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Asia Today ISSN 1861-4604 Saturday, August 18, 2018

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Mongolia: Property - bubble or boom?

Real estate market

Share on Facebook December 20, 2012, Reporter : mongolnews, Reader : 527

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Confidence that Mongolia’s resource wealth will generate unprecedented expansion in its real estate market has seen prices rise and many of Ulaanbaatar’s prime properties snapped up. However, the experience of other countries that have had similar resource-related property growth suggests it may not last forever.

In September, Export Development Canada, the state-owned export credit agency, warned that due to bank credits rising in excess of 50% year-on-year in 2012, a real estate “bubble” had appeared in the capital, which is likely to have a negative impact on the banking sector. Meanwhile, in October the central bank said the national growth rate in 2012 will slow by up to one-third from the record 17% achieved in 2011, due to a decrease in foreign direct investment (FDI) and reduced demand from China.
Talk of slowing growth and a property bubble clashes with the estimations of real estate agencies, which are predicting that, as copper and coking coal mines come online, the real estate market will see “exponential” growth.
“We expect [our] diversified portfolio of high-quality retail, office and redevelopment property in downtown Ulaanbaatar to compound at 30-50% per year going forward, undergirded by a combination of rapidly rising rental yields and compressing capitalisation rates,” wrote Mongolia Growth Group, a real estate and financial services conglomerate, in an October press statement.
However, the rapid growth scenario for a country of just 3m people, which issued its first mortgage only in 2003, poses a number of issues for investors, including the crumbling state of much of the country’s infrastructure.
Citing further problems, in August the Mongolia Real Estate Blog wrote, “The volatility of housing prices and the potential for a boom-bust is higher if the housing supply is severely constrained by land access and urban regulation problems, which is an issue, considering the short supply of land in Ulaanbaatar”.

A number of players in the industry, who are concerned about the prospects of a real estate bubble in the capital, have pointed to similar circumstances in Kazakhstan in 2008. “Driven by an influx of oil-related FDI and easily accessible mortgages, land prices in downtown Almaty, Kazakhstan’s largest city, surged a whopping 8000% between 2002 and 2008, while the cost per metre of apartments in the downtown area rose 833% in the same period”, noted local news website Mongoliana in July. With the onset of the global financial crisis, the property bubble burst and prices dropped 40% from their peak, and currently are half of what they were in 2007. more...

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