasingly
expensive vehicles, real estate, and western consumer goods, with utility being derived
from both the actual consumption, and the inherent status of such items.
Photo by Hamid Sardar / Khasar Sandag
Mongolia peacefully transitioned to democracy in July 1990, enshrining multi-party politics
constitutionally in 1992. Quick to embrace principles synonymous with the western liberal
democratic ideal, the country is often used as an illustration of regime consolidation and
stability in the otherwise tumultuous post Soviet space.
Despite a strong track record when compared to its geographical peers, the exact course
of Mongolia’s political trajectory in just two decades on is still somewhat uncertain. Recent
incidents, such as the controversial parliamentary elections of 2008 and certain short-lived
spells of resource nationalism have highlighted the country’s youth and inexperience.
Shocks of this magnitude are however reasonably commonplace when compared
against the majority of frontier markets worldwide, being a risk which investors much bear
to capitalize on lucrative growth potential.
This is not to say that signs of malaise in the Mongolian system can be brushed under
the carpet. Instead it should be noted that the country is prone to similar temptations
that plague transition regimes all over the post-soviet bloc. Thus, the question is to what
extent Mongolian politics is institutionally and culturally prepared to avoid falling off the
Mongolia’s institutional configuration is best described as ‘semi presidential’. Thus executive
power is split between a Prime Minister (endowed with the most power of any single actor
in the Mongolian political system) and the President (who is commander in chief of the
military and acts as Mongolia’s head of state).
The Prime Minister is drawn out of the majority party in Mongolia’s unicameral legislature
(the State Great Hural or Parliament of Mongolia), their mandate being derived from the
legitimacy of the majority of legislators who nominated
them following each separate parliamentary election.
In contrast the president is elected directly by the
country’s population once every four years. The outcome
is determined by simple plurality, and candidates are
constitutionally allowed to serve up no more than
two terms in office. Once in office the President is
constitutionally obliged to renounce the membership of
any political party to which they were previously affiliated.
Despite the office drawing its mandate from the people
as opposed to parliament, legislative checks are on the
position are in place. If a two thirds majority of the Ikh
Khural (the Parlament of Mongolia) deems the President
President of Mongolia
to have abused the position, or violated their oath of nonTsakhiagiin Elbegdorj
partisanship they face removal from office. This check is
balanced by the President’s right to veto against any part
(or the entirety) of any law or decision passed by the country’s legislative body.
The Ikh Khural
In terms of the country’s legislature, the Ikh Khural consists of 76 members, each elected by
their own single seat constituency, requiring a simple plurality to gain office. The country’s
electoral convention stipulates that a legislative election is only to be considered valid if
50% of the electorate turns up to the ballot box, placing emphasis on the importance of
participation within the electoral mechanism. The body is charged with drawing up and
approving new laws in conjunction with the government, and passing the national budget
on a yearly basis with a simply member majority. Super majorities are required to overrule
the Presidential veto, and ratify constitutional change.
The political trajectory Mongolia has embarked upon, has somewhat troubled scholars
of political science who study the institutional arrangements of states at the time of
democratization. Semi-presidential regimes have been commonplace in the postcommunist world, and have more often than not provided the framework for the failure
of the democratic process. The experiences of Russia, Kyrgyzstan and Kazakhstan
are testament to this, where the constitutional counterweights between branches of
government have been gradually eroded by powerful executives. The result has been the
move from party dictatorship under the communist mechanism to personal dictatorship,
as individuals begin to dominate every aspect of political life.
The constitutional strength of the Mongolian system stems from the relative power
endowments it permits the branches of government. By giving the country’s parliament
the significant powers outlined above, authority has effectively been fragmented; split
between an accountable executive and influential legislature. As such, the Mongolian
institutional arrangement has removed the possibility of the president eroding their
legislative check; changing the political game from one of ‘semipresidentialism’ to
‘superpresidentialism,’ as has been well documented across the post soviet space. Thus
fragmentation of the Mongolian system has prevented the consolidated of power by any
one individual, allowing the country to evade the reversal to despotism that has plagued
so many of the nation’s peers.
The Madisonian dispersal of power across branches of government tends to lead to
accusations of political ineffectiveness, decisive action being replaced by stagnation and
paralysis. Mongolia has, to a large extent avoided the ineffectiveness frequently accused
of cursing the regimes of the United States and France, the country’s two principle political
parties overlapping on a number of ideological issues. Both organizations are seen to have
worked together on a variety of issues, allowing the country’s democratic effort to derive
legitimacy from a joint effort as opposed to from a revolution of the Democratic Party
against the incumbent Mongolian People’s Revolutionary Party.
The Mongolian People’s Party
The Mongolian People’s Party (the MPP), formerly the Mongolian People’s Revolutionary
Party is Mongolia’s oldest political organization in Mongolia. Formed in 1921 to facilitate
the Outer Mongolian Revolution, the party enjoyed a monopoly of power through the
country’s socialist period, and enjoyed a majority in the Ikh Khural up until 1996.
Despite a lasting commitment its socialist orgin (the organization became a member of
Socialist International in 2003), since transition the party has embraced liberal economic
reforms and democratic practices. Describing itself as a ‘center left political force, based
on social democratic idealsi’ the group demonstrates an ideological pragmatism rarely
displayed by the ancestors of previously dominant Marxist-Leninist parties which have
developed in countries across the post Soviet Union.
The commitment towards modernization in the democratic world is demonstrated by
the group’s decision at its 26th Party Congress in 2010 to remove the ‘Revolutionary’
component of its name, being supported by 99.3% of delegates. It should be noted that
from the minority of members who did not support the amendment, a splinter organization
has been created headed by the group’s former leader and ex-President Nambaryn
Enkhbayar. Awarded legitimate party status on June 24th, 2011 by the Mongolian Supreme
Court, the two entities should not be confused.
The Democratic Party of Mongolia
Founded by those who pioneered the democratic revolution of 1990, the Mongolian
Democratic Party (DP) was a product of the merging between the Mongolian National
Progressive Party, and the Mongolian Social Democratic Party. These two parties were
the ruling coalition in the Ikh Khural after democratic forces first gained a parliamentary
majority in 1996, holding fifty out of the available 76 seats.
Ideologically describing themselves a conservative liberal grouping, the party’s primary
goals are stated as overseeing the continuation of Mongolia’s transformation into an open
and democratic society and the facilitation of the country’s economic development. This
commitment was demonstrated by the group’s influential role in securing the Oyu Tolgoi
contract in 2008.
Prime Minister Noroviin Altankhuyag
The effectiveness of the party however has been subject to constraints stemming from its
continued changes in membership and composition. Its current form being determined
by a series of mergers and splits which have been almost continuous since 1990, the group
found this has cost them electorally on a number of occasions. This is particularly potent
when the DP is juxtaposed and evaluated against the MPP, which generally displays
impressive levels of ideological unity and structural consistency.
It is worth noting that the election the DP’s President Ts. Elbegdorj in June 2009 highlights
the extent to which liberal democratic ideals are embedded not only in the party (who
nominated him as their electoral candidate) but the country as a whole (who placed him
in office with a majority of 51.21%). Ethnically Zahchin (a small grouping found in western
Mongolia), Elbegdorj represents the first non-Khalkh majority President in the country’s
history. This example of Democratic Party success highlights a certain level of sophistication
in Mongolian political culture, the country overcoming tribal differences to focus on issues
of national unity policy choice. Although such an instance may seem something of
a footnote, it has huge comparative significance within for those aiming to access the
political stability of the region. The contrast is particularly potent against Kazakhstan and
Russia, where ethnic cleavages play a decisive, and often distorting role in the electoral
mechanism; dominant cultural groupings responsible for supporting malignant regimes.
The 2008 Parliamentary Election
The single greatest challenge to Mongolia’s democratic political trajectory has been the
infamous aftermath of the 2008 parliamentary election.
As preliminary results were released on the 30th June suggesting a clear MPRP (as it
was known at the time) victory, the Democratic Parties Chairman, Tsakhiagiin Elbegdorj
declared that the election was fixed and his party would refuse to accept the results.
The allegations suggested there were irregularities in the counting process, along with
the bribing of the electorate, and the concerns were soon echoed by country’s smaller
Against a background of extensive media coverage, protesters gathered the following
day in front of the People’s Revolutionary Party headquarters (situated between the
Ulaanbaatar Hotel and Sukhbaatar Square). What was originally intended to be a
peaceful demonstration sadly escalated into violence as a minority broke into the MPRP
headquarters and looted small liquor store situated on the ground floor, torching the
premise in the process.
As the fire spread across the entirety of the building, police clashed with the mass left
outside the structure. Batons, water cannons, tear gas, rubber bullets, and live ammunition
were deployed in a vicious police reaction, assuming the worst of the majority of protestors.
A series of myopic arrests followed, the bulk of those taken into custody being peaceful
protestors who played no part in the arson that the incident is famed for. Tragically five
were killed amongst the ensuing mayhem, four of whom were shot. At midnight President
Enkhbayar declared a national state of emergency which was to be in effect for 96 hours.
96 Armored Personnel Carriers were deployed to the streets, a curfew was put into effect,
and a media blackout declared.
Within a few days the situation stabilized and the harsh measures were revoked. Although
representing a short period of time however, the episode did much to damage the
country’s impressive democratic reputation, commentators and investors alike speculating
that the incident was to mark a change in direction for Mongolia’s political development.
This however was not the case, despite Ts. Elbegdorj stating on the 18th July that the
Democratic Party would boycott the opening season of the Ikh Khural. After a short
period of political posturing, all members of the Democratic Party, including Elbegdorj
himself were sworn into parliament, S. Bayar being elected prime minister of a coalition
government, supported by both the MPRP and the DP.
Not only was parliament able to form a majority, but the policy which resulted from its
operation is often considered some of the most crucial in Mongolia’s history. The two
parties worked together in order to negotiate the terms of the Oyu Tolgoi Agreement in
the months that the crisis, effectively kick starting foreign direct investment in Mongolia
and the headline grabbing growth figures that the country has witnessed in recent years.
Furthermore, the crisis can hardly be seen to represent the manifestation of a fundamental
problem in the Mongolian democratic culture. Instead the general consensus on the
ground is that the issue concerned a handful of troublemakers, intoxicated on stolen
alcohol, who got out of control. The resulting brutality of police action was a function of
the uncertainty surrounding a large crowd watching a building burn in the night, and is an
isolated response in the history of Mongolia since its democratic transition.
No incidence of electoral fraud has ever been reported in Mongolia since the country’s
conception in 1990. Despite accusations being the commonplace reaction of defeated
politicians, no international monitoring agency has ever recorded, or even suspected any
Photo by Hamid Sardar / Khasar Sandag
The 2012 Parliamentary Election
Mongolia’s most recent parliamentary elections, taking place on the 28th June 2012, were
internationally proclaimed as something of a litmus test of the country’s political stability
in the aftermath of the 2008 debacle. Although marred by controversy not unusual in the
Mongolian politics, in many ways the event marked the return to business as usual for the
country’s democratic system.
For the first time in its history, the country used an electronic voting system, to remove any
possibility of a repeat of the 2008 of the allegations that caused widespread civil unrest
occurring in the previous round. In addition to this slightly technical issue, a number of
constitutional changes were enacted to the electoral process designed to allow for the
better representation of minority interests, going some way to breaking the DP and MPRs
duopoly of power.
The seat allocation mechanism was changed from first past the post to proportional
representation, significantly benefiting the interests of the country’s smaller parties and
independent candidates, who managed to secure 16 out of the 76 positions on offer. A
quota system was also introduced - designed to ensure that no less than 20% of candidates
running were women. This was a progressive concession by the Mongolian regime that
is more of a democratic achievement for gender equality than has been managed by
many more developed countries around the world. The policy was clearly successful, with
the proportion of female candidates being nearly 32%.
Concerns were voiced before the polls even commenced due to the arrest of former
president Nambaryn Enkhbayar upon the 12th April, who was imprisoned by the
Independent Authority Against Corruption over allegations of misconduct during his time
in office. The case is widely held to be politically motivated; although the prevailing mood
in Ulaanbaatar is that Enkhbayar has questions to answer concerning the sources of his
income, the action taken neither addressed the most crucial issues, nor was carried out
taking into account the due process rights stipulated by Mongolian Law.
With the exception of this incident, the actual parliamentary process has been seen to
be a reasonable success. The Democratic Party gained 31 seats, representing the largest
parliamentary grouping, whilst the Mongolia People’s Party polled closely behind, with 25
seats. The Justice Coalition (a combined effort from the MPRP and the MNDP) acquired
a sizable 11 seats (with support somewhat fueled by a public outcry over N. Enkhbayar’s
treatment), whereas the Civil Will Green Party and independent candidates obtained two
and three seats respectively.
The results were generally accepted by all major groupings; some complaints were voiced
by the MPRP when the initial results were published criticizing the untested nature of the
electronic vote counting machines, however they soon deceased as it became obvious
their claims rested upon little substance.
Mongolia’s New Political Trajectory
On August 25th, Prime Minister Norovyn Altankhuyag chaired the first cabinet meeting of
the country’s sixth government. Because the Democratic Party did not obtain the 39-seat
majority necessary for it to form its own cabinet, proceedings were delayed whilst coalition
negotiations played out.
With the government being formed out of a union of the Democratic Party, the Justice
Coalition, and Civil Will Party, the new political trajectory of Mongolia remains unclear.
Certain members of the Justice Coalition are well known for the resource nationalism,
although public statements made in the run up to the election may well have been an
example of little more than political posturing.
Recent stories have reported worldwide the intentions of some key actors in the government,
such as the Mining Minister Gankhuyag Davaajav, to seek to reopen negotiations of the
Oyu Tolgoi contract. This is true, although many reports misrepresent the intentions of even
the more extreme members of government. The Oyu Tolgoi contract holds that once
Rio Tinto has recouped all the capital of its principle investment, it would be possible for
negotiations to reopen as to how the gains from extraction should be distributed between
the public and private sectors. It is this that is currently being advocated by the more
extreme members of Mongolia’s parliament, hoping to see the governments stake in profits
raised from 34% to 50%. Given the size of the projects investment however, it is expected
to be around fifteen to twenty years before the principle investment is recouped, meaning
that these ideas have little to no political impact on policy in the short to medium term,
apart from the perceived gain of reputational capital.
Investors may seek reassurance in the fact that a clear majority of the coalitions members
are from the generally free market minded Democratic Party. It is unlikely any currently
minority, anti-FDI sentiments will be likely to gather momentum whilst the government’s
power is distributed so heavily in favor of the pro free market grouping.
Supreme Court Justices of Mongolia
The Rights of Foreign Citizens in Mongolia
Foreign citizens for the most part enjoy the same legal rights as Mongolians, meaning those
interested in investing in real estate are provided with a wide range of legal protections.
Made explicit in Article VIII of The Law of Mongolia on the Legal Status of Foreign Citizens,
the following conditions can be assumed to apply in general throughout the rest of this
report unless otherwise stated:
All persons legally residing in Mongolia are to be considered equal before the law
and its courts.
Foreign citizens whilst in Mongolia are to enjoy the same rights and freedoms as are
conferred on to Mongolian citizens by the law.
There is one notable exception regarding the rights citizens are allowed to enjoy over land
plots, which shall be made explicit and examined in detail in the following section.
The rights of international investors over immovable property assets are however identical
to those enjoyed by Mongolian citizens.
Land Ownership Rights in Mongolia
The 2002 Law of Mongolia on Land creates three classes of land rights:
Land ownership, or to ‘own land’, meaning to be in legitimate control of land with the
right to dispose of this land;
Land possession, or ‘to possess land’, meaning to be in legitimate control of land in
accordance with its purpose of use;
Usage of Land, or ‘to use land’ which means to undertake a legitimate and concrete
activity to make use of some of the land’s characteristics in accordance with contracts
made with the owners and possessors of land. However, Land Use licenses of the
foreign invested companies shall be granted by Citizen’s Representatives Khural.
It is clearly stated in the 2002 Law of Mongolia on Land that land ownership is only open
to Mongolian citizens, who are entitled to claim small plots between 0.35 hectares and
0.7 hectares in size. Mongolian governmental companies, non-governmental Mongolian
companies, and registered foreign invested companies do not qualify for land ownership
rights under Mongolian law.
Instead, land possession rights are offered to Mongolian governmental companies
and non-Mongolian governmental companies, but not to registered foreign invested
companies operating within Mongolia. Such rights offer significant protections upon the
claims of the possessor over their land, and as such are seen as a satisfactory alternative.
Land Possession Rights in Mongolia
Land possession rights are established through procurement of a ‘license for land
possession’, a document bestowing the holder with the authority to possess land in
accordance with Mongolian law.
The maximum size of land associated with a license awarded to companies for the purpose
of production or service provision is at the discretion of the Mongolian Government entity.
Governors of the soum or district are tasked with the identification of land to be
auctioned off for possession. Plots selected are subsequently published in the annual land
management plans of the respective authorities.
Acquiring the land possession license
The 2002 Law of Mongolia on Land outlines two basic requirements that must be met for a
possession license request to be considered:
Applicants for a land possession license must be either Mongolian citizens, companies
The location of the land requested for possession shall have been marked in the
annual land management plan of the capital city or soum as available.
Applications are initiated for companies and organizations by submitting a request to the
governors of the appropriate soums and districts. In addition to the application itself, it is
necessary to submit the following information:
The name of the company or organization, jurisdiction to which the company belongs,
its address and location, and a copy of the state registration certificate;
The code of the territorial unit(s) requested which shows the territorial and administrative
jurisdiction upon which the land where the company intends to undertake production
or services provision belongs, along with its size and location;
The desired purpose and duration of land possession;
Proof of creditworthiness.
A successful applicant will then be entered into a silent auction for the plot. The highest
bidder will receive a notification of their success, along with their payment obligations.
If payment is not received within a pre-determined time scale, the right to possession of
the plot of land in question is automatically passed down to the next highest bidder (be
it a citizen, a company or an organization). If upon the second attempt payment is not
received, the license is required to be put up for auction once again.
Any entity that has acquired the right to possess land for undertaking the production of
goods, or the provision of services must complete a general environmental assessment
within 90 working days of receiving the right. If the results are positive a contract on land
possession will be made, the license issued, and a record of ownership noted in the
Mongolian national registry.
The Rights and Duties of License Holders
Those who hold possession licenses are endowed with the following rights over their plot:
The right to use the land according to the purposes set forth in the contract;
The right to obtain a State Certificate on the land characteristics and quality from the
The right to be awarded damages, compensated by the guilty person in accordance
with established procedures;
The right to transfer the license, or provide it as collateral subject to the approval of
the person who made the decision on giving the possession license initially;
The right to have the license extended upon expiration, provided that the license
holder has duly met their obligations concerning land legislation and their contract;
In return, the holder of a land possession license is required to fulfill the following obligations:
To meet the terms and conditions set forth in the land possession contract:
To use land efficiently and rationally in order to protect their given space, to comply
with legislation on protection of nature and environment, and to meet common
requirements related to land use, as issued by the relevant government authorities;
To pay land fees in a timely manner;
To have state certification of land characteristics and quality made according to
Not to infringe upon the rights and legitimate interests of others, related to the
possession of their land;
To have registered at the National Registry if the license is to be used as collateral.
Readers of this guide should note that the option of land possession license transferal, and
the ability to use the documents as collateral are legally only open to Mongolian citizens,
The duration of a
a n y w h e r e
and sixty years in
its original state.
explicit right to
extend the term
of the license,
will prolong the
license for no
more than forty
years at a time.
request must be
submitted to the
Photo by Hamid Sardar / Khasar Sandag
governor of the
relevant soum or
district a minimum of thirty days prior to expiry. The application must be supported by the
The initial land possession license;
Documents proving that land fees have been paid on a timely basis;
The status of implementation of the recommendations made upon the environmental
impact assessment test.
Once received the appropriate official will review the documents, and will reach a verdict
within 15 days. Provided the duties of land possession have been consistently met, little in
the way of difficulty should be expected.
Photo by Hamid Sardar / Khasar Sandag
Expiration of a Land Possession License
A land possession license may expire under the following circumstances:
If the land possession license expires naturally, and no request is made for it to be
If the license holder (a natural person) has died, is announced dead or missing, and
the license holder has no legitimate successors; or if a license holder (a legal person)
is dissolved or liquidated;
If a license holder makes a request to terminate his/her possession license;
If compensation is paid in full to the license holder, in the event of the plot being taken
into state control to fulfill exceptional government needs.
The relevant authority may only remove land prior to the scheduled expiration date for
special state purposes once an agreement has been reached with the owner of the
license. The request for removal must then be submitted through the State Cabinet, who
must consent to the proposal. If this is achieved, the governors of the relevant soum or
district will then make a contract with the citizen, company or organization in question
and remove the land from their possession with or without asset replacement and with
Reimbursement calculation depends upon a range of variables, including the prior
arrangement with the land possessor, the value of immovable constructions and other
properties on the plot, and the costs to vacate the land estimated at current prices. If the
license holder remains unsatisfied with the package offered, then the appropriate legal
channels are in place for the decision to be challenged in the Mongolian courts.
Termination of a Land Possession License
Governors of soums and districts are allowed the ability to terminate land possession
licenses in the following circumstances:
If the license holder has consistently or seriously violated obligations set forth in the
land legislation, or it the provisions and the conditions of the land possession contract;
If it is established that the land has been used to the detriment of human health,
nature, or national security;
If a license received from others is not registered, and a new contract is not made;
If recommendations made from the general environmental assessment are not
If the license holder has not paid land fees according to the law, on time and in full.
In the event of a termination notification being issued for whatever reason, license holders
have a ten-day window to appeal to the court if they consider a contract termination
illegitimate. With proper management techniques in place however, it should be easily
manageable not to fall foul of the Mongolian law.
Immovable Property Rights in Mongolia
Mongolia has in place an effective mechanism of property rights to protect the owners of
immovable properties. These protections are so effective that the country’s government
has recently found implementation of town and city planning initiatives (such as the JICA
master plan) and the development of Ulaanbaatar’s many ger districts impractical if not
completely impossible. Both regional and central governments have found themselves
legally ineffective in their ability to develop infrastructure and new constructions on existing
low quality real estate in many regions, as the owners simply do not want to move.
The foundation of the state’s guarantee on immovable property rights stems from Article
Five of the Mongolian Constitution, which stipulates:
Mongolia shall have an economy based on different forms of property consistent with
universal trends of world economic development and the country’s own specifics;
The State recognizes all forms of public and private property and shall protect the
rights of the owner by law.
In order to protect private property under the Mongolian constitution and law, it is necessary
to make sure the structure is properly registered through the appropriate channels. If not
done successfully, ownership is not acknowledged (and in turn protected) by Mongolia’s
Registration of Real Estate through the Immovable Property Office
The Law of Mongolia on the Registration of Immovable Property holds that:
Subject to the provisions of the law, the right of a person or legal person to own
immovable property arises upon registration at the Immovable Property Office of
The process is initiated when an individual, a legal person, and/or their legal representatives
provide the Office for the Registration of Immovable Property (hereinafter referred to as
the ‘Registry Office’) with the following items:
A document certifying the applicant’s right to ownership of the immovable property;
A document by a competent authority setting out the dimensions and valuation of
Applications from non-permanent residents of Mongolia should (technically) be made
through an authorized permanent resident of the country, in the owner’s name. However
in reality this condition is rarely enforced, as foreigners who are familiar with the registration
mechanism generally face little problem in completing the process.
Upon receiving an application, the Registry Office is required to decide whether a
property can be registered or not within thirty days. If the office considers all application
requirements to be met, the property is registered in the Registry Offices records, and
endorsed by the State Registrar and the Assistant Registrar.
The ‘Floating Freehold’
Whereas in many Western countries the rights of ownership to the land beneath a given
piece of real estate naturally accompany the ownership of the building, the prevailing
system across the post soviet space is that of the ‘floating freehold’. These ownership
structures are found to operate across the majority of the Mongolian market, being
effectively the only option to foreign investment interested in purchasing real estate. Such
a system allows the owner of a building to control the land upon which their property is
built, without actually owning the land themselves (instead simply being endowed with the
right to ‘use’ the land). The actual owner of the land may be the Mongolian government,
or a private individual or business entity.
Despite the investor owning less, their influence remains just as considerable. Development
or the sale of a piece of land that houses a real estate asset is impossible unless the
developer owns every Immovable Property Certificate connected with the plot. Thus with
‘floating freeholds’, investors may technically not ‘own’ the land that their property rests
upon, but are able to stop the alterations to the land, in a way consistent with the concept
of land ‘ownership’ in the western world.
The Mongolian government has rights of expropriation over private property and
immovable assets under specific circumstances. Such powers are common across markets
globally, being known as ‘eminent domain’ in the United States, ‘compulsory purchase’ in
the United Kingdom, and ‘expropriation’ in South Africa and Canada.
The powers are outlined in the ‘Law on Allocation of Land to Mongolian Citizens for
Ownership’, and may only be utilized in certain instances:
During occurrence of environmental or public disasters such as damages to lives
and health of many people, loss of animals and livestock, earthquakes, strong winds,
drought, dzud (exceptionally cold winters), flood, fire, outbreak of lethal infectious
diseases that may cause significant damage to property and environment or
emergency situations such as big scale industrial accidents, outbreaks of radioactive
or poisonous chemical substances. Land (and property) owned by Citizens may be
expropriated according to procedures provided by law and based on decisions of
an authorized state entity for purposes of taking measures in order to protect and
rescue the population’s livestock, animals and property and to eliminate the negative
consequences. Damages caused to citizens owning land due to such expropriation
shall be compensated to the full extent.
If it becomes impossible to return the expropriated land, the owner shall be
compensated for the value of the land and the damages according to the market
rate at that time or the damages shall be compensated by allocating other land not
worse than the expropriated land by its status and quality.
If there is a dispute regarding the determination of the rate of expropriated land and
damage caused to the landowner, it shall be resolved in court.
There are next to no examples of the doctrine being applied in and around Ulaanbaatar,
even though it is necessary for the infrastructural development of the city’s suburbs. Several
gers are normally enough to cease the development of huge construction projects, as
the government is not prepared to use its theoretical confiscatory powers to enable the
commencement of sizable ventures.
When looked at in the context of the region, Mongolia is more similar to the real estate
legal structures of its post Soviet neighbors, than those prevalent across Asia. The extent to
which the actual ownership of real estate assets is allowed in Mongolia, resembles much
more closely the investor friendly policies common in Kazakhstan than China. Mongolia
also lacks much of the administrative baggage that is problematic for those interested in
entering the Chinese market.
Despite having a far more developed property market, China is well known for its
investment restrictions and market uncertainty, which severely limits the maneuverability
of the foreign investor in a way not problematic in Ulaanbaatar. The Chinese state requires
that neither land, nor immovable property can be owned, instead stipulating that all real
estate assets must be leased for ‘terms’, usually between fifty and seventy years in length.
Efforts to control China’s property bubble, which have caused house prices to triple over
the last five years in Beijing, have seen the real estate legislative environment tighten in
the country. Legislation passed in July 2006 holds that any residential property not for the
individual owner’s personal use is classifiable as commercial real estate (even if it is not to
be rented out to third parties). Furthermore any commercial property investment, whether
funded by an individual investor or a business entity, may only be invested in through a
mechanism involving a Chinese commercial vehicle (such as a Foreign Invested Enterprise,
a Wholly Foreign Owned Entity, or a Contractual Joint Venture).
Those looking to enter the property market in China therefore not only lack access to the
permanent structural ownership available to them in Mongolia, but must also face a far
more obstructive bureaucratic apparatus.
Many of the transition economies of Central Asia have embarked upon legal trajectories
far more favorable than China. Kazakhstan (widely held as the regional leader in open
real estate legislation) stipulates in it Law on Investments that the rights of foreign investors
are virtually indistinguishable from those of Kazakh citizens. As such, international entities
are permitted to own both immovable property and land (with the exception of large
agricultural plots) as long as the country’s Real Estate Center correctly registers their assets.
Kazakh competitiveness is unsurprising given how the country’s growth has played out. The
property markets of Astana and Almaty have already developed in a way that those of
Ulaanbaatar can expect to do in the coming years. Technically Kazakhstan is the more
liberal of the two countries, however the tangible rights endowed to foreign investors in all
but the longest of time frames (with reference to how often contracts must be renewed)
are very similar. The current institutional framework suggests many shared attributes
between the two countries. Given the success the Kazakh property market has enjoyed
since the turn of the Millennium, Mongolia’s legal system looks set to provide the structure
needed for similar development well into the medium term and beyond.
The Mongolian Tax Regime
Mongolia’s economic success over the past five years has been based upon the country’s
natural resource wealth, effective market liberalization, and significant flows of Foreign
Direct Investment. To encourage this FDI, the Mongolian government has implemented
one of the most generous foreign investor tax regimes globally. Although much of the
country’s effort has been devoted to streamlining policy facing the mining industry, many
of the attractive rates have spilled over to benefit investors in the economy as a whole,
including those with exposure to the real estate industry.
P e r s o n a l
a rate of 10%
c i t i z e n s .
tax rates vary
and 25%, or are
fixed at 20%,
upon the way in
which a given
how its chooses
Photo by Hamid Sardar / Khasar Sandag is
set at 0.6% of a properties estimated value, although this is set to marginally increase to 1%
as of January 1st 2013. Some real estate investments may be required to pay VAT, which is
charged at a flat rate of 10%
Personal Income Tax
There are effectively two types of individual entities in Mongolia as laid out by The Mongolian
Law on Personal Income Tax: permanent resident taxpayers and non-resident taxpayers.
A permanent resident taxpayer is defined by The Mongolia Law on Personal Income Tax
Individuals with residence in Mongolia
An individual who resides in Mongolia for 183 days or more a year
Conversely, the same document identifies a non-resident taxpayer as:
An individual who has no residence in Mongolia and has not resided in Mongolia for
183 or more days in a tax year.
The legislation goes on to state that any individual classified as a permanent resident
taxpayer must pay tax to the Mongolian authorities on their worldwide income. Those
who manage to qualify as non-resident taxpayers (by fulfilling neither of the conditions
stipulated above) are required to only pay the Mongolian authorities a proportion of their
income earned within Mongolia itself.
The Mongolia Law on Personal Income Tax sets the personal income tax rate at a flat
rate of 10% (reduced for foreigners from a rate of 20% as part of the country’s 2007 tax
This flat rate of 10% is applicable to the following income streams that may affect the real
Salaries, wages, and bonuses;
Total taxable income from activities;
Total taxable income from property;
Total taxable income from sale of property;
Total taxable income is defined in The Mongolia Law on Personal Income Tax as aggregate
annual income minus all allowable expenses. This is applied to real estate incomes through
the following framework:
The total taxable income from property is determined by deducting the cost of
leasing from the total income from leasing;
The total taxable income from the sale of property is classified as the total proceeds
from the assets sale.
Any individual interested in purchasing real estate should note one exception to the total
10% flat tax rate:
The total taxable income from the sale of property is to be charged at a rate of 2%
Corporate Income Tax
The Economic Entity Income Tax Law of Mongolia governs the taxation of profits acquired
by the following different forms of taxable entity:
An economic entity formed under Mongolian law, and their subsidiaries;
A foreign economic entity headquartered in Mongolia;
A foreign economic entity earning income in Mongolia, and its representative offices.
The first two categories are charged a variable rate of corporate income tax subject at
the following rates:
All annual income between 0 and 3 billion Mongolian Tugrugs is to be charged at a
rate of 10%;
All annual income which exceeds 3 billion Mongolia Tugrug is to be charged at a rate
The final category (foreign economic entities earning income in Mongolia, and its
representative offices) however face the following completely separate rate of tax, their
activity being classified as a repatriation of funds:
All annual income transferred out of Mongolia by foreign economic entities is to be
taxed at a flat rate of 20%
The above condition does not apply to FIFTA registered companies and joint ventures who
reinvest their profits within the Mongolian economy.
Entities facing property ownership taxes upon immovable assets are:
Any company that owns property in Mongolia;
Any NGO that owns property in Mongolia;
Any citizen that owns property in Mongolia;
Any non-citizen that owns property in Mongolia
However, the following types of immovable property are exempt from property tax:
Immovable property of legal entities which are subsidized by central or local budget.
Building and facilities for public use
Management and production units in production and technological parks
Buildings, facilities and other immovable property within technological parks
Those required to pay property tax on the immovable assets are to be taxed in accordance
with the following conditions:
Property tax is currently charged at a flat rate of 0.6% of the immovable asset’s value;
The value of the property necessary to determine the total property tax liability is determined
by data from the one of the following sources, listed in order of legal preference:
The value of the property as it is listed with the immovable property state registry;
Photo by Hamid Sardar / Khasar Sandag
If no such information is available, then the value is to be determined based on the
properties assessed worth for insurance purposes;
If neither of the above are available, then the value of the property is to be based
upon the estimated book value of accounting record.
Mongolian entities are required to withhold tax on dividends, royalties to economic entities
resident in Mongolia, and royalties to individuals at a rate of 10%.
However, dividends to individuals are exempt from taxation until 2013.
Withholding tax is also applied to gains on the sale of immovable property at a rate of 2%.
Non-residents with no presence in Mongolia are subject to 20% withholding tax on
Mongolian source income, includeing the following:
Certain types of loan interest
Management and administrative expenses
Income goods, work or services provided in Mongolia
Value Added Tax
V.A.T. is charged on an ad valorum basis in Mongolia, at a rate of 10%
Photo by Hamid Sardar / Khasar Sandag
The Mongolian Law on Personal Income Tax stipulates that:
Income tax reports are to be compiled by either the individual or their tax agent;
Income tax reports are required to have both hard and electronic copies submitted;
Both the electronic and the paper copy of the income tax report must be submitted
in Mongolian, or alongside certified Mongolian translations
The Economic Entity Income Tax Law of Mongolia stipulates that:
Annual corporate income tax statements are due by the 10th February of each year;
Quarterly corporate income tax statements are due before the 21st of the month
immediately following the end of the previous tax quarter;
Corporate income tax payment schedules are to be issued by the authorities by the
25th of month;
When total corporate income tax paid exceeds a companies total corporate tax
liability, the company in question can credit the excess against future payments.
The Immovable Property Tax Law of Mongolia stipulates that:
Taxpayers must submit immovable property tax returns to the Mongolian tax office
before the 10th February each year.
Legal persons and corporate entities are liable to pay property tax before the 15th of
the last month of each quarter;
Although theoretical tax rates are clearly desirable, the Mongolian tax regime has on a
number of instances been known to suffer from a degree of ambiguity. In the real estate
market the most commonly cited example of this occurring is undoubtedly with regards to
determining when VAT is applicable.
The confusion arises over ambiguity concerning the use of the word residential within
The Value Added Tax Law of Mongolia. Some clauses of the document suggest that
‘residential’ assets (which do not face the 10% tax) are simply those used to house people
in any capacity, whilst others lead the reader (and some members of the tax authorities)
to the conclusion that ‘residential’ real estate require the owner to physically live in the
The way in which the Mongolian tax authorities interpret this equivocality is anecdotally
reported to vary case by case, depending upon the individual tax inspector. Some
investors have eventually been charged 10% V.A.T. on their properties rental income, whilst
others have been charged none, with both outcomes still facing the 10% income tax on
their income from immovable property.
Although it is important to be aware of issues such as these, the lack of definitional clarity is
a problem facing many tax regimes in developing countries around the world. As Mongolia
develops, it is expected that such inconsistencies will be ironed out, in a way that largely
mirrors the progression of Kazakhstan’s tax regime.
When its content is considered, Mongolia’s tax credibly lives up to its internationally liberal
reputation. The table below attempts to quantify this comparatively generous environment
by examining what a non-incorporated entity would be charged across the four key tax
types relevant to the real estate investor.
Flat tax at 10%
10% tax on
Flat tax of 30%
from 3% to
from 2% to
Flat rate of
Flat rate of
Flat rate of
Flat rate of
16.5% (15% for
10% to 25% if
Up to 1.5% de-
of 15% of net
and 1% as of
by rent, minus
20% maintenance allowance
Income tax facing legal persons in Mongolia are competitive with the other nations used
in this study in both the Asia Pacific and the post Soviet space. The amount payable is a
flat tax at a lower rate than is found in either Kazakhstan or Russia, whilst the progressive
thresholds in China and Hong Kong make it likely that larger investors will end up facing
similar, if not increased bills. Exceptions to the flat tax rule for the Mongolian real estate
investor (primarily in the form of sales income tax) are all designed to lower the tax rate;
under no circumstance should a legal person expect to pay more than 10% income tax
Levels of corporate taxations facing foreign companies operating in Mongolia are fair,
and are reminiscent of the regimes in place across China, Russia and Kazakhstan. For real
estate investors however, the fact that the corporation’s income tax duty is lowered to
just 2% on income from the sale of immovable property gives those looking to enter into
the Mongolian real estate market a substantial comparative international tax advantage.
Mongolia’s property holding tax, even once revised up will remain the lowest of the
countries looked at, with the exception of China, which does not have a property holding
tax. The Asia Pacific Investment Partners however considers Mongolia’s level essential
in facilitating the efficient functioning of the country’s real estate market, stopping the
speculation plaguing towns such as Ordos, China from becoming widespread.
Photo by Hamid Sardar / Khasar Sandag
Ulaanbaatar is at present Mongolia’s only first tier conurbation. Located in the north of
central Mongolia on the Tuul River, it represents the cultural, economic and political heart
of the country.
The past decade has seen the city transform from an unindustrialized settlement of 770,000,
to the increasingly international city that can be seen today. Recent years have seen the
emergence of a multitude of modern apartment blocks, offices, shopping malls and hotels
as resource extraction has begun to bring significant wealth to the country.
The city is divided into six primary districts (Düüregs): Bayangol, Bayanzurkh, Chingeltei,
Khaan Uul, Songingkhairkhan, and Sukhbaatar. Each district is then subdivided into a set
of Khoroo’s, representing the administrative subdivisions of Ulaanbaatar, of which there
are currently 132 in total. Each Khoroo is then further divided into microdistricts, or Khesegs.
Investor Insight: Scope of the Mongolian Properties Real Estate Report 2012
The focus of this guide upon Mongolia’s capital city should not be interpreted
as a slight upon the economic potential of the second and third tier settlements
around the country.
As mining operations have developed, many urban centres have found
themselves experiencing rapid growth. Dalanzadgad, the capital of the
Omnogovi Aimag, is located just 247km from Oyu Tolgoi and 108km from Tavan
Tolgoi and has become the epicentre of mining activity outside of Ulaanbaatar.
As mining companies have established their offices in the region, the city’s
population has increased from 17,000 in 2009 to 30,000. Average incomes have
risen at the second fastest rate nationally (surpassed only by Ulaanbaatar).
Sainshand, the capital of the Dornogovi Province is already reasonably well
established, lying on the key infrastructural link between Ulaanbaatar and the
Chinese border. Government plans to build an industrial park in the area, along
with a railway spur system connecting Tavan Tolgoi to the Trans-Mongolian
railway is expected to bring in billions of dollars in investment over the coming
years. A strong demographic pull (the projects are expected to create some
200,000 to 250,000 jobs), combined with increases in average income is likely fuel
real estate demand, and price appreciation over the coming years.
Despite this impressive potential, Asia Pacific Investment Partners currently
believes that such markets have not yet developed to a standard acceptable
for the majority of international investors. Scarce information combined with
fragmented management mechanisms within the still remote regions continue
to create obstacles and risks that have all but disappeared within Ulaanbaatar.
Given Ulaanbaatar’s unique position as the sole first tier city in a country with $1.3 trillion
of mineral resources, there are a number of unique trends shaping its development. This
section aims to detail the factors that are affecting Ulaanbaatar’s current trajectory, and
the impact they are having on the make up and structure of the real estate market in the
Photo by Hamid Sardar / Khasar Sandag
The Demographics of Ulaanbaatar
Two connected forces have fuelled the drastic changes across Ulaanbaatar over recent
years: the country’s economic growth, and considerable change in its demographic
Despite informational inconsistencies in measuring Mongolia’s exact demography, all
metrics are in consensus that the proportion of the population living in Ulaanbaatar has
grown over the last decade. The National Statistics Office of Mongolia estimates the
capital’s population increased from 1,147,700 in 2008 to 1,287,100 in 2011, growing 25% in
just three years, with 40,641 people relocating to the capital in 2010 alone.
Currently an estimated 47.1% of Mongolia’s population live in Ulaanbaatar according
to the Japanese International Cooperation Agency, a proportion that is expected to
increase considerably over the medium term. Forecasts anticipate that by 2020, over half
the country’s population will be based within the capital city.
These high rates of urban migration are caused by a combination of financial necessity and
the perception of opportunity among many currently based in Mongolia’s countryside.
Particularly harsh weather conditions over recent years have incentivised the shift away
from the nomadic lifestyle for many, with large quantities of livestock across the country
having perished. As livestock numbers have dwindled, the financial and nutritional
requirements of nomads have become more and more difficult to fulfil, causing many to
abandon their rural existence.
Investor Insight: The Nature and Impact of the Dzuud on the Mongolian Economy
Dzud is the Mongolian term for a set of extreme weather conditions, which
negatively impact large numbers of the country’s livestock. With the fate of so
many of Mongolia’s population intrinsically connected to the health of their
animals, the occurrence of a Dzud usually marks a significant change in the
socio-economic conditions facing many across the country.
Locals usually differentiate between three different types of Dzud: Black,
White, and Ice. ‘Black Dzuds’ are usually seen when summers are hot and rain
infrequent, leaving low-lying plants weak. When winter sets in and snow begins
to fall, animals are incapable of locating fodder, leading many to starve. The
‘White Dzud’ is caused simply by unusually heavy snowfall, which stops livestock
feeding on otherwise accessible frozen grass. The ‘Ice Dzud’ is brought about
if freezing rain covers the landscape with a layer of ice making the feeding of
Usually infrequent occurrences, the past two decades have seen Mongolia’s
rural communities having to deal with these conditions with unusual regularity.
The winters of 1990-2000, 2000-2001, and 2001-2002 saw the country hit by three
consecutive dzuds, killing an estimated 11 million heads of livestock nationwide.
The infamous winter of 2009-2010 is still sending shock waves through the
Mongolian economy. Heavy snowfall and temperatures as low as minus 50 were
witnessed across the country. The UN estimates that a minimum of 8,000,000
cows, yaks, camels, horses, goats, and sheep perished, representing around
17% of the country’s total livestock. This incident has been regarded by many as
something of a catalyst for the significant urban migration witnessed in Mongolia
over recent years; the increased frequency of such occurrences causing many
to question the sustainability of the nomadic lifestyle.
With incomes unstable, conditions harsh, and even the most basic of infrastructure
non-existent for many of Mongolia’s rural population, it is unsurprising that so many
have decided to try their luck as city dwellers. External perceptions of Ulaanbaatar’s
labour market are positive, with most Mongolians being acutely aware of the country’s
extraordinary economic transformation. By simply relocating to the capital, it is believed
that the unemployment and volatile wages plaguing many herdsmen can be avoided.
The Outcome of Mongolia’s Urbanisation: The Ger Districts
For the majority of the migrants who flock to Ulaanbaatar, reality falls short of expectations
as migrants they find themselves joining the peri-urbanised ‘ger districts’ that house
approximately 60% of the city’s population.
Plots of land across Ulaanbaatar’s ger districts are arranged into ‘Khashaa’s’, or small
fenced properties. These plots are typically owned by those who live on the land, having
been awarded the right to own plots by the private land ownership laws enacted in 2002.
The land ownership registration procedures were made explicit in 2005.
Investor Insight: What is a ‘Ger’?
Mongolian ‘gers’ are traditional tents that have housed the country’s nomadic
herdsmen for centuries. Similar to the ‘yurts’ of Kazakhstan, they are constructed
out of felt and durable white canvas stretched over a wooden lattice substructure.
‘Gers’ tend to be small in size (with floor space representing roughly 30 sqm.) and
consist of a single room.
The sheer scale of Ulaanbaatar’s ger areas means that treating them as a homogenous
entity is inadvisable. It is thus useful to loosely follow the tripartite framework developed
by the World Bank, breaking down the areas by their characteristics and proximity to the
central ger district.
‘City centre’ ger districts are those situated within or close to Ulaanbaatar’s urban areas,
and will usually border with apartment blocks and fixed urban structures. It is estimated
that 78% of structures within city centre ger districts are small, detached constructions, 18%
are the traditional felt tents, whilst the remainder are represented by modern apartment
blocks that have spilled over from Ulaanbaatar’s developed core.
Characterised by a strong sense of community, these regions are well established and
tend to represent migrant families whose ancestors moved to Ulaanbaatar generations
ago, whilst free space was still freely available close to what is now the city centre. In
central ger districts it is typical to observe residents investing much time in the maintenance
and development of their properties. Land and the properties occupying it are likely to be
owned by the family in question (around 99% of plots are in the ownership of their residents)
meaning that they are secured as inter-generational investments, potentially allowing for
long term gains in quality of life to be made from short term investment.