By Abby Aron – Published on the 5th of May 2007
Modern apartment blocks are replacing yurts as the market hots up in far-off Mongolia, wedged between Russia and China. Abby Aron meets Britons who thinks now is the time to buy there
Mongolians are not big on bricks and mortar, as anyone who has seen The Story of the Weeping Camel, a heart-wrenching film about nomad herders, can testify. Half of the one million-strong population of the country’s capital, Ulaan Baatar, live in yurts – or “gers”, as they are locally known. Most of the rest live in dilapidated, 40-year-old, Soviet-style apartment blocks.
An economic boom is under way, however, fuelled by Mongolia’s seemingly inexhaustible supplies of copper, coal and gold. In turn, this is stirring up the previously non-existent property market into something of a controlled frenzy, with savvy investors flocking to buy.
Mongolia, once the land of Genghis Khan and his murderous hordes, is not your typical second-home location. Landlocked between China and Russia, with no direct flights from Britain and temperatures of -26C for four months of the year, it is a long way down most people’s lists of desirable places to buy. But the country has significant appeal.
Huge Chinese demand for Mongolia’s natural resources has led to several global mining companies, such as Ivanhoe and Rio Tinto, setting up operations in the country. A dearth of high-quality, Western-style accommodation in the capital, however, means that the demand for top-end property to house the expats is sky-high, pushing up rental rates so that yields are in the region of 20 per cent. In addition, as Mongolians get richer, they are looking to upgrade their housing.
“It appears to be a win-win situation,” says London-based investment banker, Wesley Davis, 40, who has bought a three-bedroom apartment in The Regency Residence, the largest (14-storey), off-plan residential development to be built in Ulaan Baatar. “You invest around £50,000 for a new property in a country where the economy is growing at a rate of about 8 per cent and have a year-round rental income,” he says.
The Regency Residence is being developed by Asia Pacific Investment Partners (APIP), which has successfully cornered the property market in Ulaan Baatar by buying up all of the large plots of land in the capital for future developments.
Located in the embassy district of Ulaan Baatar, overlooking the central park and sacred mountains of Bogd Khan, The Regency Residence is the first luxury-style apartment block in Mongolia catering to both a single and family market, with features such as a health club, spa and Montessori school inside the building.
Once that development is completed (scheduled for spring 2008), APIP has a further four projects planned, including a 50,000 square metre apartment block called Park Plaza, which will incorporate a three-storey shopping mall, international hotel and offices.
Currently, 70 per cent of all clients buying through APIP’s sales arm – Mongolian Properties – are British. The main selling agent in Britain is Property Frontiers, which sold 35 properties in the first two weeks of sales and has a waiting list for future developments. “Our main clients are wealthy bankers purchasing with dollars, which, with the current exchange rate, is very favourable to British buyers,” says Edward Eatock, a property consultant at Property Frontiers. “The market will widen out in the near future, though. If you compare the emerging market of Mongolia to how the property market was in Moscow 10 years ago, it is possible to get an idea of its potential.”
That potential is evident in Mongolia’s booming tourism market. In 2006, the country had 350,000 visitors; it expects more than 500,000 in 2007. While most tourists are Chinese, escaping the polluted streets of Beijing for the clean air of Ulaan Baatar, there are increasing numbers visiting from Europe and North Africa. “This is evidence of how Mongolia’s profile is increasing on the world stage,” says Mr Eatock. “People are coming to realise that it is a safe, stable democracy that has a lot more to offer than kilometres of remote Gobi desert.”
Ulaan Baatar, with its wide squares, parks and historic buildings, is the centre of Mongolian urban life. But most tourists head straight out to the windswept steppes for outdoor pursuits such as white water rafting, dog-sledding, helicopter trips, camel-riding, horse-riding and fishing for taimen – giant (2-3 metre) prehistoric salmon.
There is also much anticipation for the 2008 Beijing Olympics, which are expected to give another huge boost to Mongolia’s tourism industry, with Beijing less than an hour’s flight away.
The government is keen to expand its property market and is adopting a no-holds-barred approach to the buying process. All properties in Mongolia’s capital, including apartments, are sold as freehold. There are no restrictions on foreign buyers, no capital gains or income taxes and no restrictions on the repatriation of capital. For Danny Press, a 30-year-old property analyst from London, buying a two-bedroom apartment in Ulaan Baatar is his first foray into the overseas property market. “I have been analysing overseas property for years but this is the first time I have ever actually invested any of my own money in it. It’s a bit of a punt in a country that has not been tried and tested, and is a long way from home, but I am getting in at the very beginning. I am either stupid or canny, I am not sure which yet. But I have done my homework and the statistics are good.”
Like many off-plan purchasers, Danny plans to flip the property prior to completion. “If I do this, I will be able to release equity in order to buy up more of APIP’s properties. That’s how confident I feel.”
Despite such faith, there are still risks attached to buying into such an immature market where property laws have not yet been regulated. While the mining industry is still in its infancy, the government is keen to encourage a vibrant property market. But, once mining is established, there is the risk that the state will introduce property taxes and restrictions. There is also the danger that Mongolia, dependent on China for all its trade, is very much at the whim of its large, southern neighbour, which might decide to seek substitutes for Mongolia’s resources elsewhere.
When it comes to resale, Christopher de Gruben, APIP’s director of business development, predicts that there will be strong future interest from Chinese buyers looking for holiday homes. Properties will also hold wide appeal with Mongolians. While it is not yet possible for foreigners to obtain Mongolian mortgages, 20-year loans are now on offer to locals, which will put many of them on to the housing ladder.
“Give it five years and there will be a lot of wealth swilling around Mongolia. Wages are already rising rapidly and there are a lot of luxury brands entering the market,” says Mr de Gruben.
For Wesley Davis, Mongolia is a short-term punt: “I definitely want to take advantage of both the rental yields and the capital growth but I will most probably sell in three years, depending on what the market is doing then. For the time being, I am delighted to have a foot in the door. As far as I am concerned, the party has only just begun.”
