Astronomical
mortgage rates in Mongolia have made the prospect of owning a house unattainable
for the majority of Mongolians in Ulaanbaatar. With commercial bank mortgage
rates hovering around 16-19.2% APR as of early 2011, it is easy to see why only
9% of real estate transactions in Mongolia are currently mortgaged. In a
country where the average age is 20-24, the availability of urban housing and infrastructure
is critical for the Mongolian economy as well as to ensure sustainable capital
growth yields for real estate investors.
On November 2011,
the Mongolian Housing Finance Corporation announced it would provide first-time
homebuyers with access to mortgages capped at an interest rate of 6% on a 25-year
term for apartments of less than 50 square meters in size. This initiative, a
part of the “100,000 Homes Project”, seeks to help low-middle income Mongolians
relocate out of the countryside and Ger Districts that currently house approximately
700,000 of Ulaanbaatar’s 1.2 million citizens around the periphery of the city.
In a market dominated by cash transactions, Mongolian
borrowers still tend to make large down payments, with commercial and state owned banks such as
Khan Bank, Bank of Mongolia (BoM) and Trade Development Bank (TDB) requiring initial deposits of at
least 30% of the total value of the property. In order to finance this project,
the Mongolian government has asked the state owned Development Bank to raise
MNT 200 billion, while commercial banks will also serve to facilitate some of
the mortgage lending.
With currently only 116,000 total residential
units in Ulaanbaatar, the 100,000 Homes project is destined to expand the
market for low-middle income families seeking residential space in the city.
However, only 2% of all mortgaged transactions in the country are nonperforming.
As the requirements for down payments and credit requirements are lowered,
commercial and government lending establishments will have to make adjustments
to hedge against the increased risk of credit default and foreclosures.
Will Tindall, Chief Communications Officer of Asia Pacific Investment Partners, states, "The 100,000 homes project coupled with the increased penetration of
the availability of mortgages, will fundamentally change the options
available to nearly every Mongolian. The traditional three tiers of
housing – ger/soviet block/western style apartments – will begin to
reside as we see the ger communities on the periphery of Ulaanbaatar
shrink”. The
100,000 homes project will undoubtedly serve to augment the already increasing
presence of the middle class in Ulaanbaatar, as well as push up capital growth
in Mongolia’s luxury real estate properties. With FDI totaling 5.3 billion and
GDP growth at 17.3% in 2011, the success of the 100,000 homes project and subsequent
emergence of the Mongolian middle class will be a true testament to the
magnitude and sustainability of Mongolia’s economic strength going into the
future.
To learn more about investing in Mongolian real estate, visit Mongolian Properties
for more information and for all of your news and updates on current events in
Mongolia, visit Mongoliana, a news portal that covers everything Mongolia.
