Mongolia counts among one of the last frontiers in Asia where the returns are still high and the potential is unlimited.
Located in north Asia neighboring China and Russia, Mongolia adopted democratic ideals and free market principles in 1990, creating a stable political and economic environment for its impressive economic growth and development over the past two decades. Mongolia today is one of the most politically stable, democratic countries in Asia, which continues to generate exciting economic opportunities for investors.
Estimated to contain more than USD1.3 trillion worth of proven mineral resources, Mongolia has been one of the most desired emerging market destinations for investors. As a result, foreign direct investment into the country skyrocketed from USD43 million in 2001 to USD4.7 billion in 2011. Expected foreign direct investment into the country in the next 5-10 years is making the country one of the most exciting frontier markets in the world. Here we have outlined the top 5 reasons why you should consider investing in Mongolia:
1. Mongolia grew at an average of 9.1% annually in the past decade and the growth is expected to stay high in the next 5-10 years
Thanks to its geographic location and abundance of natural resources, Mongolia has been one of the fastest growing economies in the world, mainly exporting copper, coal, gold and various other resources to China. At the forefront of the mining-led economic growth of Mongolia stand two of the world’s largest coking coal deposits Tavan Tolgoi and copper and gold deposits Oyu Tolgoi.
In 2009, the government of Mongolia signed an investment agreement with Oyu Tolgoi mine, which resulted in Mongolian economy growing at 17.3% in 2011. The second phase of the investment agreement has been signed in December 2015 with Rio Tinto, adding an additional USD4.4 billion to finance the underground operations at the mine. During the downturn of the commodity cycle, this deal is considered one of the biggest financing agreements and most crucial for Mongolia’s economic prospect, as Oyu Tolgoi is expected to produce up to 30% of Mongolia’s annual GDP once it reaches its full production capacity in 2021.
2. Continued increase in demand for real estate
GDP growth has dramatically increased the purchasing power of locals. Mongolia now hosts a small but growing nouveau rich, entrepreneurial and political class, members of which are starting to demand luxury accommodation that meets international standards. Wages have kept pace with overall GDP growth.
Unlike many other developing countries in Asia, Mongolia does not have an enormous reserve pool of underutilized agrarian labour keeping wage rises in check. As a result, Mongolia now hosts a burgeoning middle class of skilled labourers and semi-professionals with an insatiable demand for comfortable and modern amenities. As more and more Mongolians migrate to the city and move up the income ladder, the demand for quality accommodation will only accelerate.
Mortgage penetration in Ulaanbaatar is only 14.1% and below 10% in other parts of Mongolia at the moment. Thus, coupled with expected macroeconomic growth along with the current long-term government subsidized 8% housing mortgage programme in place, the demand for residential apartments in Ulaanbaatar and other areas of Mongolia is expected to increase substantially both in the short and long term.
3. Mongolia has strong property rights and an attractive tax system
Mongolian property laws are comprehensive and well written with excellent protection of the title, ownership rights and interests of all parties. Employing a ‘floating freehold’ system with regard to immovable property, the Constitution and other major laws of Mongolia provide both foreign and Mongolian citizens with strong and inalienable freehold rights to immovable property. There is no distinction between local Mongolians and foreigners 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 tax system creates an organic environment for business to flourish. The tax system of Mongolia is the lowest in Asia.
The following four types of taxes in the table apply when buying property in Mongolia:
4. Compared to the other emerging markets, Mongolian real estate is most competitive in terms of rental yield and affordability of price
As the political and economic capital of Mongolia, Ulaanbaatar is expanding fast. But in comparison with major cities in Asia, prices of luxury residential are the lowest in the city. Driven by the growing number of expatriates, as well as migration of population from the countryside to Ulaanbaatar, the yield for rentals is one of the highest among the Asian cities as shown in the graph below:
5. Mongolia is democratic and politically stable
With a democratic political system in place, Mongolia is arguably the most politically stable state in Central Asia and a model political system for other emerging market countries in the world. In an effort to attract higher volumes of foreign direct investment and cooperate more effectively with international investors, the government of Mongolia has made global standard laws and regulations, creating a friendly business environment for investors. As a result, the country has advanced in all international institutional surveys and studies as shown in the table below:
Where to invest:
Ulaanbaatar is a city of 1.5 million population consisting of half of the total Mongolian population. We believe location is the most important aspect of investing in real estate in any city. The central business district resides in Sukhbaatar district surrounding the Chinggis Khaan Square and the National Amusement Park.
There are a handful of new apartments commissioned in this area; due to the limited availability of land, however, the apartments in this area are most valued and most sought after by the expats, hence provide much higher yield than other parts of the city.
Most of the residential stock of Ulaanbaatar has been built between 1960s and 1980s, rather old buildings, mostly situated in central Ulaanbaatar. Due to the limited availability of land, as mentioned previously, there has been a wide range of new residential complexes that have been built in Khan-Uul district, namely in the Stadium and Zaisan areas. The buildings in these areas have been built in the last 5-10 years and the apartments are much larger in terms of size. These are also gated communities with security; with some incorporating retail space in the podium floors, as well as facilities such as swimming pool and gym.
At the same time, there has been a flood of low-cost housing built in the past few years, so investors are encouraged to be cautious when choosing a developer.