CONSTRUCTION, REAL ESTATE MARKET DEVELOPMENT AND INVESTMENT ENVIRONMENT OF MONGOLIA D.TSOGTBAATAR 2015
1. General Overview CONTENT Construction and Housing Sector Real Estate Market Development 2. Challenges 3. Cooperation Potential Advantages of Mongolia Legal Environment 2
CONSTRUCTION AND REAL ESTATE SECTOR Share of construction and real estate sector in GDP (%) Share of construction sector and FDI in total Investment (%) 25 20 20.6 19.8 22.4 21.8 17.8 16.6 80.0 70.0 60.0 60.7 63.5 71.1 68.8 55.7 15 50.0 46.8 10 5 2.5 5.3 7.3 7.1 6.8 2.9 3.7 1.6 5.95.8 5.85.7 40.0 30.0 20.0 10.0 32.8 19.5 12.0 8.9 10.3 23.1 0 2008 2009 2010 2011 2012 2013 0.0 2008 2009 2010 2011 2012 2013 Construction Real Estate activities Mining FDI Construction Source: National Statistical Office, www.1212.mn Source: National Statistical Office 3
THE DYNAMISM OF CONSTRUCTION SECTOR 95,700 people are employed by 5,600 construction enterprises in Mongolia. 2,500.0 Construction, capital repair and maintenances, (MNT billion) Construction works have increased 4.6 times since 2010, with the housing construction accounting for 40.4% of the total. 2,000.0 1,500.0 1,845.9 2,146.8 Construction and industrial sector maintained robust growth of 16.1% in 2014, contributing to the national GDP growth of 7.8%. Compared to 2010 construction works have increased 2.5 times in 2012. 1,000.0 500.0-1,034.1 868.2 745.0 741.9 463.0 336.3 222.2 123.2 2010 2011 2012 2013 2014 Construction, capital repair and maintenances, total Residential building Source: National Statistical Office 4
HOUSING SUPPLY, BY HOUSING TYPES National level Ulaanbaatar City 1% 45% 25% 26% 1% Apartment Serviced house Detached house Dormitory Ger-nomadic house Non living quarters Ger district 200 (60%) 133.4 (40%) Residential apartment district 2% Total: 794,000 HHs Total: 333,400 HHs Out of total of 794,000 HHs in Mongolia, 194,000 (25%) are residing in residential apartment districts. Housing need in Ulaanbaatar in upcoming 5 years is estimated to be 204,700 units (40,000 p.a.). Source: National Statistical Office 5
HOUSING TARGET & COMMISSIONED APARTMENT UNITS 30000 70% 67% 25000 24744 60% 50% 40% 30% 30% 20000 15000 10000 9899 14564.8 20% 10% 0% 28% 21% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 MDG target up to 2015 MDG based National Development Strategy target up to 2021 5000 0 9,543.9 1823.6 2010 2011 2012 2013 2014* Commissioned apartments, houses Total square meter of the commissioned apartments, thous.m2 Housing stock, thous.m2 30% of Mongolian population will be provided with adequate housing in 2015, and it is set to reach 67% in 2021. In 2008 and 2014 respectively 5,416 and 24,744 residential units were built, which scaled up housing supply 4.5 times. Source: Mongolian Parliament Resolution No. 25 (2005), 12, 13 (2008). PS: Calculation is based on numerical data by the National Statistical Office. Source: National Statistical Office 6
MORTGAGE MARKET Amount of mortgage loan Number of borrowers 3,000,000.0 2,500,000.0 2,844,612.6 13.1% 14.0% 12.0% 70,000 60,000 Number of borrowers 66,334 2,000,000.0 10.0% 50,000 1,500,000.0 1,000,000.0 500,000.0 0.5% 8.0% 40,000 6.0% 30,000 4.0% 20,000 8,199.6 16,700 2.0% 10,000-2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 0.0% - 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Mortgage debt outstanding (million ) MDO as percentage of GDP(%) Outstanding mortgage loans at the banks is MNT2.8 trillion (13.1% of GDP). Residential mortgage loans 8 (±1)% launched jointly by Government of Mongolia and Bank of Mongolia are performing well. o Over-due loans 2.1% o Non-performing loans 0.5% Source: Bank of Mongolia 7
REAL ESTATE PRICE Housing price per sq. m. (MNT), 2004-2014 Price of office space per sq. m. (MNT), 2003-2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2,200,528 ($1169) 2,014,389 ($1203) 1,809,217 ($1296) 1,575,623 ($1147) 1,255,150 ($999) 1,189,650 ($842.5) 1,044,624 ($850) 643,621 ($550) 593,429 ($509) 547,657 ($446) 457,292 ($377) 0 500,000 1,000,000 1,500,000 2,000,000 2,500,000 50,000 40,000 30,000 20,000 10,000 0 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 15,000 19,516 23,513 27,039 32,177 36,038 46,886 43,607 2008 2009 2010 2011 2012 2013 2014 2015* 0 Түрээсийн үнэ Rental price Rental price for office spaces increased 3 times during last 7 years, whereas retail sales price increased 11 folds during the last 12 years. 2,025,000 1,336,500 429,590 668,250 Series1 Retail price 5,566,000 4,700,000 3,900,000 3,300,000 Source: Ministry of Construction and Urban Development Source: Research Division, Master Properties LLC 8
CONSTRUCTION INFRASTRUCTURE By State Budget: 24 Investment /MNT billion/ Projects /quantity/ Sovereign Bond proceeds of MNT96.6 billion funded: The construction of main utility lines for 10 new residential districts and 12 ger districts in 2013-2014. Further policies will be pursued towards opening up opportunities for private sector participation, increasing utility service tariffs, and generation facilities of utilities under concessional schemes. Source: Ministry of Construction and Urban Development 9
2. Challenges 10
CHALLENGES 1. Economic growth slowdown due to declining mining investment. Contracting resources and opportunities to support consistently the development activities. Declining purchasing power of population. 2. Need for improved construction codes and norms, upscaling of construction quality, and strengthening labor safety. 3. Implementation of infrastructure projects. 4. Need to improve legal environment. 5. Banking and financial system deficiencies. 11
IMPROVING LEGAL FRAMEWORK New laws, regulations and amendments : Law on Land Construction Law Urban Redevelopment Law Social Insurance Law Law on Real Estate. 12
3. Cooperation Potential Advantages of Mongolia Legal Environment 13
ADVANTAGES OF MONGOLIA RUSSIA 146.3 million US$ 14,612 As of 2014: Population GDP per person 1. Economic growth: Mongolia experienced GDP growth of 17.5% in 2011. KAZAKSTAN 17.4 million US$ 13,609 MONGOLIA 3.0 million US$ 4,056 CHINA 1,368 million US$ 6,807 KOREA 51.3 million US$ 25,977 JAPAN 127.0 million US$ 38,633 In 2014 GDP was USD11.5 billion (at current prices), and the GDP growth - 7.8%. 2. Per capita GDP grew 8.7 times totaling USD4,056 in 2014 against USD466.8 in 2000 3. Low taxation rate and stable tax environment. 4. Attractive legal environment for foreign investment. 5. Conducive business environment. Source: Population number of the countries from http://en.wikipedia.org, GDP per person data from WB website http://data.worldbank.org 14
INVESTOR COMMENTS Mongolia Real Estate Sector is the most suitable for investing. Global Property Markets -2014 Predictions Property Frontiers Investment Agency of England Demand for new property is expected to continue to outstrip supply for the foreseeable future, particularly in the residential housing segment. Oxford Business Group Research organization of England "Real Estate is probably the most attractive and yet little known destination for investment in Mongolia. It is undervalued with extraordinary pent-up demand and solid fundamentals. M.A.D Investment Solutions Real Estate Company We see a bright future in the construction and real estate sectors. UMC alpha Real Estate investment management company Source: Master properties research company of Mongolia, M.A.D Investment Solutions Real Estate Company 15
INVESTMENT POTENTIAL FDI: 1. Acquisition, lease, and sale of real estate; 2. Refurbishment, O&M, and management of existing buildings and property; 3. Purchase of mortgage backed securities (MBS), investing in the secondary mortgage market; 4. Investment in property market through investment funds. 16
PROPERTY MANAGEMENT Two alternatives are envisioned for incorporating a property management company, in order to reshape real estate market in Mongolia in its classic form : Driven by private sector; Undertaken through the State Housing Corporation (SHC). Policy interventions are being contemplated to enable the State Housing Corporation to run real estate business, attract FDIs, facilitate cooperation potential, and coordinate its activities with infrastructure projects. 17
Thank you for your attention. 18