Mongolia: Overview

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Last Updated: Jun 19, 2007

Mongolian property prices rising rapidly, yields high

Mongolia may seem an unlikely property investment destination, but the remote land-locked country is in the middle of a mining boom, with enormously rich mineral resources of copper, coal, and gold. This has brought in mining companies such as BHP, Rio Tinto, Ivanhoe, and Centerra Gold, as well as a large foreign diplomatic and commercial presence.

There is a severe shortage of quality housing. Ulan Bator is a Soviet-era city, ugly, badly planned. Accommodation is badly maintained, unattractive, and unsafe, and it is hard to convince expatriates to work in Ulan Bator.

This has provided an opportunity for a few companies which are building modern high-quality condominium buildings. Foreigners can freely own property in Mongolia through the Immoveable Property Ownership Certificate, which is equivalent to freehold ownership.

RENTAL YIELDS

Demand is strong and rising

Rising demand for accommodation from foreign experts and an extreme shortage of housing have generated very high yields. In Ulan Bator, rental income returns (yields) on high-end property are around 18%.

Prices have been rising rapidly due to rising demand. Capital appreciation has been around 15% per annum in the past three years, according to Mongolian Properties, a development company.

TAXES AND COSTS

Mongolia has low personal taxes, much tax avoidance.

Rental Income: Mongolia adopted a flat tax regime this January, 2007. Personal income taxes on income, including revenue from property, are imposed at the flat rate of 10% on net income over MNT 84,000 ($72). Deductions are permissible.

Capital Gains: Capital gains are taxed in the same way as income.

Inheritance: Not known.

Residents: Worldwide income received by residents of Mongolia is taxed at 10%.

BUYING GUIDE

Buying costs are very low

The round-trip costs of buying and selling a property are around 5.7%, including legal fees and the agent’s commission (together 3.5%) and resale tax (2%).

LANDLORD AND TENANT

Landlord and tenant

Unknown

ECONOMIC GROWTH

Newfound mineral wealth is pushing Mongolia forward

Ulan Bator is buzzing. The restaurants are full, the bars are packed, the shops are overflowing. Everywhere you look you find busy entrepreneurs, large companies getting bigger, and more expatriates.

Mongolia’s mineral resources are enormous, with rich supplies of copper, coal, and gold. The country has recently been discovered to have the world’s largest copper mine, expected to provide over $100 billion of ore over the next forty years. Copper prices have risen 250% since 2002, and the production of gold, economic growth is rising.

Despite the explosion of riches at the upper levels of society, wealth is very unevenly distributed. The growth rate of 6% has not been enough to cause a substantial ‘trickle down’. A large proportion of the population lives in poverty, and extreme social inequality is generating tension. Recently, unusually cold and snowy winters destroyed the livelihoods of hundreds of thousands of families. Many moved to Ulan Bator, where they live in squalid conditions.

Mongolia’s transition to modernity began in 1989, with the withdrawal of Soviet troops, and glasnost in the Soviet Union. The first multi-party elections were held in 1990. In 1992, the Mongolian legislature adopted a new democratic Constitution. In 2000, the ex-Communist Mongolian People's Revolutionary Party (MPRP) was returned overwhelmingly to power, and there has been a coalition government since 2004.

Mongolian banks now offer long term mortgages to Mongolian citizens, a major step forward for the real estate market. Up to now, most property purchases have been "cash only". Yet interest rates are far above international averages, reflecting relatively high inflation.