For many, the development of a country can at some level be determined by the appearance of its streets and buildings as well as the life-style of the people and the living standards of its citizens. If true, how does Mongolia measure?
The construction work underway throughout Ulaanbaatar is readily apparent, but this extensive urbanisation does not retain much space for playgrounds or quiet, secluded spots for the elderly to sit and relax. And the growing number of new buildings does little to reduce the number of ger district residents. In fact, the number of ger district residents is on the rise. Currently, 189,000 households reside in ger districts.
Between 2010 and 2012, around 30,000 new apartments were commissioned each year. Professional organisations in construction said this was not enough, however.
The crux is a lack of foreign investment for construction – but it is not for a lack of trying. For example, the sector comprises 10 percent of total foreign direct investment in Mongolia last year. Yet, only a mere USD 150 million of investment out of a potential USD 700 million made it to companies.
These figures are low for an emerging market such as Mongolia. Foreign investors interested in Mongolia see the economic growth, opportunities for investment, and the development of financial structure, but, despite the need for foreign investment, Mongolia’s mistreatment of foreign investors has chased them away.
Mongolian-made materials
Meanwhile housing construction is on the rise. A research team established by a partnership between the Ministry of Construction and Urban Development and the Construction Development Center found that 20,000 apartments received registration certificates last year compared with 35,000 to 36,000 this year.
Construction output increased 70 percent last year from the commissioning of 20,000 apartments in Ulaanbaatar and 7,000 outside the city. Some 17,105 citizens have transitioned to a new mortgage programme thanks to the 8 percent a year loan interest program backed by the central bank. That program opened the door to home ownership to 14,685 new citizens, lending MNT 430 billion to 97 construction companies to help finance the completion of unfinished construction projects.
One of six mechanisms brought out by the Price Stabilization Programme is still running today. This year the Ministry of Construction and Urban Development is more focused on contributing to the production of building materials rather than whether or not their prices remain consistent. Mongolia is set to rid itself of its dependence on imported building materials, including cement and steel reinforcement.
The government recently announced that it would provide funding of MNT 1 billion to projects that would help domestic production replace imported goods. The government has so far approved 50 out of 1,151 projects submitted.
“A Khutul cement and chalk factory, for example, has been established in Khutul. Darkhan and Nalaikh factories and are to produce 700,000 tonnes of cement a year,” said Construction and Urban Development minister Tsevelmaagiin Bayarsaikhan. “There will be some stone crushing plants with the capacity of crushing more than 300,000 tonnes of stone a year.
“In this case, land and infrastructure issues to install these plants need to be tackled by the government so that the price of apartments could be decreased,” he said.
Two amendments for the current mortgage programme have been written. They would, for example, create the opportunity for mortgages to apartments of more than 80 square metres. There is also a resolution for the state to lead the way for the construction of up to 200 houses. Infrastructure will be built for new apartment blocks at what are currently ger districts. MNT 5 million to MNT 7 billion is expected to be spent from the proceeds of the Chinggis bond for the engineering of a pipeline network to connect with 1,000 new apartments.
Infrastructure issues are also being tackled in the provinces of Dornogobi, Umnugobi, Uvurkhangai, Khentii, Selenge, Tuv, Bayankhongor, Orkhon, Darkhan-Uul, Bulgan and Arkhangai.
Additionally, production for building and insulation materials is being developed. Last year more than 150 new factories and plants opened, according to the Mongolian Association of Building Material Producers. Some 260 types of equipment were exempt from customs tax totalling MNT 2.9 billion and value-added tax worth MNT 6.2 billion.
Investment vs. Management
Construction and real estate are seen by many investors and analysts as far less risky than mining. Still, legal uncertainties triggered a mass exodus of foreign investors, which was detrimental to the economy as a whole rather than any one sector.
When investors employ their due diligence to measure market potential in Mongolia they often find that yields fall short of inflation and decide to save their money instead. A common mistake made by Mongolian companies is they completely forego the need to develop a strategy for management.
“Mongolian companies do nothing with management after they’ve attained foreign investment,” said B. Naranjargal, chief executive at UMC Alpha.
“Typically, if a company can satisfy its investors with initial project goals, the next investors become more willing to invest in those companies. But this does not happen in Mongolia, mainly due to the lack of management among these companies,” she said.
For government, special attention will be needed in the tax environment to protect investors’ interests. The role of companies will be to ensure that projects start without too many problems. And although guarantees can ease some investor anxieties for project financing, Mongolian firms are rarely able to provide it.
Freeing up the market and providing additional players in finance – such as a sovereign funds, pension funds, and insurance agencies – would provide more routes to lead investment towards real estate. If the government could get the ball rolling inside the country, perhaps the foreign investors would take notice.
By S. Batzaya
For many, the development of a country can at some level be determined by the appearance of its streets and buildings as well as the life-style of the people and the living standards of its citizens. If true, how does Mongolia measure?
The construction work underway throughout Ulaanbaatar is readily apparent, but this extensive urbanisation does not retain much space for playgrounds or quiet, secluded spots for the elderly to sit and relax. And the growing number of new buildings does little to reduce the number of ger district residents. In fact, the number of ger district residents is on the rise. Currently, 189,000 households reside in ger districts.
Between 2010 and 2012, around 30,000 new apartments were commissioned each year. Professional organisations in construction said this was not enough, however.
The crux is a lack of foreign investment for construction – but it is not for a lack of trying. For example, the sector comprises 10 percent of total foreign direct investment in Mongolia last year. Yet, only a mere USD 150 million of investment out of a potential USD 700 million made it to companies.
These figures are low for an emerging market such as Mongolia. Foreign investors interested in Mongolia see the economic growth, opportunities for investment, and the development of financial structure, but, despite the need for foreign investment, Mongolia’s mistreatment of foreign investors has chased them away.
Mongolian-made materials
Meanwhile housing construction is on the rise. A research team established by a partnership between the Ministry of Construction and Urban Development and the Construction Development Center found that 20,000 apartments received registration certificates last year compared with 35,000 to 36,000 this year.
Construction output increased 70 percent last year from the commissioning of 20,000 apartments in Ulaanbaatar and 7,000 outside the city. Some 17,105 citizens have transitioned to a new mortgage programme thanks to the 8 percent a year loan interest program backed by the central bank. That program opened the door to home ownership to 14,685 new citizens, lending MNT 430 billion to 97 construction companies to help finance the completion of unfinished construction projects.
One of six mechanisms brought out by the Price Stabilization Programme is still running today. This year the Ministry of Construction and Urban Development is more focused on contributing to the production of building materials rather than whether or not their prices remain consistent. Mongolia is set to rid itself of its dependence on imported building materials, including cement and steel reinforcement.
The government recently announced that it would provide funding of MNT 1 billion to projects that would help domestic production replace imported goods. The government has so far approved 50 out of 1,151 projects submitted.
“A Khutul cement and chalk factory, for example, has been established in Khutul. Darkhan and Nalaikh factories and are to produce 700,000 tonnes of cement a year,” said Construction and Urban Development minister Tsevelmaagiin Bayarsaikhan. “There will be some stone crushing plants with the capacity of crushing more than 300,000 tonnes of stone a year.
“In this case, land and infrastructure issues to install these plants need to be tackled by the government so that the price of apartments could be decreased,” he said.
Two amendments for the current mortgage programme have been written. They would, for example, create the opportunity for mortgages to apartments of more than 80 square metres. There is also a resolution for the state to lead the way for the construction of up to 200 houses. Infrastructure will be built for new apartment blocks at what are currently ger districts. MNT 5 million to MNT 7 billion is expected to be spent from the proceeds of the Chinggis bond for the engineering of a pipeline network to connect with 1,000 new apartments.
Infrastructure issues are also being tackled in the provinces of Dornogobi, Umnugobi, Uvurkhangai, Khentii, Selenge, Tuv, Bayankhongor, Orkhon, Darkhan-Uul, Bulgan and Arkhangai.
Additionally, production for building and insulation materials is being developed. Last year more than 150 new factories and plants opened, according to the Mongolian Association of Building Material Producers. Some 260 types of equipment were exempt from customs tax totalling MNT 2.9 billion and value-added tax worth MNT 6.2 billion.
Investment vs. Management
Construction and real estate are seen by many investors and analysts as far less risky than mining. Still, legal uncertainties triggered a mass exodus of foreign investors, which was detrimental to the economy as a whole rather than any one sector.
When investors employ their due diligence to measure market potential in Mongolia they often find that yields fall short of inflation and decide to save their money instead. A common mistake made by Mongolian companies is they completely forego the need to develop a strategy for management.
“Mongolian companies do nothing with management after they’ve attained foreign investment,” said B. Naranjargal, chief executive at UMC Alpha.
“Typically, if a company can satisfy its investors with initial project goals, the next investors become more willing to invest in those companies. But this does not happen in Mongolia, mainly due to the lack of management among these companies,” she said.
For government, special attention will be needed in the tax environment to protect investors’ interests. The role of companies will be to ensure that projects start without too many problems. And although guarantees can ease some investor anxieties for project financing, Mongolian firms are rarely able to provide it.
Freeing up the market and providing additional players in finance – such as a sovereign funds, pension funds, and insurance agencies – would provide more routes to lead investment towards real estate. If the government could get the ball rolling inside the country, perhaps the foreign investors would take notice.
By S. Batzaya