2018 REAL ESTATE GUIDE TO ULAANBAATAR

This guide serves as a tool to educate the reader about the business climate in Mongolia with respect to the real estate sector that is expected to boom. The guide seeks to inform the reader about the exciting developments and aspects of life in Mongolia. The real estate market is highly focused on the capital city, Ulaanbaatar, which is under pressure due to a fast rate of urbanization; supply constraints due to capacity, weather, geography and capital; and the rising wealth of its residents. 

1 - INTRODUCTION:

Welcome to the 2018 Mongolian Properties Real Estate Guide. Mongolian Properties is pleased to present its latest bi-annual guide, designed to help you enjoy Ulaanbaatar and gain a good understanding of the city’s real estate market. The economy in 2017 grew by 5.1%, performing better than the 1.2% growth of 2016. In spite of early year uncertainty, Mongolia is rapidly recovering according to the International Monetary Fund. 2017 set the basis for Mongolia’s future development. The second phase of development, worth about US$4.4 billion at the Oyu Tolgoi (OT) mine - one of world’s largest gold and copper projects - commenced after 3 years of inaction. The signing of the second phase of the Oyu Tolgoi mine has already started impacting our rental market and we have observed a growing number of expats since summer. Sales prices have started showing recovery; we expect it will start increasing in the near future due to rising GDP and the return of FDI in the coming years.

Turning to 2018, we expect the economy to perform better. We are optimistic for the following reasons:

• A bailout package from the International Monetary Fund (IMF) in February 2017 has set Mongolia on a path to a more stable (and disciplined), economic future;
• Rio Tinto announcing estimated doubling of production from Oyu Tolgoi in 2018
• Industry producing 34% more in 2017 compared with 2016 according to preliminary results
• Coal extraction increasing 136% and sales up 120%
• Confirmed foreign direct investment (FDI) from Rio Tinto alone in the years to 2020, will bolster the economy, with other multinationals primed to enter the market;
• Government pro-activity is harnessing commodities’ performance and international goodwill, to encourage diversification and infrastructure spending;

In all, we expect 2018 to be a year of economic recovery and the beginning of another exciting chapter in Mongolia’s development. We believe that there exists a lot more to Mongolia than its beautiful countryside and outdoor experiences. Thank you for taking time to read our guide and we hope you find it of use. Should you have any questions, please feel free to directly contact us or any of the agents listed in the following pages. We look forward to assisting you with any of your real estate needs in Mongolia.

2 - MONGOLIA COUNTRY DATA

As a result of the great returns expected from the Mongolian markets, there has been growing investment interest in the country (a lot of which is related to the purchase of Mongolian real-estate). Here is some data that gives a good view of the country's current scenario. 

3 - REASONS TO INVEST IN A PROPERTY IN ULAANBAATAR

In 2009, the government of Mongolia signed an investment agreement with Oyu Tolgoi mine, which contributed to the Mongolian economy growing at 17.3% in 2011. The second phase of the investment agreement was signed in December 2015 with Rio Tinto, with an additional US$ 4.4 billion to finance the underground operations at the mine. The deal is encouraging for Mongolia’s economic prospects since Oyu Tolgoi is expected to produce up to 30% of its annual GDP once it reaches full production capacity in 2021.

2) Continued increase in demand for real estate

GDP growth has dramatically increased the purchasing power of locals with incomes increasing over eightfold in the past decade. Mongolia has a small, but growing, nouveau riche, and an entrepreneurial and political class, demanding international-standard, luxury accommodation. Wages have kept pace with overall GDP growth and mortgage penetration in Ulaanbaatar is only 17.2%, and 10.2% nationwide. Therefore, expected macroeconomic growth, together with the continuation of the government mortgage program, should sustain demand for residential apartments in Ulaanbaatar in the near term.

3) Mongolia has strong property rights and an appealing tax system

Mongolian property laws are comprehensive and well-drafted with excellent protection of title and ownership rights. Employing a ‘floating freehold’ system, the constitution and other major laws provide both foreign and Mongolian citizens with inalienable freehold rights to immovable property. There is no distinction between local and domestic purchasers in the legal system in terms of property rights.

Additionally, in an effort to attract and sustain the inflow of foreign capital into the country, the Mongolian government has implemented one of the most generous foreign investor tax regimes in the world. This benign and simple system creates an organic environment for business to grow. The rates of taxation in Mongolia are some of the lowest in Asia making Mongolia much more than just a tourist attraction or camp. The following four taxes are applicable to property purchases:

4) Compared to other emerging markets, Mongolian real estate is competitive in terms of rental yield and affordability

As the political and economic capital of Mongolia, Ulaanbaatar is expanding fast. Unlike peer cities in Asia, however, capital prices are competitive, and rental yields, high. With a growing number of expatriates in the city on a temporary basis, the leasing market is buoyant for high- end units. Renting real estate in Mongolia has provided and is expected to continue to provide great upside to investors. 

5) Mongolia is democratic and politically stable

With a democratic political system, Mongolia is arguably the most stable state in Central Asia. In order to attract foreign investment, the government has adopted best-in-class legislation, to create a favorable business environment. As a result, the country continues to advance in all international institutional surveys and studies as shown in the table below. The one exception, is the ‘Doing Business Report’ from the World Bank, where corporate disputes with government in recent years may have adversely affected the score. We hope this will improve next year, as the new government is showing itself receptive to international investment.

4 - HOW TO BUY A PROPERTY IN UB, MONGOLIA?

Find an Experienced Real Estate Agent - visit Mongolian Properties!

Your real estate agent is your window into the property market in Mongolia. A knowledgeable and experienced real estate agent should be able to find multiple solutions to your needs in a timely manner and negotiate the best price on your behalf.

Think About What You’re Looking For

Be sure to speak with your agent about your individual property needs. Will it be for an investment, or do you plan to live in the property? What is your budget? Will you be living alone, or with your family? All of these questions are important to consider before looking for a property.

See the Property

It is important to check whether the building is connected to the central heating, water and sewage system. If it is not connected, think about how much it will cost you in long term, i.e.: your electricity fee will skyrocket to heat your apartment in winter.

Check the Certificate

Every apartment owner has an “Immoveable Property Ownership Certificate”, which serves as a proof of ownership. Your real estate agent can check the certificate to ensure that it is genuine and that the owner is credible. This process should take no more than one or two days.

Sign the Sales and Purchase Agreement

Once you’ve made all the necessary arrangements with the owner, both seller and purchaser will go to a notary office in a district in which the property is located. For instance, if the property is located in Sukhbaatar district then the “Purchase agreement” must be notarized within the same district’s notary office. Both parties are required to bring their passports and the original “Immovable Property Ownership Certificate”. Notary fees are generally around MN₮ 10,000 - MN₮ 300,000 (US$5 - US$150) depending on the property value.

Costs related to the notarization of the contract and registration to the District’s Immovable Property Registration Office must be paid by the Buyer. Notary will draw up a standard contract, which will then be stamped and signed by both seller and purchaser. After you sign the contract, you are expected to pay the outstanding balance in accordance to your contract to receive the certificate.

Paying Property Sales Tax of 2%

After signing the Sales and Purchase agreement, the Seller must pay the property sales tax equivalent to 2% of the property value and the receipt will be needed later when submitting documents to the District Immoveable Property Registration Office to apply for the ownership transfer and obtain the new ownership certificate.

Changing Ownership

Once the property sales tax has been paid, go with your agent to the District Immoveable Property Registration Office, where your agent will assist you in filling out the form for ownership transfer and new ownership certificate. Obtaining a new certificate normally takes three to five working days to process and the following basic documents are required:

Notarized passports’ copies

Copy of Sales and Purchase Agreement

Bank receipt that proves you have paid the Property Sales Tax of 2% Fee receipt (urgent MN₮ 40,000 and regular fee MN₮ 20,000) Application form (your agent will assist with this)

Paying the Agency Fee

Most Real Estate agencies do not charge buyers or tenants. In most transactions, the lessor or the seller pays commissions and/or fees.

Moving In

Once the certificate is filed, the current tenant of your new property is allowed approximately one week to move out. Withhold a small amount of money on your final payment until you can conduct a thorough inspection of the property on the day of moving in to insure against any unforeseen property damages. Once you have checked the apartment and have been given the keys, you may pay the remaining amount.

Changing the Locks

The first thing that should always be done when you move into a property is to change all the locks. 

5 - HOW TO RENT A PROPERTY IN UB, MONGOLIA?

Find an Experienced Real Estate Agent - visit Mongolian Properties!

Your real estate agent is your window into the property market in Mongolia. A knowledgeable and experienced real estate agent should be able to find multiple solutions to your needs in a timely manner and negotiate the best price on your behalf.

Also, using a professional real estate agency would save you from being scammed. For instance, the person you are speaking to might not have the authority and full right to rent the apartment, so always make sure you work with a trusted advisor.

Think About What You’re Looking For

Be sure to speak with your agent about your individual property needs. Will it be for an investment, or do you plan to live in the property? What is your budget? Will you be living alone, or with your family? All of these questions are important to consider before looking for a property.

See the Property

It is important to check whether the building is connected to the central heating, water and sewage system. If it is not connected, think about how much it will cost you in long term, i.e.: your electricity fee will skyrocket to heat your apartment in winter.

Check the Certificate

Every apartment owner has an “Immoveable Property Ownership Certificate”, which serves as a proof of ownership. Your real estate agent can check the certificate to ensure that it is genuine and that the owner is credible. This process should take no more than one or two days.

Sign the Rental Agreement

Rents are quoted in MNT, as US$ quoted contracts are illegal in Mongolia and are payable monthly in advance and the typical rent deposit is one month gross rent payable by the tenant together with the first month rent, before moving in. The responsibility for utility fees is open to negotiation.

Paying the Agency Fee

Most Real Estate agencies do not charge buyers or tenants. In most transactions, the lessor or the seller pays commissions and/or fees.

 Moving In

Once you signed the contract, make sure you check whether all the furnitures and the property itself is in good condition, as later it might cause a problem later on. If you find anything wrong with the apartment, please make sure to document it on the contract and take a picture of it as an evidence.

Disposal of leases

Early termination by the tenant is subject to landlord’s approval, with one month written notice and subject to penalty payment. Damage cost will be deducted from the deposit.

6 - DISTRICT ANALYSIS

   1. Sukhbaatar District

The “center of the center”, Sukhbaatar District plays host to Ulaanbaatar’s most renowned entertainment destinations, work spaces, hotels and restaurants as well as the nation’s key government offices, within a 211 kilometre square area. As of January 2017, there are 38,021 families in the district, with more than half of them residing in the ger district area and 18,102 families living in apartment housing.

There are currently around 2,466 units of prime and mid- range residential apartments within the district, by Mongolian Properties’ estimates. This district is popular amongst tourists. Most of APIP’s building projects are situated within this district, including, Regency Residence and Olympic Residence, and two future projects, Circus Residence and Oasis to be erected in this area as well.

The price of residential real estate in Sukhbaatar District declined in 2014 down to US$1,521 per sqm and stayed stagnant in 2015, but was still the highest among other districts in UB.Strong demand has caused the average apartment price in Sukhbaatar to rapidly appreciate from under $500 per square meter in 2005 to a peak of $1,747 per square meter in 2013. Prices declined in 2014 to US$1,521 and stayed stagnant in 2015 and 2016, however this still represented the highest among other districts in Ulaanbaatar. Average rental prices have increased from an average of $6 per square meter per month in  2005, up to $14.0 in 2013.

Both locals and foreign citizens alike support demand for living space in close proximity to work and entertainment destinations. However, the price declined from 2014 and are now down to around US$10.8. The current average rental yield in Sukhbaatar is 8.3%, down from its peak in 2006 with around 14.7%.

   2. Chingeltei District

Chingeltei District is similar to Sukhbaatar, having been partitioned from it after the transition to capitalism and democracy in the early 1990s. It is the second smallest district by size after Bayangol with a little over 92 square kilometres of land. It contains some beautiful cultural sights such as the National Museum of Mongolian History. One of the landmark sights in this district is the State Department Store which is an iconic structure frequented by the locals for shopping. 

As of January 2017, there were 40,589 families living in Chingeltei District, of which about 8,387 of them lived in apartment housing in 6 Khoroos out of 19.

The majority of existing residential stock in Chingeltei is locked within the “40,000 Homes” and “50,000 Homes” Soviet era apartment complexes. The pricing pattern exhibited by residential real estate assets within Chingeltei District over recent years is close to a mirror image of that seen in Sukhbaatar; the price per square meter having increased from under US$500 per square meter in 2005 to US$1,238 in 2013 at its peak. Pricing has been erratic in Chingeltei over the last year, staying persistently below the citywide average, with comparatively large oscillations from month to month. The rental prices in Chingeltei district are among the highest in Ulaanbaatar, after Sukhbaatar, and it is one of the favorite locations for expats and locals alike, due to its central location.

The rental prices have peaked at US$13.1 in 2013 and are now down to US$10.3. Due to the low sales price and high rental prices, the rental yield in Chingeltei is the highest in Ulaanbaatar, currently at 13.4% on average. The trend is set to continue in the short to medium term, as there are no developments expected to come online in this district in the near future, making the few apartments in this district of high value for rental income.

   3. Khan-Uul District

Khan-Uul District, covering 502 square kilometres and named after the most famous peak of the Bogd Khan mountain range, is perhaps the area where Ulaanbaatar’s outward expansion is most visible. Encompassing almost all of the land south of Peace Bridge, Khan- Uul has the smallest ger population of any of Ulaanbaatar’s districts, with just 9,805 of the district’s 45,200 families residing in this form of accommodation. The Khan-Uul district has the most high-end luxurious properties, and most of them are situated near the Stadium and Zaisan areas. It also has some of the nation's elite clubs, bars and cafes. 

Khan Uul’s price performance over the past year is exactly as you  might expect given its status as a high-end, segmented market. The overall price index rose in line with the average until the end of 2013, when it fell sharply before regaining ground. The price was almost the same as the Sukhbaatar average price in 2013 and is now down to US$1,420. This figure, is, however, still above the city average. Average rental prices, which had been appreciating steadily since 2010 and peaked in 2013 at US$15.1, are now down to US$10.5.

The rental yield in Khan-Uul is the highest after Chingeltei district. It is one of the most popular districts for expats after Sukhbaatar and Chingeltei, however, the softening of the rental price together with the sales prices have impacted yields. The occupancy rate in this district is lower than Sukhbaatar and Chingeltei, hence greater difficulties in finding tenants.

   4. Bayanzurkh

Bayanzurkh remains Ulaanbaatar’s largest district, covering an area of 1,236 kilometre square in the east of the city. The population is large and growing rapidly; the district currently has 93,713 families and 39,962 are living in the modern apartments. Despite its high population, penetration by the expatriate market remains relatively low, compared to Sukhbaatar and Khan-Uul districts. However, it is a hub for reasonably priced lounges, karaoke and night clubs of the city. 

The district recorded 5,987 transactions in 2015, down 28.1% compared to 2014. The majority of Bayanzurkh residential units take the form of older stock, built up to sixty years ago. The district is the 3rd best performing district after Sukhbaatar and Khan-Uul in Ulaanbaatar with an average sales price of US$1,108 per square meter. This said, rental prices in Bayanzurkh tend to be lower than other comparable districts. Purchase prices look relatively unstable across the market, whilst the district’s mix of new/old properties looks set to increase rental rates within a tight confidence interval.

Bayanzurkh is a diverse district with a vast number of properties, which could affect the results through sampling error. This clearly creates an environment of uncertainty for investors. Although price levels in Bayanzurkh suggest it could be attractive to investors, the district is not the most desirable rental destination. Consequently, the rental yield has been not as attractive as other areas

   5. Bayangol

Bayangol is one of Ulaanbaatar’s smallest districts, covering an area of just 24 kilometre square. Located to the west of the central business district, it borders both Sukhbaatar and Chingeltei. At January 2016, there were 58,241 families living in Bayangol District, with most living in modern housing in 17 khoroos out of 23.

Bayangol has been one of the best performing districts in Ulaanbaatar over the past year. Its popularity among low-income communities has seen its prices increase, buoyed by the recent mortgage policy. After a sluggish start to 2013, prices accelerated past that of the city average with an average price of US$1,329. The price decreased slowly since then and is now down to US$1,057, due to government mortgage credit causing softness in pricing, as well as significant supply.

Although prices have softened somewhat since  their peak levels in 2013, Bayangol has been more resistant to downward pressure than other districts. Bayangol’s rental prices have also declined from their peak in 2013 at US$11.5 per square meter per month, now down to US$7.6.

   6. Songinokhairkhan

At 1,200 square kilometres in size, Songinokhairkhan is almost the  same size as the biggest district, Bayanzurkh. The majority of Ulaanbaatar’s manufacturing and warehousing facilities are situated to the south of Songinokhairkhan, and the district itself extends as far as the city’s western roundabout. At January 2017, the district housed 84,924 families, of which 25.7% resided in modern housing.

Residential sales prices in Songinokhairkhan are hovering at approximately $807 per square meter, making it the cheapest in Ulaanbaatar. Although this is from the exceptionally low base of $420 per square meter in 2005, this remains the lowest percentage increase of any district in the city, suggesting Mongolia’s economic prosperity has been slow to filter through to this border town.

According to APIP’s analysis, the price peaked during 2013 at US$1,037 and has since decreased. There is no prime residential supply being delivered in this district, because of its distant location from the city center. According to an estimation from Mongolian Properties, the average rental price in this district is around US$6.0 per square meter per month, decreasing from the 2013 high of US$7.2. The rental yield in this district has been pretty stagnant since 2005, ranging between 7% and 9%.

 Asia Pacific Investment Partners

Asia Pacific Investment Partners is a research-driven emerging and frontier markets real estate business. With a strong property development track record in Mongolia, it was co-founded in 2001 by Lee Cashell, Chairman and CEO, and Tsendsuren Bordukh, President.

Real estate development is the Group’s principal business and has focused to date on the development of luxury and middle-income residential properties and mixed-use properties in Ulaanbaatar, Mongolia. As at 30 June 2016, the Group had completed development of approximately 53,000 sqm in GFA of real estate across five developments in Ulaanbaatar. The Group currently has approximately 38,000 sqm in GFA (comprising approximately 33,000 sqm in GSA) under construction on one site. In addition, the Group owns through land-use or land-possession rights, acquired over a number of years, a substantial land bank of eight lots in prime locations in and around Ulaanbaatar on which the Directors believe over 450,000 sqm in GFA can be constructed.

Mongolian Properties

Founded in 2001, Mongolian Properties, a subsidiary of APIP, is one of the largest real estate agencies in Mongolia with five sales offices in Ulaanbaatar and approximately 50 employees. The agency provides the Group with valuable current market intelligence on the real estate market for land acquisition and project planning, as well as an established sales and leasing platform that the Group uses to market its developments.

The agency also provides a full suite of after-sale property management services to buyers such as leasing, valuations, interior design, furnishing and maintenance services, providing investors with the option of a fully furnished and managed property for rental. The customers of the Group’s agency business include local owner occupiers, overseas relocation companies and corporates (particularly large mining companies) looking to house employees, foreign investors, and government and non- government agencies with accommodation needs for expatriate staff.

Our services include short term rentals, long term rentals, real estate sales & purchase, property investment tours, property research & consulting, legal services, overseas real estate, property management, architecture, interior design & furnishing services, relocation services and construction services.

Mongolian Properties also develops, sells and manages its own landmark properties in Ulaanbaatar. For instance, we have developed the Park View Residence (2007), Temple View Residence (2010), Regency Residence (2010) and The Village @ Nukht (2014) and are developing the Olympic Residence (2017) at the present. Future developments include the Oasis Residence (2017), Circus Residence I, II & III (2018 & 2019) and Park Place (2020).

As a leading developer in Mongolia, we have won many awards for our projects and are well known for providing high quality services to our clients. For instance, Mongolian Properties has won the “Highly Commended Real Estate Agency in Mongolia” from Asia Pacific Property Awards in 2013 and the “Best real estate agency of 2010-2015” from Forbes Mongolia magazine in 2016.