About: Asia, Financial Times, Mongolia, Property
By Francesca Lombardo – Published on the 8th of March 2008
With its varied landscape and brightly dressed nomadic populations, Mongolia has become a remote paradise for adventurous travellers.
But a new breed of risk-takers has recently eyed up this land of natural wonder: shrewd property investors on the lookout for the next big opportunity.
“People have been investing since 2002 and are mainly bankers or fund managers from the UK,” says Christopher de Gruben, business development director of Mongolia Properties, a UK and Mongolian-based real estate company.
It might seem something of a contradiction that the next property fever is coming from a country renowned for its nomadic tradition, with roughly half of the population still living in gers (traditional Mongolian tents). But there are several reasons to explain the rising trend.
Located near two of the fastest growing Asian economic superpowers, China and Russia, this landlocked country four times the size of France is rich in untapped natural resources such as oil, gold, coal, molybdenum, tin and tungsten. Major oil and mining companies such as BHP and Rio Tinto are opening up operations here and sending in hundreds of executives who demand high-quality homes.
After freeing itself from the Russian “yoke” and becoming a democratic republic in 1990, Mongolia has been aggressively pursuing an economic transformation in a bid to attract more foreign corporate investors to the country.
According to a 2008 report published by the Heritage Foundation, a Washington DC-based independent think-tank, the Mongolian government has cut tax rates from 30 to 25 per cent at the same time as curbing wasteful public spending.
“Tax reform and economic restructuring of this scale can be very challenging for a country which lagged behind for such a long time,” says Anthony Kim, a policy analyst at the Heritage Foundation. “But it is also showing that this is a country with a clear vision for the future.”
The signs are that property prices are catching up with the upward economic trend. “The property market is fuelled by the shortage of quality houses and increasing demand in the capital, Ulan Bator, from employees of large western companies, foreign business people, NGOs and governmental associations,” says Ben Jefferis, sales consultant at Property Frontiers, a UK-based company, which sells off-plan developments in Ulan Bator.
Capital growth in the property market has in fact soared to a staggering 25-30 per cent over the past three years and rental yield growth is now at 18 per cent.
“All the expectations are that it will stay the same in 2008,” says de Gruben. “Lack of taxation and no limits in repatriating the initial capital makes this property market even more attractive to buyers.”
De Gruben visited Mongolia for the first time in 2002 during a round-the-world trip. “I just got hooked. There was a certain buzz in the air. You could sense that something was just about to happen in Ulan Bator. A bit like Moscow in the 1990s.”
He says he has completely acclimatised himself to the local culture, living for 10 months a year in Ulan Bator and the rest of the time in the UK. He lives, along with his Mongolian girlfriend, in a pink low-rise house by Soul Street; a trendy area with plenty of bars, restaurants and designer shops.
“Ulan Bator is not a nice city from an architectural point of view. It is a clash of old ugly Soviet architecture, monumental modern buildings with a Chinese flavour, and a long belt of traditional tents at the outskirts, but it is more westernised than people may think,” he says. “The nightlife is great and youngsters are catching up with western fashion.”
Global tourism is also on the up. According to figures reported by the Mongolian tourism board, last year the country was visited by about 400,000 people. This year the number is expected to grow to 500,000.
“The economy is strong,” says de Gruben. “I can see a lot of similarity between Ulan Bator and Hong Kong. People used to live in boats but as the economy was flourishing, gradually moved to apartments. The same thing will happen to the locals, with an uplifting effect both on the lower end and the higher end of the property market.”
Nevertheless, at this stage foreigners and locals don’t seem to mingle, with expatriates concentrating on the new districts around the City Park in the heart of the city, while locals head to the entertainment district.
Located around the City Park, the Olympic Residence offers 60 apartments and penthouses plus retail spaces, sports facilities and a fully equipped medical centre.
Prices at the Olympic start from $108,000 for a one-bedroom apartment, $153,000 for a two-bedroom, $225,000 for a three-bedroom and $360,000 for a four-bedroom penthouse.
The entertainment district, however, is predominantly inhabited by affluent locals and young people, while the rest of the population lives in high-rise Soviet buildings and in gers on the outskirts of the city.
“Soul Street district is the trendiest part of the city and despite the many bars and new restaurants, is still infused with a sense of the past thanks to its low-rise, traditional houses,” says Jefferis.
Prices in the Soul Street area tend to be cheaper, starting from $800 per square metre compared with $1,200 per square metre in the expats’ districts. Mongolia Properties currently has in its portfolio a two-bedroom flat for $55,000 in Peace Avenue and a one-bedroom flat for $65,000.
“Most of these houses are in need of some work and can be affected by power cuts,” says de Gruben. “They make good buy-to-let investments though.”
Despite the generally optimistic views and the rush from corporate investors to tap into the unspoilt country’s potential, there are a number of drawbacks to investing in property here. “Corruption for instance is very widespread,” says Kim, at the Heritage Foundation. “It has increased proportionally with the influx of foreign investors and international aids. Lack of transparency in the legal and political system also means that property rights are weak, adding some level of uncertainty.”
Poverty is also another daunting issue. Local activists have accused the government of speculating on the sale of land to foreign investors, removing social housing opportunities for poor locals. “If it is not addressed properly it can fuel social tension and crime in the city given the growing resentment towards the newly rich Mongolian class and wealthy expats,” says Kim. “The government is aware that it needs to tackle these issues to boost further foreign investors’ confidence and improve its profile.”
Experts believe that the next three to five years will be crucial for Mongolia to keep the momentum going and create long-term and sustainable growth.
Nevertheless, expectations remain positive: “This is a country which has come a very long way and has turned around its economy in a very short space of time, generating an average of 6-8 per cent growth of GPD over the past five years,” says Kim.
“If you consider that China has a growth rate of 10 per cent, it is quite impressive.”
Link to the Financial Times Article
About: Asia, Financial Times, Mongolia, Property
