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A land of oppurtunities

Downtown Ulaanbaatar

A huge developing economy, Mongolia presents an impressive growth story that offers extraordinary opportunities for real estate investors willing to take a risk.

April 2015

Known historically as the “Land of the Eternal Blue Sky” and the “Land of the Horse”, Mongolia has come a long way from Genghis Khan’s empire. As a post-Soviet republic, the country has undergone significant political, social and economic shifts in the past two decades that have laid firm foundations for economic growth and have seen the urban environment experiencing significant transformations.

Located in the heart of Asia, Mongolia borders with Russia to the north and China to the south, east and west. Covering the area of almost 1,565,000 square kilometres, it is the world’s 19th-largest country. Mongolia’s total population is estimated at about 3 million people, more than 63% of which live in urban centres. Ulaanbaatar, the capital and also the largest city, is home to about 45% of the population.

With its rich historical heritage and diverse nature featuring a wide variety of landscapes – from mountains and lush forests to frozen desert – Mongolia appears as a unique and unexplored travel destination. But what about its real estate market?

MARKET OVERVIEW

Mongolia remains a developing economy and investing in real estate here comes with the same set of risks shared by property investment in similar developing economies around the world.

In recent years, Mongolia has had one of the fastest real GDP growth rates in the world. It reached a whopping 17.5% in 2011, 12.4% in 2012 and 11.7% in 2013. However, growth has decelerated significantly in recent years. High inflation, currency depreciation and economic uncertainty have affected investor sentiment.

“We have observed many commercial and residential development projects being suspended. Coupled with a weakening mining sector and a drop in FDI inflow capital, some foreign companies downsized or even ceased their operations in Mongolia, resulting in an increase in the office vacancy rate. Oversupply in Grade A office stock is a concern,” commented Harry Chan, Executive Director, Valuation & Advisory Services, Greater China, CBRE.

The situation in the office market, which was one of the best performing sectors in Ulaanbaatar just a few years ago, has changed dramatically since 2012. Asia Pacific Investment Partners (APIP), the leading Mongolian real estate developer, expect that the glut of new supply scheduled to come online in 2014 and 2015 will exert downward pressure on sales price levels. In the medium term, prices are likely to remain stagnant or even decline.

In terms of the residential sector, APIP predict that the pace of growth in sales prices will pick up over the next year after its recent moderation, as Mongolia sorts through its short run economic challenges.

“Growth should swing back to a faster pace in 2015 or upon restoration of levels of FDI in the economy, which should see average sales prices trend upward. If the economy underperforms, a downturn could occur but prices could still recover well above their current level in the coming years. The aggressiveness of pricing trends depends on the overall health of the economy, effectiveness of government policy and the wider mineral market prices,” said Gerelmaa Gerelsaikhan of APIP.

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