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.
This system has allowed those living in central ger districts to secure a reasonable level of
prosperity, estimated by the World Bank to represent $21,920 of illiquid assets (property),
and $4,381 of liquid assets (savings, stocks, cars) for families on average. However, with
monthly household incomes around $220, their earnings are still short of their apartment
dwelling peers, who earn around $319 per month.
‘Mid-tier gers’ are typically slightly further out than the central ger district, although some
are still within walking distance of the Ulaanbaatar’s central, developed areas. This is not
universally applicable, as the districts being characterised primarily by their sheer scale
form something akin to a continuous landmass of informal structures, which may extend
for several kilometres in every direction.
Circa 72% of in these mid tier neighbourhoods are detached self-built structures, with the
remainder being characterized by temporary gers. Household assets in these slightly more
inaccessible regions are considerably less than those of their more centrally located peers.
The illiquid wealth (primarily in property assets) of these families is typically about $13,521,
whilst monthly income is just $137 per month for ger households, and $163 per month for
the owners of detached property.
Many living in these ‘mid tier’ Ger districts are reasonably comfortable with their residential
situation, 36.3% and 38.6% of those asked in a 2010 World Bank sample stating they were
either ‘very satisfied’ or ‘moderately satisfied’ with their living environment, as opposed
to a mere 2.3% who claimed to be ‘very dissatisfied’. Despite a certain amount of
disappointment stemming from their limited exposure to the city’s infrastructure, many
families in these districts are well settled and comfortable in the neighbourhoods and are
keen to keep the property that provides many with their homes and operational bases
that for the informal businesses often supplements their income.
‘Fringe’ Ger areas are those on the periphery of Ulaanbaatar, hosting the city’s most recent
migrants. Although they usually do not come close to bordering with the developed city
of Ulaanbaatar usually considered of interest to international investors, some of their
characteristics should not be overlooked.
Roughly 58% of families in UB’s ‘fringe’ districts live in traditional ‘ger’ style accommodation
according to the World Bank, with the remainder living in basic detached structures,
81.5% of households actually own the property they live on. Poverty is widespread in fringe
districts, with households reporting assets being just 35% of those possessed by individuals
living in the country’s central ger areas.
As more and more migrants move to the city, the long-term consequences of Ulaanbaatar’s
peri-urbanisation become increasingly pressing. Infrastructure outside the centre of the
city is extremely limited. Virtually no ger district households are connected to a main water
supply. Roads amidst the sprawl of gers and detached structures are often impassable,
prone to gridlock, and subject to severe drainage problems. Solid waste management
represents a significant concern to health, being achieved solely through the use of
collection vehicles. The service is infamously unreliable, with waste being collected as
infrequently as once every three months. The most pressing issue is that 85% of ger district
properties are not connected to any centralised heating network and are forced to keep
Photo by Hamid Sardar / Khasar Sandag
warm through winter temperatures as low as -40 degrees centigrade by utilising cheap
cast iron stoves. These stoves typically burn wood, raw coal, or lignite, causing poor air
quality and health concerns both inside the properties where the combustion takes place,
and for the city as a whole.
Master Plan 2020, is intended to oversee Ulaanbaatar’s development over the medium term,
and has crafted the idea of a ‘compact city model,’ which now forms the core rationale
behind the city’s development. Urban sprawl has made Ulaanbaatar into an extremely
low-density city, making both operations and infrastructural provision problematic and
inefficient. In order to solve this problem, emphasis is placed upon the necessity of highrise accommodation within the city’s centre, built carefully around a prudently planned
transport network. The Central Business District’s present population density rests at around
6,000 persons per square kilometre. JICA’s proposals would increase this figure to 23,700,
whilst raising the concentration in surrounding areas (which include the central and some
mid ger districts) to an estimated 13,700 persons per square kilometre.
Central to the vision of the ‘compact city’ is therefore the necessity of high-rise buildings.
Until recently, Mongolia’s real estate industry has been in equilibrium supported almost
completely by free market forces, leading to the acute under provision of real estate
designed to cater to the low-income market - this is not for lack of demand. The World Bank’s
2012 survey into the attitudes of residents towards developmental strategies found that of
samples close to central Ulaanbaatar (the areas most likely to be affected by compact
city developments), only 12.7% refused to support the development of apartments at all in
their neighbourhoods, whilst 61.6% went as far as stating that all of their khoroo should be
converted to apartment residences.
The market is not yet developed enough to see these demands actualised. Consumers
have been faced with severe financing constraints; at present income levels only of those
situated in the detached houses of the central city ger districts are considered close to
being able to finance the purchase/rent of modern apartment accommodation.
The total assets of detached property owners remain just 66% of their apartment
based counterparts, whilst the value of their real estate remains considerably less
. To satisfy this demand, it would be necessary for the gap between property prices and
the wealth of ger households to be funded using mortgages and bank loans, instruments
that are at present extremely underdeveloped in Mongolia.
The resulting low-end market dynamic is thus characterised by latent demand, unable to
enter into the mainstream real estate market under present conditions. The government’s
recent 100,000 Homes Project aims to accelerate credit development within Ulaanbaatar,
allowing for the demand clearly present in the low tier apartment market to become
effective, whilst simultaneously stimulating the growth of private sector supply.
Investor Insight: The 100,000 Homes Project
The 100,000 Homes Project is a macro-level project aimed to correct both
demand and supply side failures associated with Mongolia’s low-end real estate
market. The project aims to facilitate the construction of 75,000 homes across
Ulaanbaatar, and a further 25,000 across the rest of the country: 5,000 in the
Western Region, 5,000 in the Khangai Region, 5,000 in the Eastern Region, and a
further 10,000 in the Central Region excluding Ulaanbaatar.
Supply side development is to be almost exclusively facilitated by the private
sector, a break away from the norm of affordable housing projects worldwide.
The government is not building the homes themselves, nor are they subsidizing
land acquisition, construction, or the property management of the new
buildings in any way. Instead, they aim to use their expertise to cap the price
per square meter that can be charged on properties as part of the program,
expand targeted development and investment within factories which produce
construction inputs, and oversee expansion by acting to facilitate key industry
The government’s biggest role however looks set to be involved in providing (and
funding) the infrastructural frameworks serving the new developments, the lack
of which has discouraged private sector participation in these types of projects
over recent years. The extension of roads, water grids, heating and electricity
is an expensive undertaking within the disorganised mass of property that is
Ulaanbaatar; the connection of a single large apartment complex to the water
grid alone costing as much as $1,350,000. Funds to finance the considerable
investment required is to take place primarily through bond issuance from the
Development Bank of Mongolia .
The demand side looks set to be stimulated by lending policies targeted at specific
demographics, initiated by the Mongolian Mortgage Corporation. Undeveloped
financial intermediaries have typically charged 16-19% APR on mortgages,
coupled with down payments usually in the region of 30% to ger district residents
over recent years. This means that mortgages have been fundamentally
inaccessible to the majority of those families housed in Ulaanbaaatar’s informal
structures. Fulfilling the role of market leaders in November 2011, the Mongolian
Mortgage Corporation announced that it would offer homebuyers 25-year
Photo by Hamid Sardar / Khasar Sandag
mortgages for apartments smaller than 50 square meters, with a fixed interest
rate of 6%.
Of the 8,000 homes already constructed, almost every apartment has been
sold. This not only demonstrates the success of the 100,000 homes by palpably
increasing the living standards of a sizable proportion of the population, but
the effectiveness of the mortgage mechanisms being spear-headed by the
Mongolian Mortgage Corporation in easing financial conditions.
These successes are set against a legislative backdrop that is quickly working to
amend current inadequacies that limit the programs effectiveness. The newly
elected Democratic Party looks set to lead a comprehensive review into the
detail of the project to ensure its effectiveness. One rule currently damaging
the plans scope is the clause stating that Mongolian Mortgage Corporation
mortgages charged at the 6% interest rate are only to be available to first time
homeowners. As many of Ulaanbaatar’s lower and middle class citizens live in
multigenerational housing, where the entire family is usually documented as
having ownership of the property, this means that there are many would be
homeowners unnecessarily excluded from consideration due to a technicality.
At the time of writing, the Ikh Khural (the Parliment of Mongolia) is debating how
government policy may be amended to benefit these individuals.
Although slightly short of the programs ambitious first year targets, Asia Pacific
Investment Partners estimate that the output of the 100,000 homes project is set
to gather momentum, as confidence increases and a range of factors restraining
both supply and demand are resolved.
The success of the 100,000 Homes Project, and the instigation of development according
to the ‘Compact City Model’ look to exacerbate the demand for space in central and
some mid-tier ger areas, further increasing land prices.
This looks set to limit the development of the modern city of Ulaanbaatar out of the currently
built up centre, limiting the supply of space predominantly to the area that already exists.
With supply constrained, existing structures in the developed areas of the city are to cope
with the increased demand initiated by Mongolia’s economic growth, contributing to
rapid price appreciation.
Real Estate as a Store of Value
Investment in the ownership of immovable property differs fundamentally from investment
in financial assets, as the investor acquires the possession of a tangible object. In traditional
markets, the real estates value is derived from its ability to fulfil a physical purpose, and to
be utilised as a useful structure in some capacity.
As the requirements of high net worth individuals worldwide have begun to change, so
has the reasoning behind their real estate investment decisions. Many wealthy investors,
especially in countries where domestic legislation is placing constraints upon investment
opportunity, are turning to real estate simply as an effective way of storing their wealth. In
these cases, the focus of real estate investment becomes simply the act of storing capital;
the tangible benefits of the assets physical ownership disregarded.
The behaviour of Inner Mongolia’s millionaires provides for a useful indication of the
trajectory that real estate in Mongolia looks to be following:
Over the past decade, Inner Mongolia has experienced the fastest GDP growth of any
Chinese province, expanding output by an average of 17% annually. The area, much like
the Mongolian state that borders it, derives the majority of its wealth from a considerable
mineral resource endowment. Rich iron ore deposits at Bayan Obo, and a sizable share of
China’s rare metal resources (that make up 95% of world supply), pale into insignificance
in relation to the area’s 700 billion tonnes of coal reserves.
Private mining companies pouring into the Inner Mongolian steppe over the past two
decades have seen wealth circulate fast around the region, with many Chinese citizens
having benefited directly from soaring land prices and substantial capital inflows. As the
projects have moved to extraction, those individuals positioned at the top of the mining
corporations, or politically connected to their success, began to find themselves in
possession of serious levels of wealth. The Financial Times estimated the average income of
citizens in the town of Ordos to be $20,000 in 2010, with the resources of the upper echelons
of society being considerably more, making it one of the wealthiest conurbations in China.
This process has led in part (along with the development of resources in other provinces
around the country) to the creation of China’s infamous ‘Coal Barons’, groupings of
businessmen whose success has been substantively linked to growth of the country’s
mineral resources industry. Empirically demonstrating the wealth of such individuals is a
difficult task, with there being a significant incentive for them not to publically disclose
the true extent of their financial affairs. It is claimed to be taboo even for these high net
worth individuals’ private bankers to ask them the exact nature of the services they desire,
for worry of being overly intrusive, according to Li Xianduo, the Secretary General of the
Research Centre of the Chinese Banking Industry.
As the wealth of these individuals has risen over the years, they have devised mechanisms
to store value that are concurrent with their preferences. Typically geographically
conservative in their investment decisions, many of these funds have ended up destined
Photo by Hamid Sardar / Khasar Sandag
towards either the domestic Chinese stock exchanges, or Chinese real estate, which has for
a long time been seen as something of a financial safe haven, having never experienced
a sustained downturn since the country converted to private home ownership in the mid1990s.
Arguably the most potent example of these capital flows piercing the Chinese real estate
market can be seen by walking the empty streets of the city of Ordos, situated upon the
Yellow River of Northern China. 25 kilometres from the existing old city of Dongsheng is
the Kangbashi New Area, a site 35 kilometres in size with the capacity to house 300,000.
Created with an estimated initial investment of 1.1 trillion yuan ($161 billion), the city is
amongst the most lavish in China, representing the scale of the wealth created by the
mineral extraction operations situated in neighbouring valleys.
Despite row after row of pristine residential real estate being constructed by the government,
official estimates of the new city’s occupancy rates are as low as 20,000 individuals,
under 7% of capacity. These official Chinese figures are likely inflated to exaggerate the
projects success, with some independent estimates positing that the areas population is
as low as three or four thousand. Despite astronomical vacancy rates, near to 100% of
properties in the city have been sold according to a report into the phenomenon by the
Al Jazeera news network. The responsibility for this counter intuitive result rests primarily with
the wealthy residents of the old city of Ordos, and other nearby conurbations that have
benefitted from the Chinese mineral boom. Individuals have bought into the new city
with no intention of ever renting out the properties, instead simply allowing them to sit and
wait, confident that powerful upside forces of the Chinese real estate market will see the
assets at the very least hold their value relative to inflation. Many individuals have gone
further than investing in a handful of properties; the scale of some investors’ commitment
to storing their wealth in real estate assets has led them to purchase whole terraces or
apartment blocks across the city.
Despite sounding unbelievable to most Western investors, the practice is justified as
economically rational by those individuals making the investments. Like most nations,
China has taxes on real estate transactions, but no property holding tax, meaning property
can be held in its latent state free of taxation indefinitely. To risk averse Chinese investors,
purchasing property to store value is an attractive option. Being able to physically inspect
the asset provides confidence in the security of their wealth. Short term rent flows to the
investor are sacrificed, the investor simply not being interested in the hassle associated with
finding a tenant and acquiring rental yields. The prevailing culture is one that considers
property not as a functional structure, but an investment comparable to gold, jade or
As house prices have appreciated due to the demand created by investors looking to store
value in real estate, many high net worth individuals have decided to venture further afield
in order to find properties that can secure even greater returns on their capital investment.
The phenomenon has penetrated the majority of major Chinese cities (including Beijing,
Shanghai, and Hong Kong), fuelling real estate demand across all sectors of the real estate
market. As far back as 2009, data supplied by Stephen van der Mersh, fund manager
at Ruane, Cunnif & Goldfarb, reported that in the capital of Guizhou, Guiyang, there
existed 200,000 square meter shopping centres completely unoccupied, situated next
to apartment complex’s 40,000 units in size, with an occupancy rate as low as 30%. The
Financial Times estimates that there now exists 587 million meters of apartment space
across the country, bought within that last five years, which intentionally stands empty.
The creation of real estate demand in China, with the objective of nothing more than
simply storing value has a number of analytical implications that may affect the trajectory
of the Mongolian real estate market.
Crucially, many of the conditions underpinning the creation of the Inner Mongolian multimillionaires are similar, if not identical in the Mongolian state, albeit indicative of a region
at an earlier stage of the developmental path. Many industries, most notably those directly
connected to mineral extraction industries are leading to the creation of significant wealth
concentrated across a handful of elites; currently the richest 10% of Mongolia possess an
estimated 30% of the country’s wealth according to the World Bank.
Cultural attitudes are predictably similar between Inner Mongolia, and the Mongolian
state. Ethnically, the region is 79.14% Han Chinese, with the remainder of the population
(17.13%) being ethnically Mongolian. Although nearly a fifth of the demographic have
the same direct lineage as Mongolian nationals, the attitudes prevalent in the investment
process are spread across the ethnic divide. Both groupings are considered to display
an expected aversion to globalised investments in intangible assets, being somewhat
sceptical of more complicated financial instruments, especially when out of their sphere
of domestic influence.
Although many of the conditions that have led to the emphasis on real estate in China are
present in Mongolia, it is in the details of the differences that lead Asia Pacific Investment
Partners to forecast that Mongolia will most likely, if not inevitably embark upon the same
real estate investment trajectory.
One factor driving the decision to invest in Chinese real estate is the utility derived from
being seen to actually purchase a tangible asset. Even if a property is not to be lived in,
its physical presence still acts as a symbol of the owner’s affluence; it is a store of wealth
easily referred to and quantified by those the investor seeks to ostentate. These forces are
even more powerful in Mongolia than they are in China. Inner Mongolia is vast, spanning
around 463,000 square miles, and populous, with a population of 24,706,321 spread across
25 cities. Personal association with even the most prominent real estate investments is
usually lost upon those not directly connected to the investors network. Mongolia on the
other hand is anything but impersonal, with a population of merely 2,754,685, around 45%
of whom live in Ulaanbaatar. The quantity of high end real estate in the city is accordingly
limited, with key properties such as the Olympic Residence, Royal County, Bella Vista
The and Blue Sky Apartments being the subject discussion for all within the city. News of
important transactions quickly spread; investors have much to gain in social standing by
purchasing in these key locations.
For those constrained by concerns with international investing, high net worth Mongolians
also have far fewer options than their Chinese counterparts. Interest rates on savings
accounts have historically been low relative to inflation, investors typically expecting zero
if not negative returns.
Investor Insights: The Mongolian Stock Exchange
Established in 1991, the MSE was the world’s smallest exchange until the Laos Stock
Exchange begun trading in 2010.
The Mongolian Stock Exchange (MSE) was recorded as the second fastest growing
exchange globally in 2011, as share prices rose by 57.8%. Expectations of success over
coming years are derived from Mongolia’s continued high levels of economic growth,
a flurry of initial public offerings (IPOs) fuelled by mining sector expansion, and the
privatization of state companies.
Although challenges stemming from low liquidity and informational constraints have limited
the accessibility of the exchange over recent years, optimism stems from the partnership
Photo by Hamid Sardar / Khasar Sandag
between the MSE and the London Stock Exchange Group (LSEG). In terms outlined by a
three-year contract, the LSEG has agreed to actively manage the MSE and initiate a series
of reforms. An estimated $45bn in listings on the exchange is anticipated over the next
ten years through privatizations of state-owned companies and strategic assets this would
increase the market cap by approximately 30 times.
Interest in the exchange from global investors is increasing, with operations of several funds
operating with the sole aim of capitalizing on the growth of Mongolian equities.
Investments in the Mongolian Stock Exchange are, however, relatively limiting. A small total
market capitalization, combined with low liquidity and institutional deficiencies renders the
placement of large sums of money on the exchange close to an impossibility.
As a result, real estate is an attractive option for high net worth Mongolians, historically
having achieved high rates of return, especially within the luxury sector. The necessity of
asset maintenance, combined with investors’ limited option sets may therefore be seen as
a crucial force sustaining real estate demand as the Mongolian economy matures.
Asia Pacific Investment Partners does not believe that the creation of a Mongolian
economic elite in the coming years will follow exactly the same path as may be observed
in China. Mongolia’s Property Tax (0.6% of the assets value (not applied to residential
apartments & housing)), combined with the opportunity cost of forfeiting substantial rental
yields driven up by limited supply, will most likely keep the majority of space occupied.
The experience of the Olympic Residence supports this thesis. Despite representing some
of the most expensive real estate in the city, it is domestic Mongolian buyers who have
fuelled the majority (80%) of demand. Many buy multiple apartments, with the intention
of placing them upon the rental market and securing considerable income inflows whilst
their capital appreciates.
Photo by Hamid Sardar / Khasar Sandag
The Mongolian Mortgage Market: Soon to Catalyse the Growth of Low/Medium Income
Since the economic transition of 1990, underdevelopment of the Mongolian mortgage
market has placed severe financing constraints upon the country’s population. The
mortgage market is however currently developing rapidly, which is expected to lead to
further upward pressure on property prices in Ulaanbaatar.
Mongolia’s institutional risk pricing mechanisms are currently limited in effectiveness by
weak access to the credit history of those applying for mortgaged finance. Individuals’
credit histories are accessible through the Bank of Mongolia, but by no means provide the
quantity of information that lending institutions require. Information is updated infrequently,
meaning that data concerning consumer’s behaviour over the weeks prior to a request is
simply unavailable. This allows for a situation where a borrower could theoretically take out
multiple loans at once, without any of the financial institutions involved being aware of the
other currently outstanding debt obligations, clearly limiting the lenders confidence in the
data upon which they are basing their pricing decision.
The historical information that is documented includes the current status of any loans
taken out, but fails to document useful details regarding their performance. Defaulted
loans are simply listed as having been ‘cancelled’, without any reasoning as to why
the annulment occurred. As borrowers may have had loans cancelled for a variety of
reasons not associated with default, this inserts a significant degree of uncertainty into risk
assessment, to the detriment of the mortgage pricing process.
concerning consumer payments
to utility, communication, and
non-banking financial institutions,
which play a crucial role within
more developed economies.
These factors combined place
mortgage institutions, meaning it
is a near impossible task to treat
consumers as anything other
than inherently risk prone.
Despite the lack of infrastructure
supporting this transferal of
originating banks of Mongolia still
make significant efforts to access
accurately the creditworthiness
of a given borrower. However,
the informational deficit means
that despite their best intentions,
they do not really have the
option to assess creditworthiness
Photo by Hamid Sardar / Khasar Sandag
international standards. Efforts
are being made to develop
something a full service credit bureau in Mongolia, however legislators are coming up
against difficulties widespread in developing markets. The good news is that the Bank of
Mongolia, together with most commercial banks are very keen to advance this project,
and are currently working together in a collaborative manner. One problem in particular
is that of convincing the larger providers of the benefits that can be derived by all firms in
the industry by pooling information; in Mongolia the majority are too myopic to see further
than the potential impact this could have on their own market share.
An accurate appraisal of collateral is a critical aspect of the underwriting process,
and needs to be performed by an experienced professional with a standardized set of
criteria, in order for not only the computed Loan to Value ratio to be accurate, but for
any secondary market to treat collateralisation as an effective security against the risk of
default. Sadly Mongolia’s property valuation services are still somewhat subjective, with
each bank responsible for the creation of its own methodology upon which to base their
Many make valuations based upon market data from real estate developers, but as each
bank tends to deal with different entities, the result is little consistency across the market as
a whole. Progress is being made however, as more and more banks are reported to have
created specialist appraisal units within their own operations, which should at least create
internal consistency between issuers, from which external standardisation may follow in
the medium term.
In order to incentivise the consolidation of the country’s primary mortgage market, the
development of a large and credible secondary market has become a priority. The
Mongolian Mortgage Corporation (MIK), established in 2006 through a joint agreement
between the Bank of Mongolia and nine commercial outfits has been instrumental in
achieving this end. Approved in 2009 to issue 25 Billion MNT in securitized mortgage bonds,
the organisation sold MNT 6.3 billions worth in its first year alone.
As the MIK moves to expand further the size of this secondary market, it is apparent that the
benefits to the primary exchange in terms of both efficiency and liquidity are substantial.
Assets based upon poorly defined risk evaluation and weak appraisal mechanisms are
unattractive to institutional investors, and therefore provide an incentive for standards to
improve relative to international best practice. Furthermore, as market forces obtain an
increased role in the country’s market, the fragmentation of power during the origination
process should allow for the more accurate pricing of the mortgage products. As the
country moves away from the use of its portfolio lending system, assets are expected to
be subject to an increase in checks and balances, having to move between separate
institutions, which will each inspect the quality of the product. This is in stark contrast to
what has occurred within the mortgage originating entities in the past, where loans have
remained within single institutions, not being subject to the appropriate scrutiny, increasing
the risk of mis-priced or poorly underwritten loans being unnoticed.
The movement of the secondary market away from the organizations operating as portfolio
lenders should also allow for a rapid expansion in the number of mortgages issued to the
Mongolian population. Each third party purchase of a mortgage by the MIK recapitalises
the selling bank (who should have profited by being able to keep the origination fee) whilst
removing that the risk from that loan from their portfolio. The funds they obtain in exchange
for the product may then be lent out to another household, and the process repeated,
drastically increasing the lending capacity of the Mongolian financial system.
So far, the work of the Mongolian Mortgage Corporation appears to have been effective
with key indicators showing that the market is moving in the right direction.
Mortgage market size as a percentage of GDP has increased from 3.6% in 2008, to
approximately 5.2% in Q3 2011, with the rate of change increasing year on year.
With the exception of loans offered to first time buyers as part of governmental programs,
the increase in the total value of mortgages circulating the economy has done little to
lower interest rates. MIK data suggests that between 2005, and Q3 2011 the interest rate
fell by just 0.13%, from 14.7% APR to 14.52% APR, remaining at a level considerably higher
than is affordable for the majority of Mongolians.
As a credible secondary market embeds itself within the Mongolian Mortgage framework,
Asia Pacific Investment Partners anticipates the increased use of real estate backed loans
across the economy, with more accessible interest rates, pushed down by competition
in the origination process. With many low income households currently just short of being
able to afford new apartments, particularly around ger district areas, it is expected that
much demand, currently latent as a result of financing constraints, will be unleashed upon
the low-mid residential markets.
The combination of unique historical and geographical conditions in Ulaanbaatar creates
a curious infrastructural situation that acts as a very strong supply side constraint on new
developments in the city.
Ulaanbaatar is often described as the coldest capital city in the world, and with good
reason. Despite the climate being pleasant in summer, five to six months of the years are
typically characterised by temperatures far below freezing point. The city’s high elevation
(roughly 4,430 feet above sea level), combined with the effects of the Russo-Siberian
Anticyclone (a massive collection of cold which accumulates on Eurasian terrain for much
of the year) mean that temperatures sometimes drop so low as to border on the subarctic.
As a result, a building’s capacity to produce and retain heat is key. Across the city, even
modern properties often suffer from poor insulation, porous construction materials, and
thin pane single glazed windows, meaning that residents typically rely heavily upon their
property’s central heating system.
This heat is produced and distributed by a network that is both archaic and unsustainable.
Ulaanbaatar’s basic energy needs are met by an interconnected cogeneration system,
which produces both the city’s electricity and heat, known as District Heating (DH). Both
products are created by three Combined Heat and Power (CHP) plants located in the far
western, industrial sector of the capital. The DH system then works together with private
heating supply companies to supply heating and hot water to businesses and apartments
around the city. This grid is known as the Ulaanbaatar Heating Network (UBHN).
The UBHN was established in 1959, in the midst of the city’s Soviet era. The system was
originally designed to serve a population of 250,000, but this figure has now grown to an
estimated 1,287,100 while improvements to the network and the power stations have been
minimal. As a result the UBHN’s three CHP operations are operating under considerable
The oldest functioning plant in the city is CHP-2, commissioned in two phases in 1961 and
1970. The plant currently suffers from a variety of operational issues primarily linked to
depreciation well beyond its predicted functional life, and this is reflected in its very low
(3.5%) contribution to the UBHN’s overall heat load. The larger CHP-3 operations consist
of two Soviet designed and manufactured units, each with four turbines, commissioned
between 1976 and 1979. In slightly better condition than CHP-2, yet still over three decades
old and in a state of some disrepair, CHP-3 supplies enough heat to take satisfy around 32%
of the UBHN’s requirements.
The majority of Ulaanbaatar’s heat is produced by CHP-4, the most modern of the facilities,
built with a theoretical capacity large enough to supply 75% of what the UBHN is considered
able to handle. However, the plant is currently operating close to capacity and despite
being relatively new (it was commissioned between 1983 and 1991) premature aging has
set in due to the loss of Soviet support and expertise after 1989. CHP-4 is expected to be
Photo by Hamid Sardar / Khasar Sandag
able to continue operating only until 2018.
The capacity constraints of these three CHPs mean that the city’s heating grid is at present
fixed, running along the city’s major roads and extending little more than 5km to the east,
and 15km to the west.
Until Ulaanbaatar’s heat production capacity is expanded, this zone represents an
effective limitation upon the space that can be used for the construction of real estate.
Developments beyond the boundaries of the grid face a variety of infrastructural
challenges that reduce their economic viability and although alternative heating sources
may be used, these are comparatively expensive.
The result is a fundamental restriction upon the amount of buildable space within
Mongolia’s only first tier city, the boundaries of the grid representing as close to a fixed
supply constraint as is possible in a real estate market.
It is, however, anticipated that the completion of Ulaanbaatar Thermal Power Plant V
will free the city of this constraint at some point. The proposed facility is designed with a
capacity to produce 300MW CHP (combined heat and power) of electricity, and heat at
rate of 1,101 GCal/hour. Approved by the government as early as 2008, development of
the project subsequently stagnated as a result of political infighting and an organisational
aversion to assuming responsibility. However, it has recently been reported that funding
for the project has finally been secured. Nevertheless, even the most optimistic estimates
forecast that the plant will only
begin production towards the tail
end of 2015, and will not reach
operational capacity until 2020.
Room for Growth, Following the
Sharing a similar command
liberalized at a similar time,
both were catalysed by the
collapse of the Soviet Union. Both
countries deconstructed their
communist experiments under
similar conditions; and between
1993 and 1995 the Kazakh Tenge
saw brisk inflation whilst output
contracted. This is not dissimilar
to Mongolia’s experience with
Both nations have experienced
similar levels of growth, based
upon the extraction of sizable
endowments of natural resources;
Photo by Hamid Sardar / Khasar Sandag
‘TengizChevroil’ was to Kazakhstan
what ‘Oyu Tolgoi’ is to Mongolia. It was Kazakhstan that experienced the benefits of
economic liberalization first however, roughly a decade before Mongolia.
As a case study, Kazakhstan provides a guideline to help predict Mongolia’s growth
From 2000 to 2008, Kazakhstan’s GDP grew at an astonishing and sustained rate: rising by
9.5% in 2002, 9.2% in 2003, 9.6% in 2004, 9.7% in 2005, 10.7% in 2006, and 8.5% in 2007. In
tandem, burgeoning resource profits allowed Nursultan Nazarbayev’s administration to
drastically lower its debt to GDP ratio, from 21.7% of its GDP in 2000 to just 8.9% in 2005.
Despite gross external debt rising from US$18.2 billion in 2002 to US$96.37 billion in 2008,
substantial increases in real GDP made the increased load bearable (similar in character
to Mongolia’s experience at present).
As growth accelerated, prosperity spilled over into the construction and real estate
industries. Between 2005 and 2008 the building market increased by roughly 20% per
annum, with the fastest growth industry being that of the high-end market. Imports of the
highest quality materials became commonplace, as the expansion of Almaty, and the
new capital Astana spurred on the development of skyscrapers designed to cater to those
whose fortunes had been made by the oil boom.
Prices within the market appreciated at a rapid pace. Mid level real estate that would
have cost just $250 per square meter in 2002 leapt in price to $3,600 per square meter in
2006; the luxury markets appreciation was even greater, moving from $460 per square
meter at the turn of the millennium to an astounding $9,600 per square meter at the start
This growth does much to illustrate the room for price appreciation that currently exists
within the Mongolian real estate market. With residential prices across the market currently
being only $1,270 psm, there would appear to be room for considerable growth before
Photo by Hamid Sardar / Khasar Sandag
Mongolia’s prices even begin to approach the levels witnessed in Kazakhstan over the last
The two markets differ, however, in one crucial respect; mortgage and lending policy. A
sizable proportion of real estate demand within Kazakhstan was funded by mortgages,
introduced in 2002 in an effort to facilitate a demographic shift towards the new, but
empty capital of Astana. By 2005, the products had become accessible to the general
public, with relatively lax initiation requirements. Quick to spread through the financial
system, within a few years almost all transactions to Kazakh nationals were funded by
mortgage loans. Primarily funded by the Kazakhstani Mortgage Company, interest rates
were far lower than they are at present in Mongolia, as the country’s financial systems
sophistication allowed for widespread availability.
Whilst the mortgage market in Mongolia is currently underdeveloped, its counterpart in
Kazakhstan was perhaps too lax in terms of credit control. Wages of around 61,622 Tenge
per month(roughly $595) were unable to justify mortgages often in excess of $100,000. When
prices began to flatten in late 2007, the majority of Kazakh citizens, locked into mortgages
which their wages fundamentally could not justify, were in no fit state to weather any form
of housing price crisis.
In the absence of a developed mortgage market the driving force behind the growth of
the real estate industry in Ulaanbaatar is, however, based on fundamentals. Asia Pacific
Investment Partners believes that even with increasing mortgage usage in Mongolia,
the products are unlikely to ever become as widespread as was seen in Kazakhstan. As
such, the comparison suggests Mongolia has much room to grow, based upon resource
extraction and economic development, as opposed to speculative lending as was seen
Photo by Hamid Sardar / Khasar Sandag
The Ulaanbaatar Residential Market
Ulaanbaatar’s residential real estate market is extremely diverse, with international
standard luxurious apartment complexes often located just a few hundred meters away
from small, informal ger encampments.
As such, although aggregate residential data reveals much about the general price
trajectory that has resulted from the Mongolian resource extraction story over the past few
years, the opportunity lies in the detail. This general price data by nature overlooks many
of the micro level phenomena across the city that give rise to its greatest opportunities.
As such, this section should be simply used as general metric; for individuals serious about
exploiting the potentially massive upside on many real estate assets across the city, the
detailed district studies that follow are considered a necessity.
There are however certain forces acting upon both the demand and supply side that are
considered to have already shaped the way the market has developed across the city,
and look to continue to do so over the coming years.
Key demand side drivers in Ulaanbaatar’s residential market include:
Rapid economic growth, expected to continue at a double digit pace over the
Substantial urbanisation and changes to the city’s demographic make up;
A rapid increase in the number of foreign workers and expatriates looking for
international standard accommodation;
Rises in real wages from the substantial proportion of Mongolian society moving from
low to middle income status;
The creation of a growing class of extremely wealthy Mongolians, with assets primarily
derived from resource extraction;
Mortgage market development reducing financing constraints;
Increased demand for properties centrally located;
There currently exists approximately 15,000,000 sqm of residential space in Ulaanbaatar,
of which around 8,000,000 sqm has been constructed since the democratic transition,
representing a relatively small modern apartment stock for a city of Ulaanbaatar’s size.
At present there is just under 5,000,000 sqm of space under development according to
APIP/Tenkhleg Zuuch estimates, of which only 1,300,000 sqm is expected to be of a quality
suitable for expat and middle class Mongolian habitation.
Key supply side constraints include:
• Supply chain issues which hamper transportation of construction materials;
• Lack of available land in high demand areas, such as the Central Business District;
• Spatial development constraints, as projects effectively cannot be built outside
Ulaanbaatar’s heating grid.
• A geographical constraint caused by the city’s surrounding ger districts, with plot
owners being endowed with powerful land ownership rights to halt oncoming
• Construction firm capital constraints causing many projects to simply run out of
With burgeoning market demand and significant supply side constraints, residential sales
prices have risen considerably over recent years.
Priced at $439 psm on average in 2005, the residential market has appreciated every year
since with the exception of 2010. With space currently valued at $1,270 psm on average (a
188% increase), the market appears to be showing little sign of a slowdown.
If current demand drivers and supply constraints remain in place, $1,540 psm is expected
to be a reasonable price target for residential space sold across Ulaanbaatar over the
In the event of a slowdown in demand, in the context of supply conditions which look near
impossible to change, prices should continue rising to at the very least a level of $1,310
psm on average.
If the risks currently priced into these price estimates do not materialize, however, real
estate in Ulaanbaatar may well see some of the largest aggregate gains worldwide.
Double digit growth in a climate of political stability under the country’s new parliament
may well see prices within the city rising to $1,750 psm on average, representing a 38%
capital appreciation in just over two years.
The Ulaanbaatar Rental Market
Across Ulaanbaatar, changes in rental rates are often closely correlated to the movement
нисэх буудлаас УБ
замд хамгийн дээд зэрэглэлийн бүс
Нүхтийн аманд байгуулагдаж байгаа
Nukht”хотхон үүд хаалгаа таны өмнө нээж байна.
Хотын агаарын бохирдол, замын түгжрэл гэсэн
асуудлуудаас хол ангид орших энэ хотхон нь УБ
хотын иргэн бүрийн нэн хүсэл болсон цэвэр агаарт
ажиллах, амралт чөлөөт цагаа зөв боловсон
өнгөрүүлэх бүрэн нөхцлийг бүрдүүлсэн хотхон юм.
Европын оронд байгаа мэт санагдах энэ хотхонд
та өөрийн хайртай гэр бүл болон анд нөхөдтэйгээ
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кино театр болон уран зургийн үзэсгэлэн, олон
төрлийн брэнд дэлгүүрүүдээр аялж,өндөр түвшний
сонирхолтой тоглолтуудыг үзэн сонирхож, байгалийн
сайхан орчинд дугуй, морь унан зугаалж, тохилог
тав тухтай ажлын байрандаа ажиллаж, амарч,
хөгжилдөн аз жаргалтай амьдрахыг урьж байна..
The VILLAGE @ Nukht
Located halfway between Ulaanbaatar and the Chinggis
International airport, Nuhkt is historically a holiday area for
former government officials and their families. In recent years a
number of prominent families have relocated to the area and two
hotels have been developed behind the gated fences of Nukht.
Although the area is home to some of the wealthiest families in
Mongolia, there are no services to be found anywhere near the
location until now. The VILLAGE @ Nukht will meet the growing
needs of this new suburb and will incorporate eating venues, art
galleries, retail shopping and entertainment activities. Come join
OFFICE AND RETAIL SPACE
Temple view Office: (+976) 7011 1800
Circus Office: (+976) 1132 4545
Head Office: (+976) 7730 0550
Address: Suite 202, Regency Residence 16 Olympic
Street, 1st Khoroo, Sukhbaatar
District, Ulaanbaatar 14220 MONGOLIA
in residential sales prices. There are however a number of key factors that investors should
consider when considering whether to buy to let.
Expatriates and temporary visitors to Ulaanbaatar make up a large section of the city’s
rental-market. Many just come for the summer, as consultants and temporary staff to both
Mongolian and international operations, designed to give advice and implement western
best practice. Most are young, with few commitments to tie themselves down in their
countries of residence. Many of these individuals are on a substantial salary, but have little
control over their accommodation in Ulaanbaatar. Apartments, often centrally located,
are usually found for them by the human resources team of their employers, and paid for
directly by the companies. The result is a surge in demand for middle quality, centrally
located, and western friendly properties around the city center over the summer months.
A slightly smaller, but equally important grouping is the growing class of executives,
upper management and diplomats based permanently in the city. Demographically
characterized as older males often tied down by family commitments, substantially more
incentives are usually offered by firms to encourage them to bring their expertise out to
the steppe. One such benefit is usually in the form of generous housing allowances, which
often are as large as $5,000 per month or more. The result is that many of these individuals
are not overly concerned by the prices of rental properties, determined to use up these
non-redeemable endowments and allow themselves and their families to live in comfort.
This has meant that many properties such as the Star Apartments, Green Villa, Bella Vista,
Temple Residence and the Regency Residence have been able to charge premiums
upon their property, facing long waiting lists from these wealthy individuals.
Ulaanbaatar’s large student population drives the lower end of the market upon a seasonal
basis. With over 10,000 students enrolled at the National University of Ulaanbaatar alone,
over half of whom who live in the country’s rural provinces, term time sees a significant
demographic inflow to the cheaper areas of the city, close to the main campuses. Areas
such as northern Sukhbaatar, and Bayanzurkh’s Sansar District have rental markets largely
driven by this phenomenon, which sees demand rocket between 1st September to 25th
December, and 28th January to 29th May (term dates).
Valued at just $5.80 psm on average per month in 2005, residential rental prices have
increased every year across the city (with the exception of 2010), rising by 206% to $17.80
psm on average as of Q3 2012. Similar supply and demand forces, almost identical to
those outlined above in the residential sales market have driven rental rates upward upon
this substantial price path.
Based on the current macroeconomic drivers price appreciation to $24.50 psm on
average per month by the end of 2014 is anticipated. This would price the average one
bedroom apartment in the city (assumed by the industry to be 35 in size) to be $860 psm
per month to rent.
Total Percentage Change
Given the extraordinary pace of economic development in Mongolia over recent years,
it is unsurprising that the market for office space has exhibited rapid growth,both in terms
of size and price level.
As large institutional investors such as the Mongolia Growth Group realign their real estate
investment strategies to increase their exposure to the office market, it is clear that many
consider the market still have significant growth potential. Given that the majority of the
country’s mineral extraction operations have not yet become operational, this assumption
may well prove to be correct. However, office real estate in Ulaanbaatar represents an
extremely small market, especially by the standards most institutional investors are used to
There are clearly huge gains to be made across Ulaanbaatar’s market for office space,
but cherry picking the right assets in the right locations will be key to maximize returns.
Demand for Office Space in Ulaanbaatar
Demand for high quality office space in Ulaanbaatar has increased rapidly over recent
years, fuelled by the country’s economic growth.
The total number of active business entities within the Ulaanbaatar has risen from 42,988 in
2008 to 47,195 in 2011, according to the National Statistics Office of Mongolia.
Growth in the financial services industry has been particularly strong, with the number of
players increasing sharply, despite a dip in 2010 due to the global financial crisis.
Demand is expected to remain strong into the medium term from firms across all sectors
of the Mongolian economy, as business practices become increasingly sophisticated and
require ever-larger quantities of back office staff. It is in the human capital intensive financial
services industry, however, that the highest growth levels are expected. With a flurry of
IPOs expected over the coming years on the Mongolian stock exchange, combined with
significant developments in the country’s insurance and lending industries, the demand for
high quality office space in the financial services industry is expected to grow substantially.
Investor Insights: PWC Mongolia
Joining the market in 2010 to provide assurance, advisory and tax services to both
Mongolian and International clients, PWC’s main focus is to support the country’s
rapidly developing mining, financial services and manufacturing industries.
Based in Central Tower, the firm’s team is currently small, representing around 20
partners and support staff, but it is anticipated that as the business continues to
grow additional office space may be required.
Although demand for office space has grown significantly, only certain areas of the city
have been impacted. The dominant preference of both domestic and international
companies to acquire space within the Central Business District, which is primarily situated
in Sukhbaatar, but also spills over to the eastern part of Chingeltei.
The Central Business District effectively represents the epicenter of Mongolia’s economic
activity. Encompassing the country’s parliament, stock exchange, and the majority of key
landmarks, for domestic companies, the headquartering of operations within this exclusive
geographical area is a symbol of status and power. These considerations are a significant
factor that support the demand for both Grade A and Grade B office space within
Sukhbaatar Square. Research indicates that of the top twenty companies operating
within Mongolia at the time of writing, 13 are headquartered within the CBD.
International firms entering Mongolia are also keen to be based within the Central Business
District. The area is not only centrally located, reasonably safe, and close to shops and
restaurants designed to cater to western tastes, but also contains the vast majority of the
city’s office supply considered to be up to international business standards.
For smaller size headquarters, the Central Business District provides an attractive solution.
However, for companies looking to establish an office with more than a few dozen
employees, it is often an impractical solution in terms of both price and availability.
Occupancy rates, especially within the more luxurious structures are notoriously high, and
when space does become available, it is normally expensive and in the form of small
These considerations are leading to an increase in demand for office space outside of the
CBD. The purchase or rental of entire office buildings, simply not a possibility in the CBD,
appears to be increasingly desirable for many firms looking to base large operations out
Demand appears alose to be enhanced if offices are located close to large residential
areas that can provide accommodation for employees.
Investor Insights: The Seoul Business Center
The Seoul Business Center, situated in the 1st Khoroo of Bayanzurkh, is an example of
this phenomenon. The B+ rated center, spread across eight floors, is neither distant
from the Central Business District, nor cheaper. Throughout its history, however, the
structure has achieved high occupancy rates due to its proximity to the Chinggis
Khan hotel and the Royal Castle Residential Complex, which is large enough to
house the majority of the center’s employees.
Previously housing Oyu Tolgoi’s operations, the complex experienced a fall in
occupancy in 2009 as many of OT’s front office staff were shipped out of the
complex and into the Monnis Tower. However, the remaining space has filled up
quickly with 99% of its units currently in use.
Supply of Office Space in Ulaanbaatar
Burgeoning levels of demand have quickly signaled to construction companies that there
is money to be made in the Ulaanbaatar office market, resulting in large expansions in the
city’s office space in every
year except 2009, when
the effect of international
activities across all sectors
of Ulaanbaatar temporarily
Photo by Hamid Sardar / Khasar Sandag
Facing the highest levels of
demand, the Central Business
District has been the focus of
much of this development.
Supply of Grade A office
space is limited to the CBD
and includes the MCS Central
Tower, the Blue Sky Tower, and the Monnis Tower.
Investor Insight: Overview of Grade A Real Estate in Ulaanbaatar
Completed in 2008, the MCS Group’s Central Tower, directly to the east of
Sukhbaatar Square represents the first piece of Grade A office space in Ulaanbaatar.
The modern exterior is complemented by luxurious interior design, including water
features, six elevators, and an abundance of marble. Units are rented out by MCS
and Kerry Group for between $51 and $65 per square meter. With high demand
and inadequate supply, the price is expected to go higher.
Units within the Chono Corporation’s Blue Sky Tower are currently occupied by firms
such as Frontier Securities, and the on site amenities are arguably the best in the
city, featuring a swimming pool, restaurant, fitness center, and bar at the top of the
structure. Despite a striking exterior, however, the design of the offices are not in the
same league as those in the MCS Central Tower. The rental price of office space in
the Blue Sky is between $45 and $52 per square meter.
The Monnis Tower is well-known for housing the headquarters of Oyu Tolgoi’s
operations. Located on Chinggis Avenue, the building’s client list also includes
Peabody, Future Energy, and South Gobi Sands. The rental price for the space is
around USD$50 per square meter at the time of writing. As some parts of Monnis
Tower are owned by private individuals, the rental prices range from USD$30~$50
Each one of these three buildings currently enjoys occupancy rates of 100%.
Two additional Grade A office buildings are currently under development, both in
Sukhbaatar District: the International Commerce Center and the International Finance
Investor Insight: The International Commerce Center
Targeted for completion at the beginning of 2013, Tsast Construction’s International
Commerce Center will be the newest addition to the Grade A office stock in
Ulaanbaatar. Situated behind the Blue Sky Tower, the twenty-floor structure will
include fourteen floors of office space, increasing Sukhbaatar District’s existing
stock by between 8,400 and 10,500 square meters.
Although prices have not yet been made public, the units are expected to be
available for rental only. In addition to the office floors, other facilities will also be
offered in the complex. A coffee house (said to be Mongolia’s first international
brand) is to occupy the ground floor, whilst levels 5, 19 and 20 are to be occupied
by a selection of high end restaurants. Alongside what may prove to be some of
the most desirable consumer facilities in the country, office workers will be provided
with parking across two floors of heated garage space.
The only downside of this property that can be forseen is the outside parking area.
The building is squeezed between 3 other buildings: the new 16 story office tower
to the east, Erel’s boutique hotel on the west side, and Radisson’s BLU Hotel in front
Investor Insight: The International Finance Center
Another significant addition to Sukhbaatar’s stock of Grade A office space is the
Chuang Group’s International Financial Center.
25 stories tall, the structure, which is targeted for completion by end 2015, is set to
overtake the Blue Sky Tower for the title of Mongolia’s tallest building,and has the
potential to expand the city’s stock of Grade A office space by as much as 29,900
A mixed-use development, the first three floors of the building aim to house a highend shopping mall and a conference center.
Rental space is anticipated to be offered at a discount to the rates charged by
the current three Grade A structures in Ulaanbaatar (the Chuang Corporation
currently intends the price to be just $50 psm). There are three additional new office
towers under construction. One16 story building is located east of the International
Commerce Center. This building has 800 sqm. per floor area - with the first three
floors being devoted to commerical use. The second building is 9,600 sqm.,15 story
building, the New Horizions, is behind the Japanese Embassy. The building was only
partially constructed this year. The initial intended use for the third building, will be
for disabled children recreation / education center. The 13 story and is located
across the street from UB Mart, and overlooks the Children’s Park
The International Financial Center is also planned to be the first piece of Grade A
office space in Ulaanbaatar to offer its units for purchase, for a rate rumored to be
$5,000 per square meter. Although priced at a premium compared to the expected
rental prices, it is expected that many larger firms with long term commitments in
Mongolia may prefer the option of purchasing.
The APIP research team however has a number of concerns as to whether the
project will be able to fulfill these bold claims. The developments construction has
not begun as of the time of writing, with little more than the barriers fencing off the
plot of land near to the Bayangol Hotel having been erected. With most architects
in Ulaanbaatar estimating that a building of the IFC’s size should take in excess of
three years to complete (the Blue Sky took five), it seems unlikely that the structure
will be opened by the end of 2014, as the onset of harsh winter conditions will delay
the setting of foundations well into the new year. Some engineers have questioned
the building’s structural integrity. Built upon a baseplate of just 1,200 sqm, many
engineers within the city question whether the edifice is wide enough to support
the intended twenty-five stories. With such negative rumors flying around the city,
there have been few answers issued by the Chung Corporation.
The International Finance Center therefore has the potential to fundamentally
impact composition of the city, and the country’s Grade A office market, if, and
when, it is completed.
Farther down the quality spectrum within the Central Business District is a reasonably large
stock of existing Grade B office space. With 28 developments onstream at the time of
writing, including the Bodi Tower, Max Tower, MCS Plaza, The Landmark Plaza, New Century
Plaza, Newcom Building and City Plaza.
Headline figures of supply growth within the Central Business District suggest that the
quantity of space expected to come onstream over the next twelve months is as high as
101,870 sqm, spread across a total of six projects.
This increase must, however, be looked at in context. The largest development included
in the abovementioned figure, the Shangri-La complex (representing 23,270 sqm. of
space, located in the south of the Central Business District at the top of the park) has
had construction (with the exception of foundations) all but cease over recent months
due to supply delays. Time of completion remains uncertain. Delays in getting necessary
supplies across the Mongolian border before the cold winter, means that construction will
recommence in the Spring of 2013 at the earliest.
The second largest of the six new developments is the Trade and Development Bank
Headquarters, located slightly to the east of the Zorig Foundation’s offices. 22,400 sqm. in
size, and constructed by the Trade and Development Bank itself, the entity is custom built
to house the organization’s operations. The development’s impact upon the market will
therefore be limited, as the space will never actually be exposed to the market demand.
Often, even if the space is not custom built and occupied directly by Mongolia’s large
companies themselves, it is rented out to subsidiaries at uncompetitive prices, effectively
removing it from market supply.
Taking these factors into account the expansion of Grade B office space within the
Central Business District is expected to represent a 56,200 sqm. increase over the next
twelve months. This rate
below the rate of
demand growth in the
area. It is forecast that
over the medium term,
as the number of usable
plots within the city
center is depleted, the
pace of expansion will
be reduced further still.
Photo by Hamid Sardar / Khasar Sandag
supply (excluding the
Central Business District) is primarily made up of Grade B space (approximately 65%), with
the balance classified as Grade C.
Even if the Central Business District is removed from the analysis, the peripheral areas of
Sukhbaatar and Chingeltei contain the majority of remaining office space in Ulaanbaatar,
with 15 out of the total 27 units located in these central districts.
Although office space of both Grade B and Grade C quality exists in all districts across
Ulaanbaatar, there are next to no office developments currently underway in the
Bayanzurkh, Bayangol, and Songingokhairkhan Districts.
Both Sukhbaatar and Chingeltei are currently hosting significant developments outside
their Central Business Districts, with 36,773 sqm. and 31,402 sqm. of space currently under
Khan Uul, however, appears to represent the fastest growing area of office space outside
of the Central Business District. In addition to the existing Grade B office tower located
at the Four Seasons Gardens (formerly known as Japan Town), 52,042 square meters of
Grade B office space is currently under development. The area looks to set to significantly
expand its supply profile beyond the 3 Grade C office complexes that currently exist within
The Market for Grade A Space
Given the strong demand for Grade A office space in the Central Business District, together
with the extremely limited supply side conditions, it is unsurprising that rental rates per
square meter have more than doubled over the past few years, leaping from $29 psm in
2009 to $65 psm as of Q3 2012.
It is expected that this price momentum will be maintained over the medium term. Although
the International Commerce Center may increase supply by up to 10,500, demand
already far exceeds current supply within the Central Business District, and is expected
to remain strong as Mongolia’s growth continues and resource extraction commences.
A fair rental price target of $95 psm is forecast for the end of 2014, with the potential
to rise as high as $115 psm. The International Finance Center (representing nearly 30,000
sqm. of premium office space) could nevertheless lead to temporary oversupply once the
development is completed. However, it does not appear likely that the IFC will be able to
meet its 2015 completion target, with work upon the foundations not yet having begun.
Unless this situation is to change in the near future (almost impossible given that the winter
is halt the majority of construction operations), the IFC remains a long term pipedream for
the city, and a minimum of three years until completion from when concrete is first poured.
The Grade B Market within the CBD
Recent years have seen demand far outstrip the supply of Grade B office space in the
Central Business District, leading to increasing rental rates comparable to, albeit slightly
lower than, those displayed by the Grade A market. With rates psm of just $18.50 psm. in
2009, prices are now estimated at $30.50 psm. (a 65% price appreciation in less than four
Excess demand is expected to allow prices to continue upon their current trajectory over
the short to mid term. A fair price target is calculated at $45 psm. by end 2014. A worst
case scenario would still expect to see prices rise to $37.5 psm. by end 2014.
Outside of the Central Business District
The predominantly Grade B stock of office space outside of the Central Business District in
Chingeltei District and Sukhbaatar District is offered at a significantly lower average rental
rate of $24 psm (as opposed to $30.5 psm in the Central Business District). Although it is
possible that prices may appreciate over the medium term, as the Central Business District
is forced to expand in size as demand for high quality space at the city’s core spills out
of the conventional area, this outcome is considered unlikely. The value of the Central
Business District is driven primarily by a sense of exclusivity and centrality, commodities in
short supply at present in Mongolia, and non Central Business District areas will therefore
struggle to compete in terms of desirability and pricing.
A fair price target of $32 psm is set for the peripheral areas of Sukhbaatar District and
Chingeltei District, as gains are expected to be related to, but proportionally lower than
those within the Central Business District.
Khan Uul on the other hand represents a more exciting prospect. The developments in
the Zaisan and Stadium Areas are expected to take advantage of the growing demand
for large office spaces outside of the Central Business District that are suitably close to
accommodation appropriate for their employees. These districts already house a large
proportion of Mongolia’s professional elite, and the new residential developments,
particularly in the Stadium Area, are expected to enhance the impact of this dynamic.
Investments in the Stadium Area are favoured over Zaisan, given its long term growth
potential which, unlike Zaisan, is not hampered by inaccessibility.
Photo by Hamid Sardar / Khasar Sandag
The Mongolian Retail Market
Mongolia’s rapid economic growth over recent years has allowed its population to get
their first taste of western consumerism; after decades of state provision under socialist rule,
it appears to be a phenomenon they are taking to with gusto.
To cater to the increasingly commercially minded demands of the Mongolian population,
real estate across the city to house stalls, shops and malls is developing at a rapid rate. In a
country with quickly increasing incomes, investment in commercial properties looks set to
be a solid way to gain solid rental yields, alongside impressive capital gains.
Demand Side Factors
The demand mechanism for commercial real estate begins with the consumer. As
Mongolia’s economy has grown over recent years, real incomes have risen, being nearly
20% high in 2011 than they were in 2008 according to the National Statistics Office of
Mongolia, as average wages grew from 274,000 MNT on average to 424,000 per month.
This change has been recognized by more than just the country’s citizens; in October 2011,
the World Bank officially upgraded Mongolia from a low to a middle income country.
Changes to citizen’s budget constraints have been accompanied by rapid alterations
in the preferences of Mongolian consumers. Twenty years after market liberalization,
Mongolians have successfully adapted to western consumerist ideals; items that convey
taste, wealth, and status are becoming increasingly desirable to the country’s consumers.
For the growing class of Mongolian professionals, earning multiple million Tugrugs per
month, the latest designer clothes manufactured by high end western brands are worn
with pride; for those who remain on slightly more modest incomes, counterfeit goods
purchased at Naran Tuul make for acceptable substitutes.
In response to these increasing levels of demand, the wholesale and retail industry within
Mongolia has experienced solid growth over recent years. The number of establishments
operating nationally within the retail industry increased by over 33% over two years, from
27,113 in 2008 to 36,297 in 2010, whilst the gross domestic product generated by these
establishments more than doubled between 2008 and 2011, from 472,226 to 1.051,804.
Increases in the size of the industry have been unsurprisingly accompanied by amplified
demand for retail space across Ulaanbaatar. However, the requirements of these entities
are by no means heterogeneous.
The entrepreneurial Mongolian represents the lowest end of the market. Still commonplace
around UB, either within the city’s famous market or in custom build small scale stalls
inside shopping plazas, such traders usually sell a selection of wares with a specific focus
(electronics, cosmetics, clothing, etc) of wares for cheap and negotiable prices. Many
small shops run by Mongolian owners are just a small step up the commercial ladder.
Usually residing in pieces of ex-Soviet stock, the enterprises sell a wider range of goods in a
similarly disorganized fashion to their stall and booth based peers.
Enterprises of interest to the real estate investor effectively begin with the professionalized
set of shops and operations that are becoming increasingly commonplace within
the Mongolian commercial environment. Best characterized by as outfits such as Gobi
Cashmere, Inter Books, and BSB electronics, these chains are a cut above the country’s
small and often inefficient family run enterprises. Either catering exclusively to the Mongolian
market (in the case of Inter Books), or establishing themselves as market leaders within
industries to which international brands are currently exposed (BSB electronics), these firms
look set to continue growing rapidly and expanding their output over the coming years.
The wealthier firms within this category have over the past few years begun to move their
operations out of the small high-street operations from which they begun trading and
into the larger custom built shopping facilities situated around Ulaanbaatar (such as MIR
Books establishing themselves as a flagship brand within the Jiguur Grand Mall) in order to
maximize their exposure to the consumer.
The top tier commercial enterprises currently operating within the Mongolian market
remains the large international brands that have decided to establish operations within
Ulaanbaatar to gain exposure to the country’s robust, growth driven demand. Luxury
brands such as Louis Vuitton, Ermenegildo Zegna, Hugo Boss, Mont Blanc, and Armani
already have operations established in the most exclusive retail outfits within the center
of the city, whilst high end franchises of firms such as Timberland, L’Oreal. Samsonite Seiko
and Calvin Klein are some of the other brands that are occupying the increasingly large
American-style mall facilities cropping up across the city - being developed by the Naran
Many of these firms have drastically exceeded their owners expectations, as the appetite
for luxury western brands within Ulaanbaatar has proved to be more substantial than
companies projects thought possible.
Investor Insight: The Success of the Louis Vuitton flagship store
One particularly successful luxury venture within the Mongolian market has proved
to be the Louis Vuitton store located on the ground floor of the MCS Central Tower.
Featuring a circular VIP client room, the centerpiece of the store is a jewel encrusted
riding saddle complete with a pouch custom build for transporting caviar across
The store’s success speaks for itself. With over 2,000 Mongolian clients on their
books, the shop has been effective in capturing a substantial share of the status
conscious, affluent Mongolian class. Louis Vuitton’s international management
company has widely praised the outlet as one of its highest growth operations in
Asia. The company’s financial statements released for 2010 confirm that with 73%
sales growth, the Ulaanbaatar operation was the firm’s second most success in
Asia, being beaten only by Ho-Chi-Minh City in Vietnam.
As the financial reports of firms Mongolian operations circulate around Asia and the
world, it is expected that more firms will decide to that it is within their interests to establish
branches in Ulaanbaatar, to give their company exposure to what is expected to be the
worlds fastest moving growth economy over the coming years. In addition to new entries,
as high the markets for high end luxury goods sills over the areas other than the Central
Business District (to Bayangol, Nukht and Zaisan) many companies currently invested in
Mongolian retail may consider opening extra facilities, in addition to their flagship stores.
The Supply of Retail Space
There are currently three key retail areas within Ulaanbaatar at present, with a number
of smaller, custom locations looking to have significant growth potential over the coming
The city’s commercial hub for high-end shopping is undoubtedly the Central Business
District, which encompasses areas of both Sukhbaatar and Chingeltei. Extending from the
east side of Sukhbaatar Square and the State Department Store across Peace Avenue to
the Gandan Monastry, this large and congested area has seen the fastest retail sector
development in the country over recent years. With occupancy rates above 95%, and
higher in the majority of the areas leading stores, the area is considered to be facing a
slight under supply towards the upper echelons of the market, as both international brands
and more successful Mongolian businesses are keen to enter this geographical market.
The most famous retail outfit in the Central Business District is undoubtedly the State
Department Store. Run by the Nomin Holdings, this slightly aged Grade B retail space
consistently fills all 27,755 sqm of its space. Coveted as one of the most iconic structures
in Mongolia, the enterprise has recently seen the majority of tenants in the space shift
from domestic to international brands, as foreign demands to establish themselves within
this space has priced many Mongolian companies out of the market. Surrounding the
operation are a large quantity of small enterprises along the Peace Avenue high street,
offering everything from souvenirs to fast food,
designed to penetrate the large quantities of
consumers that spill out of the slightly overpriced
State Department Store empty handed.
On the opposite side of the Central Business
District is the city’s modern equivalent to the
State Department Store, the MCS Central Tower.
The structures modern interior design is host to
many of the city’s most renowned international
companies, being the location of choice for Hugo
Boss, Mont Blanc, and Louis Vuitton. Positioned
overlooking Sukhbaatar Square, the location is
ideal tor capturing the market of tourists viewing
Ulaanbaatar’s most famous landmark, whilst the
office space at the top of the provides many of
Mongolia’s professional class with daily exposure
to its stores.
To the west of the State Department Store is
Photo by Hamid Sardar / Khasar Sandag
the somewhat less successful ‘Ulaanbaatar
Department Store’. The five floor structure, developed by Tushig Company is a bit slower in
recent years however, despite boasting modern facilities including two lifts, escalators to
each floor, a climate control system, and high grade lighting. The structure’s 25,000 sqm.
of space is only 70% occupied as of Q3 2012 according to APIP/Tenkhleg Zuuch data. The
space was intended to be filled by large international anchor brands, but only a few have
come as yet. The cosmetics area is the most popular of this department store, having
Chanel, Lancome, Nivea, and many more.
With large plots of space almost non existent within the Central Business District at present,
it appears that there is little in the way of substantial, investable supply being built at
present to be used as predominantly retail units. A few developments such as the Olympic
Residence look set to expand supply by a small amount, being mixed use structures
offering their ground floors to the retail sector, however on aggregate such expansions are
unlikely to even dent the total supply in the center of the city. As such, the supply within the
Central Business District of large departments stores that are now the focus of the largest
firms operating within the Mongolian economy, looks to remain relatively constant over
the coming years.
The Bayanzurkh District to the east caters to an equally amount of retail activity, albeit to a
completely different market, representing the core space occupied by mid to lower retail
outfits within Ulaanbaatar. The epicenter of activity, from which everything else effectively
spills out is the famous market - Naran Tuul. The destination of choice for low incomes as
Mongolian’s look to acquire cheap clothes, household wares and food, the area sees one
of the highest total turnovers in the country, as many low value goods change hands on a
regular basis. Over 4,500 tenants are crammed in to the area, paying between 15,000 and
75,000 MNT psm per month for their stalls.
The success of the market, combined with the consumer inflows that are brought to
the area has seen the development of more sophisticated shopping facilities in the
surrounding areas, designed to cater to the same socio-economic grouping. The Sunday
Group’s Sunday plaza is perhaps the best example of this; 650 tenants are crammed into
7 floors of small booth style retail space. With separate floors for electronics, household
goods, cosmetics, and clothing, the complex is slightly better laid out then the Black
Market next to it, but its hallways remain equally hectic. Despite rental rates being as high
as 200,000MNT psm in the high traffic location, occupancy rates remain close to, if not
100% at almost all points throughout the year.
The successes of these two institutions have largely acted as a catalyst to arguably
Mongolia’s largest retail area. Small high street style shops, stalls, and micro shopping
centers are being quickly constructed down almost all of Bayanzurkh’s connected
infrastructural arteries. With land remaining relatively cheap and in abundance within
the district, it is expected that supply will continue rapidly expanding through the district,
although being of decreasing worth the further it is away from the Naran Tuul and the
The third major shopping district in Ulaanbaatar is the one with the most growth potential,
centered on the 3rd and 4th microdistricts of Bayangol. From the onset of the free market in
Mongolia, the area’s high street has developed to successfully accommodate mid range
retail enterprises. The small grade B or lower shops lining the street have long existed in the
hands of entrepreneurial family businesses, offering a selection of cheap, often imitation
goods to this shopping area focused upon the custom of the Mongolian middle class.
Recent years have seen the achievements of the small ground floor units spur on the
development of a variety of micro malls in the district, designed to capitalize on the sizable
consumer market within the area. As small complexes such as the Tumbash Shopping
Center, Next Plaza, and Sansar Plaza were brought online over recent years, the typically
two story structures have quickly been filled, all exhibiting close to a 100% occupancy
rate, being rented predominantly to individual traders and small Mongolian enterprises for
usually between 80,000 and 100,000 MNT per month. There are also some international
brands that have opened operations in these buildings such as United Colors of Benetton
The most recent periods have seen the scaling up of operations in the district once again,
initiated by the opening of the Jiguur Grand “Grand Plaza”, on Peace Avenue in the 2nd
Khoroo. Although certain pieces of research have classed the complex as the district’s first
piece of Grade A retail space, the APIP/Tenkhleg Zuuch study considers it to be of Grade
B standard at best when looked at through an international lens. The structure, which was
initially intended to attract many of the large brands anchored within the center of the city
to Bayangol District, has not been effective in this respect. Only a handful of non Mongolian
retailers have operations in the structure. Most retailers are small Mongolian companies.
At the beginning, the Jiguur Grand Group sold small spaces within the mall to individual
shop owners. With so many small, private owners with competing stores and agendas, the
property lacks good management and appearance. This is not to say it has not been a
success however; occupancy rates are now as high as 90%, with many of large domestic
firms, such as the MIR Bookstore, placing themselves as key anchor brands.
The MaxGroups Max Mall, on the opposite side of the road to the Jiguur Grand has suffered
from similar problems. The strength of the Max Mall is that it has one owner and strong
management through the group itself. For this reason the Max Mall is better planned and
managed compared to the Grand Plaza. Although the complex has begun to fill up, it is
principally occupied by domestic Mongolian brands, as opposed international operations.
There has been new international brand apparel strore opened recently - Cocconelle.
The coming periods are expected to see its occupancy rate increase from the current
level of 70%, as firms wish to get exposure to the most luxurious piece of retail space in the
district (B+), which is currently offered at a potential discount to the Jiguur Grand Plaza,
with rental rates between 39,000MNT and 76,000MNT as opposed to between 33,000MNT
The Bayangol District should be considered to be facing potentially strong growth in its
retail sector over the coming years, just not by the means many of the larger developers
envisage. It is unlikely that many large international brands will be coaxed away from, or
establish subsidiary operations within the district, simply not seeing it as an area capable
of giving them the exposure they desire to the most affluent groupings of Ulaanbaatar’s
society. Instead, the district looks to remain a haven for middle-income shoppers and
The VILLAGE @ Nukht (artist rendering)
Investor Insight: The VILLAGE @ Nukht
Nukht, located in the Khan Uul District, represents one of the fastest growing centers
of wealth in Ulaanbaatar. Poised to be the ultra-exclusive Zaisan of Mongolia’s
business magnates, the small gated community represents some of the most
desirable real estate in the country at the moment. As the residential stock of the
area is expanded beyond the initial hundred or so houses left over from the former
politburo retreat in the area, the district is looks set to embark upon a period of
Exclusive as the individual properties are however, the conurbation is currently
lacking a core of social, economic or geographical value. Mongolian Properties
believe they have come up with a solution. The VILLAGE @ Nukht, located less
than 500 meters away from the residential complex looks set to unify the wealthy
residents with the creation of a luxury micro town of approximately 14,000 sqm of
It is believed that the current deficit of shopping facilities in one of Mongolia’s most
affluent communities will allow large brands, both of Mongolian and international
origin to be convinced into renting retail space within the European architecture of
the square. With 27 retail tenants on the site, who must adhere to strict operational
policies in line with the projects ethos, the area has the potential to become a new,
luxurious commercial hub outside of the Central Business District, being frequented
by both the community’s residents, and visiting shoppers from inside the main body
of Ulaanbaatar alike.
Facing drastically different market dynamics, each of the three core areas of retail real
estate in Ulaanbaatar must have their prospects evaluated separately.
The Central Business District
The average rental rate per square meter in the Central Business District is $41 psm as of Q3
2012. However, the variation in prices is significant, with some of the larger centers such as
the State Department Store charging in excess of $70 psm. These high rates are offset by
the more manageable fees charged by some of the areas smaller institutes, such as the
MetroMall, Mars Market and Passage center, which typically between $25 and $35 psm for
their Grade C space. The lack of demand facing the Ulaanbataar Department Store has
also meant that some units within the complex have seen prices dip as low as $25 psm.
Rental rate forecasts within the district are anticipated to generally rise over the coming
years, as the Central Business District remains the center of commercial activity in Mongolia,
although the price momentum looks set to vary depending upon the class of asset in
question. Grade C, and un-influential Grade B space looks set to see rental rates continue
to increase, as would be expected within a city’s downtown area experiencing rapid
growth. It is the Central Business District’s stock of Grade A, and well known Grade B space
however that looks set to be the crucial driver behind returns over the coming years.
As more and more international brands look to enter the country to capture demand
from Mongolia’s increasingly affluent population, it is these structures that will be invested
in. institutional reputation, alongside a regular clientele from the right socio-economic
groupings are what high end western goods need to effectively exploit the market. As
such structures that can provide these are in an ideal position to maximize their rental
returns. Given especially that the shortage of space in the Central Business District sees no
dedicated Grade A retail operations under construction at present (the nearest substitutes
being the a few floors of the Olympic Residence and the IFC), it is anticipated that high
end retail units should continue seeing their rental rates appreciate by at least 10% each
The Bayanzurkh District
The Bayanzurkh District remains popular with the large, less affluent portions of Mongolia’s
population, and this demand is set to continue well into the medium/long term. However,
rapid development is seeing many structures under construction around the heart of the
areas economic activity, specifically, Naran Tuul. However, as development continues,
usable plots are seen to be becoming rarer and rarer around this small epicenter of
activity, meaning that developments are quickly having to move away from the most
salient retail areas in the district.
As of Q3 2012, the
districts rental rates
$29 psm. With the
areas already able to
charge a premium (up
to 100,000 MNT psm
per month for a booth
by the entrance to
the Sunday Plaza),
rates are expected
to continue growing
well into the medium
term. This core region
should remain largely
Photo by Hamid Sardar / Khasar Sandag
unaffected by the
supply side expansions
going on around it, being supported by the ever popular Naran Tuul itself. As such, it is
expected that rental rates in this core will rise by as much as 10%-15% by the end of 2012.
The further one is to move away from these structures, the worse the areas retail growth
prospects should be considered, as areas see far less demand from consumers, and are
affected by the glut of supply being unleashed around them. As such, outside of the area
area roughly a kilometer in radius surrounding Naran Tuul, rental rates affected by these
forces are forecast to stay roughly constant over the coming years.
The Bayangol District
The Bayangol District looks set to remain popular over the medium term, as a certain
amount of growth spills over from the Central Business District, and the area establishes itself
as the area of choice for the retail needs of middle income Mongolians. Although little in
the way of international brand penetration is likely to be seen over the coming periods, the
growing market for the housing of Mongolian entities looking for well constructed space
(such as the Grand Plaza or Max Mall) should support price momentum.
With rental rates currently at $37 psm, it is expected that prices will appreciate by around
15% by the end of 2014, which should set allow average commercial prices to rise as high
as $42 psm.
Mongolia’s leading property developer and #1 Real Estate Agency
First and Largest Real Estate Agency in Mongolia
Tel: (+976) 7730 0550, (+976) 7011 1800, 1132 4545
Address: Unit 301 Winsome House,
73 Wyndham Street,
Tel: (+852) 9549 2188
Address: Suite 202 Regency Residence,
16 Olympic Street, 1st Khoroo,
Temple: (+976) 7011 1800
Circus: (+976) 1132 4545
Address: 47 Charles Street,
Tel: (+44) 7776 195209
If one district may be considered representative of modern Ulaanbaatar, it is without a
doubt Sukhbaatar District. Despite being just 218 hectares in size, the area acts as the
epicenter of both political and economic activity within the city.
At the district’s heart lays the prominent Sukhbaatar Square. Deriving its name from
the revolutionary hero Damdin Sukhbaatar (literally translated as ‘hero of the axe’),
the iconic square has been the focus of many crucial events in Mongolia. Overlooking
Sukhbaatar Square to the north sits the government palace, which houses various state
organs, including Mongolia’s legislature, the Ikh Khural. Renovated in 2005, the extended
neoclassical façade now hosts a variety of imposing bronze tributes to the khans and
generals of the country’s imperial past, the marble white building now being one of the
most recognizable features of Ulaanbaatar.
On the western side of the square lies what is soon to be one of Mongolia’s most important
institutions, the Mongolian Stock Exchange (MSE). Despite being separated by a road
that technically marks the border of the Chingeltei district, the vast majority of Mongolian
citizens consider the structure to be part of the Sukhbaatar District. The renovated children’s
cinema now contains one of the world’s fastest growing stock exchanges. Despite being
open for just two hours a day, the exchange is expected to play a crucial part in the
Mongolian economic story in the coming years, as an influx of mining related IPOs look set
to give the currently illiquid operation a new lease of life.
In addition to the MSE, much of the city’s most desirable office space is located in
Sukhbaatar, which encompasses the majority of Mongolia’s Central Business District. All
three of the country’s Grade A quality office units are currently situated within the district:
The MCS Central Tower, The Blue Sky Tower, and The Monnis Tower.
It is unsurprising given Sukhbaatar’s affluence that its economy is supported by a thriving
retail sector, being the first port of call for many of the international luxury operations
looking to get a foothold within the Mongolian economy.
The most exclusive retail space within the district is undoubtedly upon the first two floors
of the MCS Central Tower. Similar in interior design to Hong Kong’s International Finance
Center, the complex hosts many of the world’s most exclusive companies including: Mont
Blanc, Hugo Boss, Louis Vuitton, Swarovski, Burberry, Ermenegildo Zegna and Giorgio
The new Naran Plaza, situated upon the Sukhbaatar side of Peace Bridge now represents
one of the largest retail opportunities in the city. Spread across five floors, franchises such
as Timberland, Swatch, WMF Kitchenware, Calvin Klein Jeans, L’Oreal, Samsonite, Espirit,
Seiko, Puma, and are some of the latest editions to the list of international brands with
operations in Ulaanbaatar.
The Sukhbaatar District has an
abundance of bars, restaurants and
nightclubs designed to cater to a
wide range of tastes with the majority
being found along Seoul Street,.
Ulaanbaatar’s preeminent beer hall,
the Grand Khaan Irish pub, is situated
just opposite the Russian Embassy on
Seoul Street and is renowned for its big
crowds, live music, and western food.
Proximity to this institution is something
of an informal benefit for any property
in UB; most expats will find themselves
gracing the smoke filled establishment
with alarming regularity.
In the shadow of the Blue Sky Tower
is the upmarket Veranda Italian
Restaurant. Being one of the highest
quality eateries in the city, combined
with its views over the Choijin Lama
Temple Museum, make it a regular
haunt for expats, visiting investors and
the increasingly westernized class of
Photo by Hamid Sardar / Khasar Sandag
A few hundred meters north, the 17th floor of the MCS Central Tower hosts the most
exclusive bar in the city, known simply as The Sky Lounge. With breathtaking views over
the south side of the city and the Bogd Khan mountain range, the bar is something of
a landmark for those wishing to demonstrate the prosperity they have found upon the
The most famous nightclub in the Sukhbaatar District is The Vegas Club, situated within
the Blue Sky Tower. The expat friendly establishment is famed as being one of the most
expensive in the city, with the price of beer being known to be as high as $5 per bottle.
Further to the west of the district, in the heart of Seoul Street is the most famous pizzeriacome-stripclub in Mongolia, Marco Polo, famed for its persuasive employees, overpriced
drinks and predominantly western clientele.
Located directly in the center of the Central Business District of Ulaanbaatar is Millies Café.
Established in 1998 by café founder / owner Millie Stoda, Millie’s Café has become an
institution in Ulaanbaatar with expats and locals. Lunchtime is always crowded, and
sometimes if guests have an empty chair at their table it is often filled with another guest.
Ambassadors, Ministers of the Mongolian Parliament, miners and businessmen all mingle
and network over excellent coffee and good service.
Located directly on the west side of the Choijin Lama Museum, in back of the Blue Sky
Tower, Millie’s has the ambiance and the menu of a Midwestern American diner. With
always fresh ingredients, the food is consistently good and the menu features grilled
chicken, burgers, pizzas, and excellent hamburgers. On a regular basis, Chef / Owner
Daniel Correa Martinez and wife Desmaa spice up the menu with a Cuban sandwich or
a delicious soup.
A relaxing place to discuss business over a great cup of coffee and homemade pie, with
the free wifi service in the restaurant and the patio overlooking the temple, makes Millie’s
Café an important destination for locals and visitors alike.
Sukhbaatar’s ‘Childrens Park’ is situated upon the southeastern portion of the Nairmdal
Park, the largest park in Ulaanbaatar. Having reopened in the summer of 2011 after roughly
six years of development by the Bodi Group, the amusement park is one of the most popular
family destinations in the city hosting a range of attractions including theme park rides, a
bowling alley, billiard tables and of course the customary bar. Although Mongolians often
complain about the MNT5,000 tariff charged by the facility, to western families used to the
extortionate prices of heavily branded theme parks, the facility should feel like a relatively
Off Seoul Street, and directly south of the State Department Store is the famed Mongolia
State Circus building. The newly repainted dome is an iconic sight within Ulaanbaatar,
looking over one of the most central, and henceforth fastest growing districts in the city.
Established in 1940, the Mongolian State Circus housed by the structure is best known for its
internationally acclaimed contortion act, however other spectacles, including acrobats,
gymnasts, jugglers, tightrope walkers, clowns, and magicians all perform in the act
considered to be one of Mongolia’s greatest spectacles. Unfortunately, the State Circus
has not operated for many years, the building does periodically host circus performances.
Just north of the Ikh Khural (Mongolian Parliament) building is one of the largest university
districts in the city. The National
University of Mongolia, established
in 1942, is the oldest in the country.
Originally the university was a
training ground for the communist
offering a variety of competitive
programs, approximately a third
of university educated Mongolians
graduate from the institution, with an
estimated 11,000 undergraduates,
2000 graduate students, 800 faculty
members, and 400 academic
support staff registered at any one
Photo by Hamid Sardar / Khasar Sandag
The Sukhbaatar District houses the schools of Information Technology, Physics and
Electronics, and Business and Commerce; and as such hosts a vibrant student population
for the majority of the year. Throughout term time, the area is characterized by a
flurry of activity as students move between lectures, classes, and the cheap bars that
have sprung up in order to facilitate recreation on a budget. These periods place a
considerable demographic strain on the housing stock of the northern area, as hundreds
of students from outside of Ulaanbaatar move into the districts cheap housing and student
accommodation, unable to remain living at home like their city based peers. The University
of the Humanities, the Mongolian State Pedagogical University and the Mongolian National
Institute of Physical Education bring in thousands of students to this area as well.
Sukhbaatar remains the central district of Ulaanbaatar, and is expected to benefit from
the country’s further economic development within the country. Accordingly, the area
is in a prime location to take advantage of the growth predicted within the Mongolian
economy over the coming periods through real estate price appreciation.
Residential Price Trends in the Sukhbaatar District
There is currently around 175,700 of residential apartment stock in the Sukhbaatar district
according to APIP/Tenkhleg Zuuch estimates. Made up of a mixture of old buildings (in
areas such as the 220,000 Homes) and new projects (such as the famed Embassy District),
Ulaanbaatar’s most central district remains one of its most structurally diverse.
This supply is extremely limited compared to the districts burgeoning levels of demand from
expatriates and professional Mongolians alike. With both groups keen to be located as
close as possible to the Central Business District, as economic growth continues, incomes
rise, and more expatriates arrive looking for safe and accessible housing, demand looks
set to increase well into the medium term.
These conditions have seen the average apartment price in Ulaanbaatar rapidly
appreciate from just $457 psm in 2005, to $2,000 psm as of Q3 2012 according to APIP/
Tenkhleg Zuuch data. Consecutive increases in the districts property prices (with the
exception of 2010) demonstrates that the demand for residential real estate in Sukhbaatar
continues to outstrip supply.
Construction companies, aware of the opportunities in the market have attempted to
respond to this demand by increasing their supply by as much as Sukhbaatar’s land
constraints will allow. At the time of writing, there are a total of 23 developments under
construction within the district, which are expected to bring 1860 extra units online within
the next twelve months. 321 of these units are considered by APIP to be of an internationally
This however is unlikely to be anywhere near enough to create stable price equilibrium
in the Sukhbaatar residential market over the medium term. The District’s population has
increased by nearly 40% over the past decade according to the National Statistics Office
of Mongolia, a rate expected to be exceeded over the coming years as Mongolia’s
economy grows and the city center increases further in desirability. These demographics
are in the context of a market in which land has become increasingly scarce, with nearly
all-usable land within the city center having either been built upon, or currently under
development. This inadequacy is well demonstrated by the fact that many of the city’s
older, soviet buildings are being pulled down to make way for newer developments.
Given the increasingly salient supply limitations within Sukhbaatar, combined with growing
levels of demand, investors should be confident that the sales price of residential space in
Ulaanbaatar will continue to grow with at the very least the same momentum as has been
witnessed over recent years.
The magnitude of this appreciation is largely connected to the proportional contribution
of macroeconomic factors such as Foreign Direct Investment, and the resulting quantity of
wealthy expatriates looking to move to the country for business purposes over the coming
years. The APIP research teams took this into account, and has produced price forecasts
accordingly. Large increases in the levels of FDI flowing into the country, underpinned by
favorable conditions in the wider Mongolian economy, would leave no reason for the
average property prices within the district to approach a predicted upper bound of nearly
US$2,450psm by the end of 2014.
If conditions were sub-optimal, property values would most likely continue to rise. Even if
FDI were to drop considerably, the commencement of mining operations within the likes
of Oyu Tolgoi and the resulting spillover growth to the wider economy should be expected
to sustain price appreciation in the district to a minimum level of just over $1,740psm over
the next two years.
However, the actualization of such conditions is unlikely; Mongolia’s economy should
continue to grow over the medium term upon the same trajectory as it has over recent
years. As such, the fair price forecast for real estate within the Sukhbaatar District is
calculated to be approximately $2,210psm by the start of 2015.
Investor Insight: Opportunity in the 220,000 Homes
North of Peace Bridge, and just 500 meters away from Sukhbaatar Square itself is a
significant supply of existing housing stock, known locally as the 220,000 Homes (a
name as opposed to a metric). Built back in Mongolia’s Soviet Era, the structures
clustered around the Bayangol Hotel represent some of the oldest apartments in
Despite their age, a number of factors make the 220,000 Homes attractive
investment opportunities at the time of writing. The buildings are well known for
their structural integrity and build quality, the raw investment case being very similar
to that facing the 40,000 and 50,000 Homes in Chingeltei.
The 220,000 Homes are however considered by the APIP research team to be better
situated geographically than either the 40,000 or 50,000 homes. Although both are
just five minutes off Sukhbaatar Square, the 120,000 Homes are clustered around
the future International Finance Center, which should represent an influential piece
of Grade A office space in the city upon completion.
This proximity has not yet been factored into the market price for buildings in the
area. When the IFC project eventually becomes visible to the city, being raised
above the barriers that currently guard the construction site, it is anticipated that
demand for the structures will quickly expand, and the value of the properties will
rapidly increase. Although a number of concerns are circulating the market as to
the feasibility of the Chuang Corporations 2015 completion target for the property,
when it does come online, be it two years or ten, it should release a substantial
amount of under appreciated demand into the market for the 220,000 Homes.
The Luxury Market
One key area of the market that has been pushing up prices within the Sukhbaatar District
has been the development of Ulaanbaatar’s luxury residential market. The Embassy District,
containing many of Ulaanbaatar’s most exclusive international standard properties has
seen averages prices increase from $537 in 2005, to $2500 as of Q3 2012, representing a
365% appreciation in value, outperforming the rest of the district by a wide margin.
Investor Insight: The Embassy District
The Embassy District, a subarea of the Sukhbaatar District, is centered between
UNESCO Road and Peace Avenue. The area currently contains some of the most
desirable real estate in the city, including: the Star Apartments, The Regency
Residence and The One Residence, whilst projects currently under construction
include a new Mon House Development, Embassy Tower (Bodi Group’s serviced
apartment and suites), Tsetsens Diamond, and the multi-use Olympic Residence.
The demand schedule facing such exclusive properties looks set to expand in line with the
rest of demand within the Sukhbaatar District over the coming periods, if not at a faster
pace. Five years ago, it was foreign investors, and expatriates looking for accommodation
who formed the driving force behind Ulaanbaatar’s luxury real estate market. Today, as
the spoils of FDI and resource extraction have created a new, and prosperous native
social grouping, it is Mongolians who are increasingly willing to place their money into
luxurious real estate assets. For many of these domestic investors, properties in Sukhbaatar
provide the perfect combination of social capital, low risk, and potential financial reward.
Investor Insight: Demand for the Olympic Residence
Mongolian Properties Olympic Residence provides a good example of the levels of
demand facing high-end real estate assets in Ulaanbaatar at present.
Situated directly next to the Continental Hotel, The Olympic Residence is still under
construction, with its concrete skeleton 90% completed. However despite still being
off-plan, 70% of the residential units in the building have currently been sold, with
prices reaching levels as high as $5,600 psm. Over 80% of these units have gone to
high net worth Mongolian citizens, with a number of individuals buying two or three
Views over the Bogd Khan mountain, the centrality of the structures location to the
Central Business District, and the inherent status that comes with the ownership of
such exclusive real estate, has made the opportunity difficult to refuse for many
Mongolian’s looking for obvious examples of their success and prosperity. Many
older Mongolian’s, with no intention of moving from their large gated homes in
Zaisan still find themselves unable to ignore the property, buying small investments
in order to store their wealth, whilst allowing their post-adolescent children to use
the apartments as a second home when they desire to be close to the excitement
of the city center.
A problem exclusive to supply
within the luxury market is the
many of the companies (both
domestic and international)
themselves. The majority of
Mongolian construction firms
are hangovers from the soviet
construction industry, where the
majority of now nationalized
firms were state controlled,
operating with no profit incentive
to ensure a high quality of finish.
Twenty years later, many of these
perceptions persist amongst
workers in the industry. The result
is that most companies that
currently produce luxury space
are forced to import foreign
The Olympic Residence
labor, often Chinese and Korean,
but increasingly from further afield. These workers are paid a premium in order to achieve
internationally acceptable results.
The preference in Ulaanbaatar is to purchase high-end buildings that would appear to be
western in origin. The preeminent real estate development companies across the city are
well known for hiring Scandinavian architects, French interiors designers, and purchasing
Italian fabrics to give their properties a competitive advantage.
Investor Insight: The One Residence
The One Residence is situated directly west of the Embassy District, a prime location
for luxury real estate in Sukhbaatar. The complex’s ninety apartments, which range
in size from 79 sqm. to 113 sqm. are fitted with many of the same amenities found
in the city’s most exclusive apartments. Despite this, many units are not considered
desirable by either the Mongolian or expatriate market.
The rooms are considered aesthetically unappealing by the standards of
comparable properties in the area, with small interiors, low ceilings, and cheap
interior design and limited parking.
At the time of writing there are two luxury developments under construction within the
Sukhbaatar district according to APIP / TenkhlegZuuch research that are expected to
come online within the next twelve months: The Olympic Residence and the GD Groups
Although the combination of these two structures will increase supply in Sukhbaatar
theoretically by 159 units, this is by no means considered enough to achieve a short/
medium term price equilibrium in a market which sees properties such as the Regency
Residence with a 100% occupancy rate.
Investor Insights: The Regency Residency
Located down upon the southern border of the Sukhbaatar District within the
Embassy Area, the Regency Residence is just five minutes walk away from
Sukhbaatar Square. Spread across fifteen floors, the building contains 104 luxury
apartments and penthouses, widely praised for their good quality and picturesque
interior design (carried out by Harold Thompson, an internationally acclaimed firm
with over of 40 years of residential expertise). The high ceilings are a key feature for
the Regency Residence apartments, and the building is the first residential building
to have a grand lobby.
The first truly condominium style luxury structure in Mongolia, the price trajectory
followed by the Regency Residence demonstrates the speed within which the
market for high-end real estate near to the center of the city has developed. With
an initial presale value of just $650 psm in 2007, these conservative estimates were
quickly revised up. Demand was primarily sourced from the first wave of expatriates
coming into the country as the Mongolian legislative environment opened up to
the idea of foreign investment, and negotiation began regarding the terms of
many of the country’s major mining ventures.
By the end of 2009, the price per square meter of the property was nearly double
the already considerable average seen around the rest of the Sukhbaatar district.
The scale of this differential has increased even further over the past few years, the
price of the apartments in the property currently resting at nearly $1000 psm above
the average price charged across the district ($2,500 vs $1,510).
Given the constrained nature of luxury supply within the Sukhbaatar district, combined
with burgeoning demand developed under conditions of rapid growth and foreign direct
investment, suggests that the market will continue to witness a substantial growth in the
If economic conditions are roughly in line with consensus forecasts, then it is expected that
the momentum behind the appreciation of Sukhbaatar’s luxury real estate will continue,
with prices expected to rise to $3,010 per square meter by 2015. Even if recorded results are
below current expectations, across the medium term increases in the incomes of affluent
Mongolian’s look set to continue feeding in to demand, suggesting the value of high end
assets will continue to increase, to a level forecast to be around $2790 psm.
The Sukhbaatar Rental Market
The velocity of price movement within the Sukhbaatar sales market has largely been
matched by proportional increases in the rental rates charged by landlords.
Prices have increased from an average of $6 per square meter in 2005, up to $20as of
Q3 2012, with the drivers of the rental industry being almost identical to those described
above in the residential sales market.
As such, Sukhbaatar’s rental rates look set to rise in line with the district’s sales price
trajectory. It is anticipated that by the end of 2014 prices should reach a level around $18
psm, which would result in the average flat costing around $1,700 per month, although
optimal conditions could see prices rise as high as $19.50 psm.
Investor Insight: The Star Apartments
Arguably the most exclusive rental accommodation close to the Central Business
District, the complex, opened by the Star Group in 2001 has become a firm favorite
of the most affluent expatriates who have come to live and work in Ulaanbaatar.
With landscaped gardens, one of the nicest gyms in the city, and 24-hour security
within a high walled community, the apartments are well appointed to provide
both comfort and safety to their residents. A favorite of foreign diplomats, and
the country’s executive expatriate class, the high rental fees are normally taken
directly out of the residents’ generous housing allowance.
Upon the Star Group’s insistence, all of the apartments remain under their
ownership, and are let out to tenants. Demand for the properties far exceeds the
minuscule supply; prices are veryhigh and are subject to the successful navigation
of the properties two-year residential waiting list.
Photo by Hamid Sardar / Khasar Sandag
The Chingeltei District displays many similarities to Sukhbaatar, only having recently been
portioned off the the ‘Central Sukhbaatar’ administrative district.
The district’s best known landmark is the ‘State Department Store’, which represents
one of Mongolia’s most iconic structures. Throughout the socialist period, the enterprise
was renowned for selling capitalist wares to foreign diplomats and an appropriately
well connected class of Mongolian elites. The onset of democracy and the adoption of
free market principles have seen the building bought by the Nomin Group, who have
opened up Ulaanbaatar’s best known department store to the general population. Selling
everything from crockery to cashmere, the somewhat overpriced retail outfit now offers a
wide range of goods to tourists, expats, and Mongolian society. On the ground floor the
space is utilized by an assortment of cafes and bars, with seating spilling outside onto the
street in the summer months whilst the weather is pleasant.
Directly north of the State Department Store lies the imposing TEDY electronics supermall.
Spread across a grand total of four floors, the building is operated by Mobicom, the biggest
network provider in the country. In addition to its network clients, the facility hosts in excess
of 450 private enterprises, the majority of whom occupy small plots no more than a few
meters squared in capacity. All of these small retailers are providing peripheral products
and accessories for mobile phones and computers.
The majority (around 90%) of mobile phone users in Mongolia acquire their minutes through
the use of prepaid tariffs. This means that the total quantity of monthly service subscribers is
low in number, however represent important customers to phone companies, being mostly
business users. As a reward for prepaid status, the TEDY facility also houses the so-called M
Club, an entertainment complex for the exclusive use of MobiCom postpaid subscribers.
Complete with a lounge serving food and beverages, Karaoke machines, billiard tables,
massage machines, video games, internet terminals and more, qualifying customers are
entitled to use the luxury facilities for free or at heavily discounted price, as a reward for
their contribution to revenue.
One block to the left of Sukhbaatar Square lies the heart of the Mongolian banking system,
where the majority of the country’s largest financial enterprises are headquartered.
Here the central offices of Golomt Bank, Trade and Development Bank, Capital Bank,
Ulaanbaatar Bank, Savings Bank and State Bank surround the imposing Central Bank of
Mongolia. Buried amongst the financial institutions are an assortment of foreign embassies,
including those of France, Germany, and Turkey.
Many of the city’s (and the country’s) administrative centers are located in the Chingeltei
District. Despite the grandeur of Sukhbaatar Square and the overlooking Ikh Khural, the
nuts and bolts of the Mongolian political machine may be seen to turn on a daily basis in
the bureaucratic departments situated primarily within the 3rd microdistrict. Housing the
Ministry of Roads, The Supreme Court of Mongolia, the Chingeltei District Administration,
the Mongolian Supreme Court, and the Labour Ministry Office, the majority of the country’s
civil servants go about their day-to-day business within this compact are towards eastern
Surrounding the State Department Store is an assortment small, mostly independent shops
and outlets. Peace Avenue, which runs along in front of Nomin’s shopping complex is
one of the city’s two key road links, around which these enterpises have developed with
alarming speed over the past decade. Large souvenir outlets catering to the spillover of
visitors from the State Department Store mingle with domestic retailers, bars, restaurants,
and domestic fast food chains. With many international brands not yet having mustered
the courage to face the Mongolian market, a miscellany of domestic imitations of western
coffee houses and burger joints are stationed along the street with surprising regularity.
Less than 300m behind the State Department Store lies the ‘Urt Tsagaan’ (literally
translated as ‘long white’ but colloquially referred to as ‘Tourist Street’). The pedestrianized
thoroughfare hosts a variety of small, flea market style enterprises. Rumored to be opened
up once again to private vehicles in an attempt to ease Chingeltei’s congestion, the street
represents the districts need to overturn tradition in order to overcome the infrastructural
pressures posed by its changing demography.
Chingeltei’s entertainment sector is thriving, being driven up by the utilization of increased
incomes. The perception of the area as something akin to Ulaanbaatar’s premier
entertainment hub. Placement of one of the country’s best-known cinemas, the Tengis
and the sees the neighborhood streets bustling every weekend as teenage Mongols flock
to see the latest western films, generally played in English and subtitled in Mongolian.
Famed for its nightlife, the well known Face Club, under renovation at the time of writing,
is famed for its Tahitian theme, intimate dancefloor, and large proportion of expatriate
clients due to its central location.
Despite its modern core, Chingeltei has one of the largest ger districts in the city, which
occupy 12 out of the total 18 khoroos in the space. Although the two areas differ in
almost everything but name, the constrains placed upon modern Chingeltei by its
underdeveloped neighbor are substantial The powerful ownership rights endowed to Ger
proprietors under the Mongolian constitution are challenging the capacity for developers
to channel the rapid growth of the district up to the districts north. This looks set to force
progress to be made around the already developed portions of the Chingeltei District,
as the amount of land available looks unlikely to be allowed to expand beyond its ger
Residential Space in the Chingeltei District
The pricing pattern exhibited by residential real estate assets within the Chingeltei District
over recent years have been very similar to those seen in Sukhbaatar; the price per square
meter appreciating 341% in seven years, from $332 in 2005 to $1134 as of Q3 2012.
Despite similarities in the price movement, the supply side conditions in Chingeltei differ
slightly from within their eastern neighbor. The 40,000 and 50,000 Homes represent the
majority of the districts existing residential stock, being somewhat older than the ex Soviet
stock found in Sukhbaatar, whilst a small amount of modern space has been created
over recent years, filling in the small plots of unused land scattered around the district.
These spatial constraints have meant that within a heavily developed core, surrounded
by effectively un-purchasable plots of ger district land, there are just 32,290 of modern
residential accommodation currently on-steam.
This low level of supply looks unlikely to expand over the medium term; there are currently
just 6 developments under construction in Chingeltei, set to bring a small total of 620 new
units into the market. Just two of these look to create medium to luxurious quality space:
the Buti Groups Buti Tower, and Avzaga Trade’s A One Accomadation. With both of these
outfits designed to contain just over 200 units when combined, Chingeltei’s supply looks to
be reasonably stable well into the medium term.
Chingeltei’s central location makes quality residential space extremely an in demand
commodity however. Although demand for both Sukhbaatar and Chingeltei are primarily
based upon their location, their sources may be seen as slightly different. In Sukhbaatar,
expatriates and the most affluent of Mongolian society, able to bear the slightly higher
prices, are seen to be the primary buyers of residential real estate. Chingeltei on the
other hand is perceived as slightly less exclusive, albeit comparably central. As such, the
accommodation in the area tends to be more popular with a class of younger Mongolian
professionals who want to remain close to the Central Business District, but have slightly
lower budgets. The fact that expatriates favor the Sukhbaatar District is a crucial factor in
the determination of Chingeltei’s slightly reduced demand schedules. The proportion of
foreigners living in the district is just 7%, as opposed to the 22% residing in its neighbor.
Although supply conditions remain slightly more restrictive in the Chingeltei District than
in Sukhbaatar, this is largely offset by a slight reduction in the magnitude of demand.
Although the young professional Mongolian class is growing in size, its gains in wealth
are proportionally far less than those of the affluent and older groupings of the native
population better positioned to directly benefit from the commencement of resource
As such a continued price appreciation for properties situated within the Chingeltei District
is expected, particularly upon the more central eastern side is. With a price forecast of
$1930 psm by the end of 2014, this should take into account both limited supply and
demand side forces operating within the district.
Although both variables look set to be reasonably stable over the coming year, if growth
and the subsequent demand conditions in Mongolia are sub-optimatal over the coming
years, a lower price of approximately $1,470 psm by the end of 2014 is considered a worst
case outcome. There appears to be little to no room however for significant supply side
deviations well into the medium term.
Investor Insight: The 40,000 & 50,000 Apartments
The so called First 40,000 Apartments represent the oldest surviving stock of
residential real estate in the country, occupying much of the area to the east of the
State Department Store in Chingeltei. Being developed over fifty years ago under
Ulaanbaatar’s first City Master Plan, the properties have experienced astronomical
price rises in recent years, being driven primarily by demand from young expats
and professional Mongolians keen to live as close to the city center as possible.
The peeling paint of the properties shabby exteriors do much to misrepresent the
real quality of the structures. The aesthetic malaise is due to the fact that most
buildings do not have a Home Owners Association - a lack of collective action.
Inside the individual units are a different story. Most have been refurbished to a high
standard, with western amenities, well-decorated interiors, and modern furniture.
Constructed with both high ceilings and thick walls, the buildings structural integrity
is of a standard unseen in all but the highest quality buildings produced by the cost
conscience free market.
The 50,000 Homes are those structures built under the cities second centrally
planned housing program. Primarily situated along Peace Avenue, to the west of
the State Department Store, the buildings are a few hundred meters further away
from the city center, and of a slightly lower build quality to their predecessors.
Primarily due to their location, both these structures have experienced substantial
increases in value over recent years. Priced as low as $310 per square meter in
2005, increases in prices have been recorded each year, excluding 2009, when
global instability somewhat depressed the property market across the Ulaanbaatar
market. Estimated to cost $803 per square meter in 2008, the market for Chingeltei’s
Soviet-style stock has continued to move steadily upward, the value of space
being $1,127 per square meter as of Q3 2012.
Prices are expected to continue to move upwards over the medium term, as the
supply of structures actively trading upon the Ulaanbaatar real estate market
begins to be reduced as owners preferences shift towards holding their assets.
The majority of landlords and tenants within the district are acutely aware of the
price momentum that has provided them with substantial capital gains over recent
years, and that the demand is such that properties are left with exceptionally
high tenancy rates. As such, the majority of owners perceive the opportunity cost
of selling at present too great a risk, and prefer to hold onto their assets to take
advantage of further capital gains. This dynamic looks set to perpetuate the sale
price of these already desirable properties higher still over the medium term as
supply is further limited.
Despite a high proportion of the 40,000 & 50,000 Homes being utilized as rental properties
(many of those with the capital to purchase such properties desire them primarily
as investments), the price to rent per square meter has continued to appreciate
proportionally relative to the unit sale prices. The continued preference realignment of
the Mongolian professional class towards city center living, alongside further expansion
in the size of the expatriate market has resulted in demand for space remaining
strong. Rental rates have risen from an average value of just $5.9 per square meter
in 2005, to over $16 as of Q3 2012. The biggest problem at these apartment blocks
are that no matter how beautiful you have decorated / renovated your apartment
unit, the common areas such as the hallways and entrances makes these properties
less desireable. In many cases, the hallways are dark and dirty. Lacking even basic
security measures, the homeless people will be sleeping in the stairways, on doorsteps,
and everywhere else that may be warm. Security guards are rarely employed. Most
expatriates prefer to live in newer buildings with proper management, and in buildings
that have proper security systems and employ security guards.
As the weather turns bitterly cold, if residents have cars, then indoor heated parking is
essential. When temperatures plummet, the cars left outdoors overnight simply do not
It is expected that both the sales and the rental price trajectories of the 40,000 and 50,000
Homes look positive. For those with the appropriate local knowledge, the area should
remain a substantial source of rental income and capital appreciation, particularly
if a slightly worn property can be bought for a discounted value and renovated to a
standard that will make it desirable to the top tier of the professional Mongolian rental
market. Although this substantial upside potential exists within the Chingeltei area, it should
be stressed that Asia Pacific Investment Partners is convinced that Sukhbaatar’s 220,000
Homes clustered around the Bayangol Hotel and Corporate Hotels’, although more
expensive to begin with, are still likely to face better upside potential, albeit from a more
affluent demographic; particularly when the International Finance Center opens its doors
Khan Uul (named after one of the most famous peaks of the Bogd Khan mountain range)
is undoubtedly best known to international investors for incorporating the famous Zaisan
residential district. A large part of the Khan Uul District is a special protected area. By
current law it allows only developments related to tourism to be constructed. Due to
lack of fresh air and lack of available land in the Central Business District, many residential
buildings have been built in the Bogd Khan Special Protected Area.
Located south of the Peace Bridge over the Tuul River, Zaisan has long been famous for
being home to Mongolia’s wealthy, aiming to escape the congestion and claustrophobia
of the rest of the city. Over recent years however, the areas isolation has become more of
an annoyance than a benefit. Despite traffic being gridlocked across most of Ulaanbaatar
in rush hours, Peace Bridge (the single workable link between the residential area and the
city as a whole) is noted as being one of the worst affected routes. In the winter, when
people cannot brave walking in the cold, the four kilometer journey to the Central Business
District may easily last for three hours or longer.
Resting upon the south side of the bottleneck that is Peace Bridge however are some of
Ulaanbaatar’s most celebrated monuments. The Zaisan Memorial, resting atop a small
central mound, is close to a national treasure. The monument features a circular mural that
depicts scenes of friendship between the USSR and Mongolia, the defeat of the Japanese
Kwantung Army by the Soviets at Khalhkin Gol on the Mongolian border in 1939, the defeat
of Nazi Germany, and the notable peacetime achievements such as the Mongolian
involvement in the USSR’s space exploration program. A popular haunt for the sons and
daughters of Mongolia’s rich and powerful; it is a common activity for slightly inebriated
groups to make the ascent once the city’s bars close, in order to watch the sunrise from
the 360 degree vantage point.
Photo by Hamid Sardar / Khasar Sandag
To the east of the monument rest the residences of the Mongolian political elite. The luxurious
Nomin Tenger serviced apartments surround the striking white Presidential Palace, a heavily
guarded residential complex designed to ensure the safety of the country’s premier upon
a striking section of the Bogd Khan Mountain Range. The location of these structures were
the everyday residences of the Soviet politburo elite through Mongolia’s communist days.
This perception of exclusivity in Zaisan remains today as a historical link between wealth and
politics, combined with the Mongolian desire to physically demonstrate their influence. Air
quality in this area is considered to be cleaner and healthier than the air in the city. These
factors have been the driving force behind the rapid migration south of the river.
Directly north of Zaisan, and on the other side of the Tuul River is so called Stadium Area,
which houses Ulaanbaatar’s national sports arena. Popular with expats, the large stock of
good quality housing stock surrounding the venue represents one of the fastest expanding
areas of the city at present. The prominence of expatriates in the area has seen an
expansion in the number of western style institutions designed to cater to those residing in
the Four Seasons Gardens (formely known as Japan Town), Marshall Town, and Jargalan
Town, including a multitude of restaurants and an Irish Pub.
Despite Zaisan’s fame, it is crucial to emphasize the scale and diversity of Khan Uul as
a district. The district extends far enough west to encompass the Chinggis Khan airport,
alongside the single road connecting it to the city through Khoroo Nine. Khan Uul has the
smallest ger population of any of Ulaanbaatar’s districts, with just 7,400 of the district’s
110,265 families residing in the temporary structures. The majority of these are erected
along the side of the 10 kilometer airport road, far removed from the affluent Zaisan.
A number of crucial projects over the coming year look set to fundamentally change the
nature of this low density area of Ulaanbaatar. Commencing in May 2013, construction
of the 13.7 kilometer highway connecting the city to the airport should alleviate much of
the gridlock that puts many off the area for everyday use. The six-lane highway is to be
built to international standards and looks set to be completed and useable by October
2013. Governmental plans to relocate many of their operations out of the city center
(presently located around the Chingeltei District) to the area surrounding the Chinggis
Khaan International Airport aims to free up valuable space within the city center. Although
the Immigration Office and the Civil Aviation Authority are at present the only departments
to have fulfilled this pledge, the reduction in congestion expected as the new road opens.
This should catalyze the movement of many more offices out of the city center.
The new bridge “Sun Bridge” near the Bars Market opened just recently. With the intention
of easing traffic congestion on the Peace Bridge, ideally, commuters travelling across
Ulaanbaatar will experience fewer and less severe traffic jams in this area.
The western portion of the Khan Uul District (especially along the Bayangol border) houses
many of Mongolia’s largest industrial operations, having been established since long into
the country’s socialist past. Real estate in this portion of the district houses the operations
of the majority of large Mongolian companies, including APU, MCS, Erel and Misheel.
Northeast of the factories in Khoroo 19 is a large quantity of low quality apartment stock
which houses the majority of workers. Russian built, but to a lower standard than many of
city’s more central communist stock, in general the apartments run down exteriors are
representative of the internal apartment quality.
Residential Space in the Khan Uul District
In terms of residential real estate, there are only three areas in Khan Uul that are worth
examining in any detail: Zaisan, Nukht and the Stadium Area. To ensure the relevance of
the APIP/Tenkhleg Zuuch data used in this guide, the examination of the Khan Uul district
will therefore be limited in scope to these two salient developments.
Prices in these areas have seen some of the fastest growth in the city over the past few
years. The Stadium Area, which was initially priced as $769 psm in 2005 has appreciated in
value by 183% in just over seven years, being valued at $2182 psm as of Q3 2012 by APIP/
Tenkhleg Zuuch. Zaisan has performed even better: property valued at $713 psm in 2005 is
now considered to be worth $2406.
The stock of residential space in the Khan Uul area is an estimated by APIP/Tenkhleg Zuuch
to be 1,061,692 meters in total, 400,844 of which rest within Zaisan and the Stadium District.
The large stock of housing in these locations is primarily due to the apparent popularity, the
availability of lands to develop and the idea of better air quality.
Investor Insight: Four Seasons Gardens (formerly known as Japan Town)
One development responsible for much of the supply within the stadium area is
the famous Japan Town complex, constructed by Suraga Mongol. Featuring a
combination of middle and luxury grade apartments and town houses with an
approximate ground floor area of 15,000 meters squared, the development is
undoubtedly one of the largest in the city.
Keen to attract affluent residents to the structures, Suraga Mongol has made an
admirable effort to develop the sense of community and the supply of facilities
within the area. In an effort to attract families to its town houses, the International
School of Ulaanbaatar was invited to relocate to the south of the community.
However, as comparable residential opportunities have sprung up around
the Stadium area, the initially popular properties have seen demand waning.
Photo by Hamid Sardar / Khasar Sandag
Aesthetically, the structures within the complex are relatively worse to those
of many of their competitors, whilst functionally in many ways their desirability
is limited. Built to Japanese specifications, all the units are reported to suffer
from impractically low ceilings. Whilst the apartments blocks are somewhat
claustrophobic, they are noticeably smaller than many comparable properties
within the area.
Investor Insight: The Nomin Tenger Apartments
Representative of the perceived exclusivity of Zaisan is the fact it contains
the Nomin Tenger Apartments, which represent some of the most desirable
commercially available residential space in the country. Situated 1,600 meters
to the east of the Zaisan Memorial, throughout the socialist era the apartments
surrounding the Presidential Palace were famed for housing the upper echelons
of the country’s political elite in luxurious conditions.
Since the transition, each of the twelve units has been leased from the Mongolian
government by Nomin Holdings (the Mongolian corporation that owns and runs
the State Department Store) and renovated to a standard impressive even by
international standards. The complex contains a swimming pool, kindergarten,
on site golf course, and a ceremonial ger that may be used by residents upon
APIP / Tenkhleg Zuuch research is confident the market will witness significant increases
in the supply of residential space in both Zaisan and the Stadium area over the coming
years, with 3,572 properties currently under development: 2442 luxury apartments, 500
townhouses, and 630 medium quality apartments, the majority of these are located in the
Stadium Area. The majority of which are expected to come online within the next twelve
months and are expected to create a glut of supply that may well increase the quantity
of space that exists in the areas by as much as 50%.
The demand for properties in these key areas of the Khan Uul District remains buoyant.
The wealthiest Mongolian citizens continue to demand new and existing stock in the
Zaisan area in order to secure their place within what is perceived to be the country’s
most exclusive area. Some of Mongolia’s most expensive and luxury developments such
as Bella Vista, Green Villa, Royal County Complex, Dream Land Town House Complex,
Blue Sky Complex, Anoma Apartments, Luxury Zaisan Village, Swan Town and Mogul Town.
Investor Insight: Bella Vista and Buddha Vista Complex
This complex was one of the first luxury housing projects that was specifically constructed for the international community. With beautiful views over the skyline of
Ulaanbaatar to the north, and the large Budda statue to the south, the Bella Vista
offers a magical panorama to the residents.
The three towers are connected via an underground tunnel that leads to the parking lot. Other amenities of the building include a business meeting room, a private
gym, a dry cleaners and a 24 hour concierge. Residents also enjoy the convenience and luxury of a swimming pool, beauty salon, restaurant, grocery store, fitness
studio, children’s playground, mini-soccer / hockey court, basketball court and 24
Rental prices for modern and classically designed apartments in the twin rental
towers begin around USD$3,500 per month, but increase with the higher floors. Not
many of the apartments are available for sale in this complex, however MCS Property is developing a project similar to the Bella Vista near the Budda Monument
(Buddha Vista). The anticipated selling price for those units is around USD$3,500
The stadium area of Khan Uul District, which somewhat lacks the exclusivity of its neighbor
south of the river remains popular with demand primarily stemming from an increasingly
large Mongolian middle class and a smaller community of expatriates primarily looking for
homes close to the international school.
The APIP research team firmly believes that this dynamic will be unsustainable over the
medium term, as the initial signs of malaise upon the demand side become apparent.
These indicators have manifest themselves in a variety of ways.
The most quantifiable of these indicators is obtained by looking at the inefficiency of the
city’s transport system. As previously stated, by car from Zaisan the short journey to the
Central Business District may easily take up to four hours during the winter months. For
those residing in the Stadium area, the situation is marginally improved, not having to face
the infamous bridge that crosses the Tuul River. Regardless the crossing of the landmark
bridge, and the necessary ascent up Chinggis Khan Avenue (a sizable commitment to
make on a daily basis), the length of time spent queuing in the winter may well be a
question of hours as opposed to minutes. As more projects come online over the coming
months, this situation looks set to deteriorate as more of the population attempt to use an
infrastructure network that cannot even come close to being improved at the necessary
rate. Over the short to medium term, it is extremely likely that the situation will become
critical, and dissatisfaction with the geographical location of many of the properties will
become widespread among the communities living in the areas, which will in turn filter into
the areas demand schedule. Such an adjustment is considered by the APIP team to be
inevitable over the medium term unless drastic development policy is implemented in the
short term. At present there is no such infrastructural plans, nor is the financing available
even if there were.
Investor Insight: The Legality of Development in Zaisan
The Zaisan Area is technically situated within the Bogd Khan National Park, a fact
that has caused much legal upset and outrage over recent years. Technically, the
only way to build in a Mongolian national park is if the construction’s purpose is to
be considered for the public good or tourism related.
Although some developments, such as the Seoul Groups Green Villa, have been
able to fulfill this condition effectively; the majority have not come close, rendering
their structures illegal and for a long time leading to rejection of their immovable
property license applications. Without any form of immovable property certificate,
no structure is entitled to the legal protections offered by Mongolian law, and as
such put the owners in an extremely undesirable position.
Recent changes in governmental policy have attempted to resolve the situation,
although their effectiveness has been limited. Despite Mongolian landlords paying
fines in order to allow the legislative barriers blocking them from their licenses to be
lifted, the state has not been so kind to foreign investors. It is technically illegal for a
non Mongolian citizen to invest in any form of property in a national park, and even
those investors who have been fined are not safe from the law. The authorities are
legally entitled to annul their documentation at a time of their choosing. The political implications of such a policy render it an extremely unfeasible, if not impossible
task. It also seems to depend on the developer’s ability to secure a property ownership certificate. It is important for investors to fully understand their rights before
placing their money in national park based real estate assets.
On top of infrastructural and legal concerns, the APIP research team has reason to believe
that the preferences of the affluent Mongolian class that have supported Zaisan’s demand
schedule over recent years are upon the verge of realigning. The air of exclusivity that
resulted in the Zaisan area being desirable has slowly been eroded as more and more of
the population has acquired property in the increasingly urbanized suburb. Some of the
newer developments in Zaisan could not get connected to the central heating grid. These
developments have installed their own (coal fired) heating plants. Unfortunately, the clean
air Zaisan used to enjoy is diminishing every day. The area once known for only housing the
very top tier of Mongolian society is now being eclipsed by other equally expensive but
smaller projects. The Nukht development further towards the Chinggis Khaan International
Airport is a good example.
Investor Insight: Nukht
Located to the southwest of Ulaanbaatar upon the road link to the Chinggis
Khaan International Airport, Nukht represents the small, gated community that
was originally the summer retreat of Mongolia’s Socialist political elite.
Since the transition, this exclusivity has been retained, although the area’s limited
residential stock is now open to whoever is affluent enough to afford it. Typically
thought of as the playground of Mongolia’s business magnates and wealthiest
politicians, the areas few hundred houses appear to be endowed with a similar
sort of exclusivity as was seen in Zaisain ten to fifteen years ago.
The Nukht Valley has developed dramatically within the past year, with new
homes and town homes currently under construction - some already available to
purchase or rent. Compared to the Zaisan area, Nukht is a much more pleasant
and picturesque area, and less overcrowded. Relatively, the air is cleaner in
Nukht than Zaisan, and with the opening of the new highway (currently under
construction) and the new bridge access, access to Nukht Valley will be improved
APIP’s price forecasts within the Khan Uul District is split. The Zaisan area is negative/neutral,
the Nukht Valley and surrounding area to the Yarmag Road are strong positive, and in the
Stadium area, neutral/positive.
As the expected negative demand forces outlined above begin to filter through to the
market at some point over the next two years, it is expected that the Zaisan price will
most likely stagnate. Despite weakening demand conditions, the supply of space south
of the Tuul river is still somewhat limited by the area’s small market size as simply not that
many developments actually exist. Furthermore, as the area has been established for a
considerable length of time, many of Zaisan’s longer term residents will be unperturbed by
a loss in the area’s price momentum. As such, the APIP research team anticipates a fair
price target of $2490 per square meter by 2015, a marginal improvement upon the current
Photo by Hamid Sardar / Khasar Sandag
The Stadium Area looks to have slightly alternative market conditions. More central than
Zaisan, residents are not forced to cross the infamous Zaisan bridge on their daily commute.
The properties however are still by no means central, a demand concern in the context of
an increasingly congested and city centric conurbation. Combined with the considerable
quantity of supply soon to enter the area’s market, the APIP research team forecast that
prices should continue to rise as the district’s target demographic continues to expand
in line with economic growth. As such, the area’s fair price target is calculated to be a
somewhat conservative $2,270 by the end of 2014, representing just a 4% capital gain
upon the value as of Q3 2012.
Bayanzurkh is Ulaanbaatar’s largest district, covering an area of 1244 hectares, primarily
across the east of the city. The population of 277,500 is predominantly Mongolian, with only
2,893 expatriates registered residents in the district. With assets currently cheap compared
to in the Central Business District, the Bayanzurkh District may be of interest to those looking
for high return investments in the Mongolian real estate market.
One of the main features of Bayanzurkh is the infamous Naran Tuul, known as the “Black
Market”, located in the south west of the city. Named as such due to its role as one of
the first exchanges of free market goods in the latter days of Mongolia’s Communist
experiment, the institution is now one of the largest in Asia with up to 60,000 visitors per day
in the busy summer months.
A more modern landmark in the district is the Kempinski Khan Palace, which until 2009
represented the only internationally managed hotel in Mongolia. The hotel is located on
the eastern crossroad of Peace Avenue in the heart of Bayanzurkh. The 3 star, Kempinski
Khan Palace is known as being one of the most best serviced and managed hotels in
the country, featuring its own high end Mongolian and Japanese Restaurants, Spa, and
limousine service. The recent acquisition of a large ex-Soviet apartment block adjacent
to the structure is rumored to allow for the Hotel to develop into a five-star institution.
The apartments have recently been demolished, although the sites actual construction
program is yet to commence. Regardless, most consider the Kempinski to be bracing itself
for a tough few years, as a glut of comparable Hotels, situated far more centrally come
online over the medium term.
Just west of the Kempinski Khaan Palace Hotel, and somewhat closer to the Central
Business District, lies the Chinggis Khaan Hotel - the largest hotel in Mongolia. The hotel
occupies a vast area of land, especially given its proximity to the Central Business District.
This abundance of space is utilized in a number of ways. Many restaurants are situated
around the Chinggis Khaan Hotel’s estate, along with a connection to the nearby Sky Mall,
which contains a modern super market, department store, and coffee shop. The presence
of Mongolia’s most notorious nightclub, Metropolis, is the factor that attracts the majority
of visitors to the hotel’s grounds. With a capacity of up to 1,000 guests, the stylish interiors
and frequent performances by internationally renowned DJs, make the club an important
destination for the majority of hip young Mongolians.
East of the Chinggis Khaan Hotel and Metropolis is the so called, “Sansar District” which
literally translates from Mongolian as ‘Outer Space’. Named as a tribute to the Soviet
missions responsible for sending Mongolian cosmonauts out of the atmosphere, by the
residential stock was built in the same period.
This middle quality residential space is now occupied by a large student population. The
National University, the Science and Technology University of Mongolia, the University
of Humanities, and the University of Finance and Economics are all within walking
distance of most accommodation. Surrounding the student occupied structures is one
of Ulaanbaatar’s largest nightlife centers, situated along a sizable row of old Soviet style
buildings. The structures top floors represent cheap, compact accommodation for many
young Mongolians, whilst the ground floors typically house a large quantity of budget bars
Photo by Hamid Sardar / Khasar Sandag
and karaoke clubs.
With the exception of Naran Tuul, Bayanzurkh’s attraction is probably the ger shaped
Wrestling Palace situated south of the Chinggis Khan Hotel. In the run up to the summer
Naadam Festival, it is well worth visiting the structure to witness a full wrestling session, where
450 participants are whittled down through knockout stages to one eventual champion.
Luxury cuisine in Bayanzurkh is largely limited to the nationally famed Hazara, a northern
Indian restaurant situated opposite the Mongolian National Wrestling Palace. Guests
seated inside their own private booth can easily spend an evening enjoying the wide
variety of both tandoori meats, and vegetarian delicacies.
The rest of the districts restaurants are largely characteristic of the conservatively priced
independent Mongolian and Korean kitchens that can be found across the rest of the city.
Many are good, but some are terrible, and a large amount of perseverance is required to
find a diamond in the rough.
The Bayanzurkh Residential Real Estate Market
With property valued at $1,078 psm as of Q3 2012, the value of property within the
Bayanzurkh District is the third lowest out of the six districts analyzed in this study. Considering
that back in 2005 the sales price of residential property was a low as $394 psm, it is clear
that the area has made significant gains over recent years.
From an sale price of $394 psm in 2005, the aggregate price of residential real estate
in Bayanzurkh District has grown
rapidly over the past few years.
Although prices are at $1078
psm as of Q3 2012, the value
of property within the district
remains the third lowest of the six
districts analyzed in the this study.
As of Q3 2012, the district holds an
estimated 1,023,700 of residential
apartment space, the majority of
which is clustered around Naran
Tuul. Much of this takes the form
of older stock, built up to sixty
Photo by Hamid Sardar / Khasar Sandag
years ago in order to fulfill the
residential quotas set out by the country’s centrally planned government. The majority
of these tall, high-rise structures have done a poor job of hiding their age. Coated at one
point in white paint, the broken balcony windows of many apartments have now been
simply replaced by wire mesh in order to keep intruders out. More than the complexes
simplistic utilitarian architecture alludes to their Marxist beginnings; many of the towers that
line the UNESCO Road are famed for the linear red murals painted up their sides, intended
to be symbolic of Mongolia’s collectivized prosperity.
Between these older structures are substantial quantities of newer buildings, constructed
within the last twenty years. Generally regarded as far more efficient than their post
transition neighbors, units feature open kitchens (a modern development in the Mongolian
residential market), smaller rooms, and thinner hallways. The structures clearly benefit from
the free markets cost minimization incentive. Although some units have been manufactured
to a high quality, it is by no means universally applicable, with some complexes seriously
lacking in both structural integrity and quality of finish.
The newest building complex in the Bayanzurkh District is the newly constructed Crystal
Town, opposite of the Naran Tuul black market. The Crystal Town complex is only a 5-10
minute walk away from the newly established National Park, covering over 130 hectares
of land - supposedly the largest national park in Asia.
On the east side of Crystal Town is the Ikh Mongol Khoroolol, which comprises 840 residential
units that are targeted towards middle income Mongolian families. Slightly to the west of
Crystal Town is one of the largest residential complexes in Ulaanbaatar - the Bayan Mongol
Complex. Consisting of around 1,800 residential units with sizes ranging from 46 to 122 sqm.,
this complex is ideally suitable for mid-income Mongolian families. The units are typically 1
to 3 bedrooms. Within the complex, residents enjoy ample green space and playgrounds
for the children around a central fountain and waterfall. Amenities at the complex include
a supermarket, kindergarten, beauty salon, office, boutique shops, etc.
Investor Insight: The Royal Castle
One of the more desirable residential developments within the Bayanzurkh District is
the Royal Castle Complex, developed by the Seoul Group. The complex’s spacious
units, combined with the Seoul’s reputation for quality for a long time helped attract
many wealthy Mongolian clients to the properties. With each unit equipped having
two bathrooms, large windows, access to a playground, and protection from a 24
hour security guard, the development was known for sharing many with the high
end properties of the Embassy District, the Stadium District and Zaisan.
Just 1.2 kilometers from Sukhbaatar Square, the key driving force behind demand
has often been considered to be the units proximity to the popular Seoul Business
Center, allowing the employees of firms such as Oyu Tolgoi to live practically next to
their offices. This was a real advantage given the inefficiency of Ulaanbaatar road
network. Many OT employees moved in 2009 to the new head office in the Monnis
Tower, but some have remained. Surplus space in both the business park and the
Royal Castle have quickly been occupied.
Despite the already large quantity of supply within the Bayanzurkh District, much more
is set to come online over the coming year. There are currently 18 developments under
construction in the area: 19 of mid market quality; 37 of lower quality; and 7 townhouse
complexes. Although the resulting 18,773 units under development is a substantial number,
it is important to view these within the context Ulaanbaatar’s largest and most populace
It is unknown and impossible to know how many of these projects will ever be completed.
Some of these are unlikely to be completed in a timely manner or up to international
standards. Some projects are expected to become fallow due to lack of necessary
financing, labor shortage, materials shortage, logistics, etc.
It is also important to consider that although the potential residential stock in Bayanzurkh
District is increasing (possibly) faster than in most other districts, its existing stock is also
depreciating at a faster rate. Much of the old soviet stock is quickly becoming unusable,
as poor maintenance and a lack of care has brought many structures beyond the point of
possible repair. This supply expansion should therefore be marginally offset by the quantity
of assets that are each year taken out of the districts supply - becoming effectively
unusable due to a combination of age and poor upkeep.
The question that will determine Bayanzurkh’s price trajectory is whether the Mongolian
population will be able to see demand expand at a similar, or greater rate than this space
The key demand driver within the area at present is undoubtedly its demographic inflows.
The Bayanzurkh District has displayed the fastest rate of population growth of any of the
city’s nine over recent years, as the population grew by 88% between 2000 and 2010 (the
years of the Mongolian census).
Although many of these new arrivals have been absorbed into the Bayanzurkhs expansive
ger districts located to the far east of Naran Tuul, a proportion of these families have
brought with them demand for affordable residential properties.
Perhaps more importantly however is that the urban migration has acted as something of
an economic catalyst for the district, with the needs of each new member of Bayanzurkh’s
population increasing the demands, and subsequently opportunities facing businesses
already established. As such, the country’s considerable economic growth that has
spilled over into the area has been further catalyzed by considerable population inflows,
drastically increasing many individuals’ incomes, and in turn apartment demand.
This dynamic is expected to increase well into the medium term as Mongolia’s economic
prosperity further fuels migration, driven by the increasingly unsustainable nomadic lifestyle,
and the perception of opportunity within Ulaanbaatar. It is unlikely that Bayanzurkh’s
population growth rate will be able to increase at a faster rate than it has done previously,
given its already considerable rate of growth. Supply on the other hand appears to be
gaining momentum, taking advantage of the districts liberal spatial configuration and
the apparently strong demand. This has led the APIP research team to consider that on
aggregate, the districts prices are inherently unstable and extremely difficult to predict.
As such, the fair price target for residential sales within Bayanzurkh is set at $1,090 psm
by the end of 2014, just a $12 increase it on the current value. This value is obtained by
assuming urban migration to the district is marginally lower than has been witnessed over
recent years, given the quantity of (possible) supply expected to come online.
If the levels of urban migration propping up the districts demand however are significantly
reduced over the coming years however, the pessimal price trajectory is forecast to
potentially lead to a reasonable asset price devaluation, causing prices to drop as low as
$962 psm as supply temporarily exceeds demand.
Residential space in the Bayanzurkh District is clearly a risky investment, with the APIP model
being neutral to slightly pessimistic. This is not to say investors with an appropriately highrisk profile should rule it out. The area borders Sukhbaatar District and many of its western
buildings lay extremely close to the boundary of the Central Business District.
For investors confident in the properties they have located, this APIP forecast should be
used as a caution as opposed to a fact. The correlation between the metric and the
performance of individual buildings will undoubtedly be limited in many cases given the
size of the market in Bayanzurkh. As such, it is very possible to find pockets of undervalued
land around the district, with the potential to significantly outperform the returns of the
district as a whole. For investors who are interested to participate in low cost housing, this
district is quite suitable.
The Bayangol District is one of Ulaanbaatar’s smallest, covering an area of just 2.95
thousand hectares. Situated to the west of Ulaanbaatar, bordering with both Sukhbaatar
and Chingeltei, the residents of Bayangol appear to be witnessing the very first signs of the
prosperity across the Central Business District spreading across the city and into their district.
Despite this, the heart of the Bayangol District without a doubt remains the Gandan
Monastary. The Monastary was completed in 1738 as a residence for the second
Jectsunhamba, Mongolia’s highest reincarnated lama. After centuries of fulfilling its role as
the principal center of Buddhist learning in Mongolia, the monastery was closed in 1938 as
part of the country’s religious purges, led by MPRP Chairman Khoroogiin Choibalsan, under
the heavy handed influence of Joseph Stalin. Despite the MPRP’s religious intolerance,
the institution was permitted to reopen in 1944, allowed to continue functioning with a
skeleton staff, as a political gesture designed to appease a population proud of traditional
Mongolian culture and religion. Allowed to reopen with the end of Mongolian Marxism
in 1990, the monastery is now one of Ulaanbaatar’s major attractions; the predominantly
Buddhist portion of Mongolian citizens frequent the structure for worship and instruction,
whilst tourists flock to the structure to witness the colossal gold plated statue of Migjid
Janrasig rebuilt in 1996, and embedded with some 2,286 precious stones.
In the area directly surrounding the Gandan monastery is one of the oldest Ger settlements
in Ulaanbaatar, which accounts for 11.8% of the districts population. Although little has
changed to the arrangement of land plots in this densely populated peri-urban sprawl,
the nature of the structures occupying them has done so significantly. The majority of
families now reside in semi permanent structures, built and adapted by their individual
owners over many years. The majority of the buildings find themselves connected to the
city’s developed infrastructure, situated directly over the link between the CHP-2 and
CHP-4 power plants and the CBD. As well as being connected to a high-pressure zone of
Ulaanbaatar’s heating network, the majority of households have running water, and even
telephone connections, benefiting from their proximity to the city’s urbanized core.
The feature for which Bayangol is becoming increasingly well known however is its stock of
retail space. Transecting many of the areas micro-districts, the hub of commercial activity
is concentrated around the 3rd and 4th micro-districts. Clustered around the main road
through the area are a multitude of small, retail outfits, situated in small high street style
shops. Despite the outfits being predominantly Mongolian in composition, there are a few
signs of international retails entering the space, including Adidas and the United Colours
of Benetton, keen to maximize their exposure to the districts commercial momentum.
Bayangol’s retail industry is personified by the Grand Plaza complex to the south-west of
Gandan. The shopping complex was built by the Jiguur Grand Group, one of the largest
construction companies in Mongolia. Opened in 2008, the complex is a prime example of
Grade B retail space within Ulaanbaatar. Having initially faced high vacancy rates, now,
around 90% of the space is occupied according to APIP/Tenkhleg Zuuch estimates.
Opposite the Jiguur Grand is the Max Group’s Max Mall, which opened for business in
early 2011. The five floors of B+ retail space already host an impressive selection of clients.
Like the Jiguur Grand however, attracting the names of large international anchor brands
outside of the Central Business District has proved a challenge for the complex, with the
majority of occupants being luxury domestic brands occupying the complexes larger
spaces, whilst the smaller booths structures are filled by individual family retailers peddling
specific wares. Occupancy remains low (around 70% according to Tenkhleg Zuuch/APIP
estimates), potentially due to targeting consumers in a higher socio-economic class than
the typical Bayangol resident. The two towers however, built up upon the five story Max
Mall base, appear to have been more successful, one being occupied by the high end
Ramada Hotel, which over the medium term looks set to sustain a small but affluent flow of
people through the Bayangol District.
Directly south of the Gandan monastery is the Bodi Corporation’s Golomt Towers.
Completed in 2006, the five building complex. Each of the five buildings is a 15 story high
rise, showcasing mid/upper residential space for a long time represented some of the most
demanded residential real estate in the city. However, as Ulaanbaatar’s traffic conditions
have worsened, and the preferences of Mongolian’s and expats alike have moved more
and more towards centrally located accommodation, the structures popularity has fallen.
Under the residential space is a large quantity of commercial space which continues to be
operated by the Bodi Group, notable for housing the countries first supposedly legitimate
Apple Store. Inquiries by the APIP research team to Apple has uncovered that Apple is
unaware of the existence of any such company selling its products in Mongolia. Although
at present the store is possibly illegitimate, the penetration of such an iconic western chain
into the Bayangol District is a clear indicator of the direction in which the increasingly
commercialized area is headed.
Residential Sales Market in the Bayangol District
Historically, the Bayangol district has seen the sales prices of its residential stock rise across
both the market for Soviet era accommodation, and more modern developments.
The average price for all sectors of the market, which initially valued space within the
district at just $405 psm, has seen the sales price rise just under 170% to Q3 2013, with
residential assets now valued at $1093 psm.
The majority of residential space in the Bayangol District dates back to the 1970’s. Famous for
its Russian built apartments constructed in the aftermath of the Chairman of the Communist
Parties visit in 1974, the so called Brezhnev Apartments were built with significant Russian
assistance - pledged to Mongolia in exchange for the stationing of Soviet troops upon the
Chinese border. The subsequent apartment stock developed primarily in Bayangol consists
mainly of high rises, constructed from precast materials.
Further east in the district are more high rise developments built in the Soviet era, albeit at a
slightly later time. Laid out in a similar way to the majority of the 40,000 and 50,000 Homes in
the Chingeltei District, except substantially taller (most are 9-12 stories, as opposed to four
or five), the structures are laid out around the traditional styled court-yards. Representing
one of the largest residential complexes in the city, both of these Soviet developments are
responsible for Bayangol not only being one of the most densely populated districts in the
city, but for its proportionally high quantity of existing housing stock.
In addition to these older structures, Bayangol contains an estimated 498,060 of free
market initiated residential stock. This supply momentum looks well placed to continue into
the medium term; at the time of writing APIP/Tenkhleg Zuuch research suggests there are
currently 23 developments under construction in the small district. These developments
should bring a total of 8,114 units online over the next twelve months. One of these future
complexes falls into the lowest grade property classification in Ulaanbaatar. As the 100,000
Homes project begins to gather momentum, it is perhaps an unsurprising dynamic in a
district notable for the presence of its Ger district.
Despite expansionary supply side conditions currently in place, demand looks to be in a
strong position to support the continuation of the district’s price appreciation. As affluence
from increasingly successful commercial ventures comes to Bayangol, it is expected that
property will sustain strong levels of demand, primarily from Mongolian citizens looking to
enter the district for opportunity and employment.
The APIP research team considers the Bayangol District to be ideally situated to take
advantage of the mortgage market development set to impact the country’s residential
markets over the coming years. The areas well established ger districts are amongst the
most affluent in the city and owner’s total asset levels are already approaching the levels
required to legitimately consider the purchase of an apartment. Based on data gathered
by the World Bank examining the socio-economic conditions present in Bayangol’s 11th
Khoroo Ger accommodation, it is estimated that net worth of individual family units
is approximately $32,6001. With the starting price of new apartments in the district just
$30,520 and old stock slightly discounted at to a sales price of $26,016, it is clear that even
minimal improvements to the Mongolian mortgage market should catalyze the districts
demand for low quality residential space.
The Bayangol District housing market is facing the rapid expansion of its low end supply,
alongside the growth and mortgage developments conditions that should allow demand
to keep pace. Currently, there is Max Group’s apartment building completed in this district
and many small developers have built low to medium quality housing developments in the
10th microdistrict, as well as the 3rd and 4th Khoroolol areas as well.
The APIP real estate model predicts that the growth path to our fair price projection of
$1,290 psm by Q4 2014 will most likely see the rate of growth across the market in Bayangol
fall slightly compared to previous years, with there currently being a significant and
unprecedented quantity of supply under construction. The very least however, the demand
conditions (particularly within the areas most central to the districts economic activity),
appear well set to absorb the majority of the new stock, allowing price momentum to be
Photo by Hamid Sardar / Khasar Sandag
It should also be noted
that there is a very real
possibility that if the
could suddenly gather
the momentum it has
long been waiting for. If
this does occur within the
coming two years, it is
forecast that the rate of
price growth in the district
may well actually increase,
as ger households decide
to make the transition to
conditions could easily
see prices moving as high
as $1,500 across some
areas of the district, fueled
by a source of demand
that has until now been
underutilized within Ulaanbaatar’s residential market.
Development Needs Construction Materials
Bayanzurkh District, 10th khoroo,
Amgalan /13260/, Uliastai Street -51
Tel: (+976) 9191 0203
Photo by Hamid Sardar / Khasar Sandag
Songingokhairkhan is Ulaanbaatar’s second largest district, covering an area of 120.06
thousand hectares, and housing 65,866 families. Situated around the north and west of the
city up to the base of the Songinokhairkhan Mountain, the area represents one of the key
industrial developments in Ulaanbaatar.
To the south of the district are the majority of Ulaanbaatar’s manufacturing and warehousing
facilities, which extend all the way to the city’s western roundabout. This section, with small
stock of low-density structures primarily houses the area factory workers upon small plots of
land dotted around in between industrial complexes.
The majority of space in characterized as mid/lower tier Ger district areas, with 24,570
people classifying themselves as living in informal structures, occupying 63% of the districts
total land. Many of these Ger areas tally closely with popular western perceptions;
representing a non linear array of self built structures into a continuous land mass.
Residential Space in Songingokhairkhan
Residential sales prices in the Songingokhairkhan displayed the smallest proportional
increase of any of the districts in this study, with the value of apartments increasing to $885
psm in Q3 2012 from $417 in 2005. This is hardly a surprising phenomenon; Songingokhairkhan
is of little use to any of the socio-economic groupings that have driven the real estate
price appreciation across the city over recent years. The expatriate population is easily
the lowest in the city, with just 633 foreigners residing in the area, whilst the district’s relative
isolation and poor infrastructural network mean it is not a viable option for those wishing to
commute into the Central Business District.
Despite the prevalence of the Ger districts, there are professionally built structures in
Songingohairkhan, representing 127,600 of apartment space, spread across 3,779
individual units according to APIP/Tenkhleg Zuuch estimates. Such complexes are almost
exclusively low cost ventures erected either in accordance with governmental housing
development initiatives, or by small locale construction firms.
Songingokhairhan currently has 21 construction ongoing apartment construction projects,
which are set to see 3,132 units come online over the coming twelve months. All of the
structures continue the prevalent supply side trend in the district, being small, budget
apartments intended for sale to the area’s wealthier class of industrial workers. Although
compared to other districts, this expected supply side expansion is reasonably insignificant;
the projects look set to close to double market supply.
As suggested above, on the demand side there is little in the way of demographic or
socio-economic drivers to support growth in the Songingokhairkhan, as the vast majority
of the district’s population look set to continue being employed either by light industry, or
Ulaanbaatar’s informal economy. This is not to say that demand cannot, and will not keep
up with or exceed the expansion in supply. As the Mongolian mortgage market becomes
more sophisticated, with lower interest rates, wider availability, and the implementation
of consumer friendly policies (such as those initiated by the 100,000 Homes project), the
effect upon demand may well take off.
The APIP research team therefore considers investment in Songingokhairkhan’s residential
market to be a high-risk option, effectively being a bet upon the effectiveness of the
Mongolian Mortgage Companies policies over the coming years.
The fair price estimate for the Songingokhairkhan District expects the Songingokhairkhan
Residential price to rise to $1,140 psm by the end of 2014 if the mortgage market continues
to develop at a similar speed to that witnessed over recent years. However, as the mortgage
market appears to be gathering momentum it is perhaps unreasonable to model further
development as linear, as the housing loan market should gather some momentum over
the coming periods. As such, the APIP team have set a sales price forecast as high as
$1,360 psm over the medium term, representing an optimal outcome that should occur
when the financing constraints of the majority of Ger district residents are finally alleviated
by MIK policy.