Market in Depth

Mongolia's housing market weak, despite improving economy

Lalaine C. Delmendo | November 23, 2019

Mongolia's housing market weak, despite improving economy Residential property prices in Mongolia are falling again - by 0.38% during the year to Q2 2019, according to central bankMongol Bank, following last year's small recovery. But this figure doesn't adequately mirror reality.  Adjusted for inflation, house prices in Mongolia actually dropped by a huge 7.84%.

The huge gap between nominal and real prices is due to high inflation. In September 2019, consumer prices surged 9% from a year earlier – the highest increase since February 2015.

During the latest quarter (Q2 2019), house prices fell by 1.32% (-4.26% inflation-adjusted).

Mongolia's weak market is due to 3 factors: 
  • oversupply of more expensive properties
  • high mortgage rates
  • high unemployment

1. Oversupply of more expensive properties.The residential real estate market of Ulan Bator is divided between the buoyant lower end, and the oversupplied upper end/luxury market:
  • Over half of the residents of Ulan Bator still live in traditional dwellings known as gers, or in housing not well connected to permanent infrastructure. So there's big demand in the lower end market, encouraged by rising wages and massive government-sponsored access to mortgage financing.
  • But luxury real estate has a significant oversupply of projects competing for a limited number of buyers and scarce financing.

The average apartment price in Ulan Bator currently stands at MNT2.2 million (US$815) per square meter (sq. m.), according toThe UB Post's August 2019 interview with B.Javkhlan, CEO of real estate portal, in the capital city's central business district (Sukhbaatar district), that caters to expats and the ultra-rich, prime residential prices averaged MNT 8.53 million (US$ 3,158) per sq. m., according to the Q2 2019 economic update by Mongolian Properties.

Ulan Bator's most desirable residential buildings/compounds include The Brauhaus, the Temple View Residence, The Jiguur Grand Office Building, The Star Apartments, The Royal County, The Sarnaikh Building, Lux House, The Erel Building, The Russian Embassy Building, Regency Residence, and the Blue Sky Tower, among others.

The “Embassy District” and the area around the State Department Store, also known as the 7 Courtyards, are two of the most popular residential areas for foreign homebuyers and tenants, as well as wealthy Mongolians.

2. High mortgage rates. During 2018, the weighted average interest rate for new mortgage loans rose to 12.2%, up from 11% in 2017, 8.8% in 2016, 9.7% in 2015, and 10.2% in 2014, according to Mongol Bank, despite the fact that the central bank's policy rate remained unchanged at 11% since November 2018.

Mongolia house prices

The loan-to-value (LTV) ratio is 70% of the appraised value of the property. The term period is usually over 20 years.

3. High unemployment. Mongolia's unemployment rate stood at 9.9% in Q3 2019, slightly down from the previous quarter's 10.1% jobless rate. Unemployment averaged 10% in the past three years.

Analysis of Mongolia Residential Property Market »

Rental Yields

Rental market growing

Mongolia's rising property prices have resulted in stronger demand for rental property as households choose to rent rather than buy. Mongolia Properties estimates rental yields at about 15-18% per annum.

In Ulan Bator average rental yields between 2005 and 2013 were over 11% per year. Presently the average rental rate of:

  • one-bedroom apartment for local residents is between MNT 300,000-500,000 MNT (US$151-252) per month
  • two-bedroom apartments rent for between MNT 500,000-750,000 (US$252-378) per month.

Prices in the upper end of the residential rental markets (including those geared towards expats) have remained reasonably stable at around US$ 600-800 per month for a one-bedroom apartment near the CBD, based on M.A.D. Research estimates.

Read Rental Yields »

Taxes and Costs

Mongolia has high income taxes for non-residents

Rental Income: Rental income earned by nonresident individuals is taxed at a flat rate of 20%.

Capital Gains: Nonresidents earning capital gains realized from selling real property are taxed at a flat rate of 20%.

Inheritance: There are no inheritance taxes in Mongolia.

Residents: Residents are taxed on their worldwide income at a flat rate of 10%.

Read Taxes and Costs »

Buying Guide

Buying costs are very low

The round-trip costs of buying and selling a property are around 5.57% to 6.52%, including legal fees and the agent’s commission (3.5%) and transfer tax (2%).

Read Buying Guide »

Landlord and Tenant

Landlord and tenant


Read Landlord and Tenant »


Economic growth & the housing market

Mongolia modern houseThe boom of the early 2000s. During the 2000s residential prices soared in Mongolia, boosted by strong economic growth, high copper prices, and large increases in gold production. Economic growth averaged 7.2% annually from 2001 to 2008.

Expatriates, foreign diplomats, and executives moved to Ulan Bator en masse. It became a boom town, four wheel drives proliferated, money was thrown about, and a great time was had. Louis Vuitton, Emporio Armani, Burberry and Hugo Boss are now established in Ulan Bator.

The global economic crisis hit hard.However, Mongolia’s heavy reliance on commodity prices meant the global crisis hit hard. The price of copper, the country’s single largest export, plunged by almost 65% from July 2008 to February 2009. In 2009 the economy contracted by 2.1%.

The Mongolian Tugrik (MNT) became unstable. Foreign investment dried up. Banks stopped lending. Construction projects screeched to a halt. Housing demand, especially from foreign expatriates, vanished, and the residential property market stagnated from 2008 to 2010.

In 2010 the economy returned to growth. Due to strong copper demand from China GDP rose by 7.3%.With the signature of the long-awaited OyuTolgoi Investment Agreement to develop the OyuTolgoi mine, one of the world’s largest untapped copper deposits, the economy expanded by 17.3% in 2011, 12.3% in 2012 and 11.6% in 2013.  In 2011 residential prices rose by a whopping 41.5% in major city centre locations.

Mongolia gdp
Politicians scaredoff investors 2012-2016: the dispute with Rio Tinto.Mongolia's macroeconomic environment changed drastically in 2014. Problems began when Rio Tinto's Turquoise Hill Resources arm, then operating under its former name Ivanhoe Mines, announced plans to sell its stake in South Gobi Resources (a large Mongolian coal mine) to the Aluminum Corporation of China (Chalco) in April 2012, two months before national elections in June 2012. The proposed deal allowed populist politicians to claim that Ivanhoe/Turquoise Hill was not only trying to deceive the people of Mongolia but was also selling a large Mongolian coal mine to China, with which Mongolia has a testy relationship.

Half a month after the deal was announced, the Mineral Resource Authority of Mongolia suspended South Gobi's mining licenses. Three South Gobi executives were then detained under Mongolia's controversial visa exit ban policy. The executives were only released in March 2015. Investors were further scared by disputes over cost overruns, profit sharing, management control and a US$30 million tax bill levied on the OyuTolgoi project.

This called into question Mongolia's ability to work with foreign corporations and investors.  In 2014, foreign direct investment declined 81% from a year earlier, according to the Central Bank of Mongolia. Massive capital flight caused a 40% fall in the Mongolian Tugrik versus the US dollar.

Economic growth slowed sharply to just 2.4% in 2015 and to 1.2% in 2016. The fiscal deficit surged to 17% of GDP in 2016, up from 8.5% in 2015. The government had racked up debts worth nearly 90% of GDP by end-2016.  To make matters worse global coal prices plummeted by more than 60% in January 2016 from their peak levels seen five years ago.

All these factors adversely affected the housing market. House prices fell by 4.4% in 2016 (-5.6% inflation-adjusted), following declines of 11.3% in 2015 and 0.6% in 2014.

Now Mongolia is booming again!  In February 2017, the IMF approved a much-needed US$5.5 billion stimulus package on the condition that the government implement fiscal reforms and strengthen its banking system.  In 2017, aided by a rebound in the price of coal globally, Mongolia’s economy expanded by 5.3% and by another 6.9% in 2018. Economic growth accelerated further to 8.6% in Q1 2019, according to the IMF.  The economy is projected to expand by 6.5% this year and by another 5.4% in 2020, based on IMF estimates.

“Mongolia’s economy has recovered vigorously from the recent downturn,” said the IMF. “Economy growth accelerated to 8.6 percent in the first quarter of 2019, over fiscal balance turned into surplus in 2018, and gross international reserves have increased by US$2.5 billion since 2016.”

“Notwithstanding the progress, Mongolia remains vulnerable to external shocks given its high debt levels and the economy’s dependence on mineral exports,” warned the IMF.

As a result of the improving economic environment, the housing market has also showed some improvement, with nominal house prices rising by 0.4% in 2017 and 4.15% in 2018 though real price growth remains negative.But high inflation has brought high interest rates - which have hit the housing market.