Mongolia's construction industry has become something like a maze. Those who are currently in the toughest position to find their way around are the government organizations and private sector entities that are in the construction business.
A total of 34,000 apartments are ready for use today in Ulaanbaatar whereas approximately 180,000 families are dreaming of moving into more comfortable homes and seeking for apartments that suit their needs and financial resources. Those families are currently living in their felt-covered gers without access to pipe water and sewage systems. Having built all those apartments, construction companies are struggling to sell them while searching for ways to raise capital to pay off their debts. On top of that, 33,000 apartments are expected to be ready in 2015, and another 23,000 in 2016.
A total of 34,000 apartments are ready for use today in Ulaanbaatar whereas approximately 180,000 families are dreaming of moving into more comfortable homes.
The housing market has a surplus of apartments that do not meet the needs and purchasing power of people. Although the supply has already exceeded the demand, the prices are not going down, which has heated the economy quite a lot.
In 2013, the Ministry of Road, Transportation, Construction, and Urban Development developed a sub-program to stabilize housing price and support the construction sector in cooperation with Mongolbank. In the framework of this program intended to stabilize the prices of main construction materials, soft loans worth 370 billion tugrugs have so far been provided to support the production of construction materials and their imports. Furthermore, in order to establish a long-term, sustainable structure of housing finance, housing mortgage worth 2 trillion tugrugs with an annual interest rate of 8 percent was provided to more than 20,000 families.
In addition, loans worth 440 billion tugrugs were granted to construction companies with varying interest rates (7 percent in urban areas whereas 5.5 percent in rural parts). In total, 2.8 trillion tugrugs were printed by Mongolbank for the provision of loans through commercial banks to the construction sector. However, reviewing and monitoring have not been done well and transparent on how these loans were dispersed, what criteria were used, and what outcomes have been produced. For instance, Mongolian National Construction Association (MNCA) has not received any clear response to the letters they sent to Mongolbank requesting for detailed information about whom the loans worth 440 billion tugrugs were provided to.
2.8 trillion tugrugs were printed by Mongolbank for the provision of loans through commercial banks to the construction sector.
Housing loans comprise one third of loan portfolios at commercial banks today because the thousands of apartments that are ready for moving in have not been sold yet. The quality of housing loans has been diminishing and the bad loans are making up 3.4 percent of total loans today. It is highly probably that this percentage will reach 4 percent by the end of this year, which is the highest percentage that can be tolerated before it poses a very significant risk to the banking sector. In the recent months, commercial banks have started raising the bar to grant soft loans for housing. On the other hand, the economic decline has reduced the number of people whose employment allows them to pay the half of their annual income for housing loans.
According to a study carried out by the Ministry of Road, Transportation, Construction, and Urban Development, a total of 203,000 households including the migrants who moved from rural areas to Ulaanbaatar are interested in purchasing an apartment whereas one third of them do not meet the requirements for the 8 percent housing mortgage. A survey done by the MNCA in January-April, 2014, says that 5,224 apartments were booked out of 34,406 apartments that were ready by then. A total of 903 one-bedroom apartments were booked out of a supply of 4,937, a total of 1,773 two-bedroom apartments out of 13,340, a total of 954 three-bedroom apartments out of 4,513, a total of 122 four-bedroom apartments out of 1,838, and a total of 21 five-bedroom apartments out of 422. Construction companies built more two-bedroom apartments expecting them to be in high demand. However, the number of two-bedroom apartments that were booked was eight times less than the supply, which can be explained by the location of those buildings, landscape, proximity to schools and hospitals, availability of social services, housing area planning, price, and quality of building. The sales of apartments with small areas, bad locations, or ones with an area larger than 80 square meters, especially the luxury apartments, have almost stopped. There are huge gaps between supply and demand in terms of apartment area, price, and other factors. The future of many housing projects does not look bright.
Construction companies built more two-bedroom apartments expecting them to be in high demand. However, the number of two-bedroom apartments that were booked was eight times less than the supply.
A centralized plan for zoning and building apartments in Ulaanbaatar only existed on paper and has not been truly implemented. As a consequence, the senior management of our capital city has always been benefitting illegally through conspiracies to sell and buy land. Construction companies are still buying land at higher rates than an ordinary citizen would pay and are offering expensive prices for the apartments that are built and designed on their own and lack proper landscaping. The construction companies are assuming the role of owner, developer, seller, and user at the same time. It reduces the labor productivity and increases spending, which is one of the reasons why the prices are not going down.
The apartment blocks from the Government Housing Corporation (GHC), which has its land granted for free and the infrastructure developed by the government, were the first to be sold out for their lower prices. They have been overbooked, which is having its impact on the sales of other expensive apartments.
The main reason that the construction industry is lost in a maze is that the government does not have any doctrine or centralized policy for housing. The parliament ordered the government to develop such policy six years ago, however, those who had 'double deels' have been sitting back and postponing it. If there is a strict doctrine or policy, it would pose great difficulties to the decision makers who are associated with construction companies. Most construction companies acquire land in an unorganized manner and starts building despite the absence of general planning. Therefore, it is not clear when those buildings will be connected to central services and who will develop the infrastructure. In other words, they bury a huge amount of capital underground and wait for the moment to gain profits. The trade of land permits, open or secret, has gone out of control. As a result, many buildings, whether completed or not, are to be demolished.
Due to the absence of a centralized survey or assessment of all projects in the construction sector, companies have relied on their experience and historic trends to try predicting the market demand and prices. It has been many years since they started talking about the need to reform the obsolete construction standards complied in Mongolia. Such obsolete, mixed standards are benefitting many different parties.
Due to the absence of a centralized survey or assessment of all projects in the construction sector, companies have relied on their experience and historic trends to try predicting the market demand and prices.
It is time for the government to pass a clear doctrine or policy to be followed in the construction sector, develop a plan to provide housing to people, and have it implemented by the private sector. There is a need to reflect on Singapore's experience and build single-design apartment blocks that have studios and one-bedroom apartments to be rented by lower income people along with buildings that have two-, three-, and four-bedroom apartments. More luxurious apartments with larger area should only be planned and built by the private sector. People could be enabled to use the money that has been accumulated for social insurance to purchase apartments. A housing and development board similar to what they have in Singapore can also be established.
See more at: http://jargaldefacto.com/
Mongolia's construction industry has become something like a maze. Those who are currently in the toughest position to find their way around are the government organizations and private sector entities that are in the construction business.
A total of 34,000 apartments are ready for use today in Ulaanbaatar whereas approximately 180,000 families are dreaming of moving into more comfortable homes and seeking for apartments that suit their needs and financial resources. Those families are currently living in their felt-covered gers without access to pipe water and sewage systems. Having built all those apartments, construction companies are struggling to sell them while searching for ways to raise capital to pay off their debts. On top of that, 33,000 apartments are expected to be ready in 2015, and another 23,000 in 2016.
A total of 34,000 apartments are ready for use today in Ulaanbaatar whereas approximately 180,000 families are dreaming of moving into more comfortable homes.
The housing market has a surplus of apartments that do not meet the needs and purchasing power of people. Although the supply has already exceeded the demand, the prices are not going down, which has heated the economy quite a lot.
In 2013, the Ministry of Road, Transportation, Construction, and Urban Development developed a sub-program to stabilize housing price and support the construction sector in cooperation with Mongolbank. In the framework of this program intended to stabilize the prices of main construction materials, soft loans worth 370 billion tugrugs have so far been provided to support the production of construction materials and their imports. Furthermore, in order to establish a long-term, sustainable structure of housing finance, housing mortgage worth 2 trillion tugrugs with an annual interest rate of 8 percent was provided to more than 20,000 families.
In addition, loans worth 440 billion tugrugs were granted to construction companies with varying interest rates (7 percent in urban areas whereas 5.5 percent in rural parts). In total, 2.8 trillion tugrugs were printed by Mongolbank for the provision of loans through commercial banks to the construction sector. However, reviewing and monitoring have not been done well and transparent on how these loans were dispersed, what criteria were used, and what outcomes have been produced. For instance, Mongolian National Construction Association (MNCA) has not received any clear response to the letters they sent to Mongolbank requesting for detailed information about whom the loans worth 440 billion tugrugs were provided to.
2.8 trillion tugrugs were printed by Mongolbank for the provision of loans through commercial banks to the construction sector.
Housing loans comprise one third of loan portfolios at commercial banks today because the thousands of apartments that are ready for moving in have not been sold yet. The quality of housing loans has been diminishing and the bad loans are making up 3.4 percent of total loans today. It is highly probably that this percentage will reach 4 percent by the end of this year, which is the highest percentage that can be tolerated before it poses a very significant risk to the banking sector. In the recent months, commercial banks have started raising the bar to grant soft loans for housing. On the other hand, the economic decline has reduced the number of people whose employment allows them to pay the half of their annual income for housing loans.
According to a study carried out by the Ministry of Road, Transportation, Construction, and Urban Development, a total of 203,000 households including the migrants who moved from rural areas to Ulaanbaatar are interested in purchasing an apartment whereas one third of them do not meet the requirements for the 8 percent housing mortgage. A survey done by the MNCA in January-April, 2014, says that 5,224 apartments were booked out of 34,406 apartments that were ready by then. A total of 903 one-bedroom apartments were booked out of a supply of 4,937, a total of 1,773 two-bedroom apartments out of 13,340, a total of 954 three-bedroom apartments out of 4,513, a total of 122 four-bedroom apartments out of 1,838, and a total of 21 five-bedroom apartments out of 422. Construction companies built more two-bedroom apartments expecting them to be in high demand. However, the number of two-bedroom apartments that were booked was eight times less than the supply, which can be explained by the location of those buildings, landscape, proximity to schools and hospitals, availability of social services, housing area planning, price, and quality of building. The sales of apartments with small areas, bad locations, or ones with an area larger than 80 square meters, especially the luxury apartments, have almost stopped. There are huge gaps between supply and demand in terms of apartment area, price, and other factors. The future of many housing projects does not look bright.
Construction companies built more two-bedroom apartments expecting them to be in high demand. However, the number of two-bedroom apartments that were booked was eight times less than the supply.
A centralized plan for zoning and building apartments in Ulaanbaatar only existed on paper and has not been truly implemented. As a consequence, the senior management of our capital city has always been benefitting illegally through conspiracies to sell and buy land. Construction companies are still buying land at higher rates than an ordinary citizen would pay and are offering expensive prices for the apartments that are built and designed on their own and lack proper landscaping. The construction companies are assuming the role of owner, developer, seller, and user at the same time. It reduces the labor productivity and increases spending, which is one of the reasons why the prices are not going down.
The apartment blocks from the Government Housing Corporation (GHC), which has its land granted for free and the infrastructure developed by the government, were the first to be sold out for their lower prices. They have been overbooked, which is having its impact on the sales of other expensive apartments.
The main reason that the construction industry is lost in a maze is that the government does not have any doctrine or centralized policy for housing. The parliament ordered the government to develop such policy six years ago, however, those who had 'double deels' have been sitting back and postponing it. If there is a strict doctrine or policy, it would pose great difficulties to the decision makers who are associated with construction companies. Most construction companies acquire land in an unorganized manner and starts building despite the absence of general planning. Therefore, it is not clear when those buildings will be connected to central services and who will develop the infrastructure. In other words, they bury a huge amount of capital underground and wait for the moment to gain profits. The trade of land permits, open or secret, has gone out of control. As a result, many buildings, whether completed or not, are to be demolished.
Due to the absence of a centralized survey or assessment of all projects in the construction sector, companies have relied on their experience and historic trends to try predicting the market demand and prices. It has been many years since they started talking about the need to reform the obsolete construction standards complied in Mongolia. Such obsolete, mixed standards are benefitting many different parties.
Due to the absence of a centralized survey or assessment of all projects in the construction sector, companies have relied on their experience and historic trends to try predicting the market demand and prices.
It is time for the government to pass a clear doctrine or policy to be followed in the construction sector, develop a plan to provide housing to people, and have it implemented by the private sector. There is a need to reflect on Singapore's experience and build single-design apartment blocks that have studios and one-bedroom apartments to be rented by lower income people along with buildings that have two-, three-, and four-bedroom apartments. More luxurious apartments with larger area should only be planned and built by the private sector. People could be enabled to use the money that has been accumulated for social insurance to purchase apartments. A housing and development board similar to what they have in Singapore can also be established.
See more at: http://jargaldefacto.com/