The 2011 Mongolian Real Estate Report

EXECUTIVE SUMMARYInclusive of the Consumer Price Index

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RESEARCH SQUARED LLC

The 2011 Mongolian Real Estate Report is part of the Industry Intelligence series, providing mission critical information on Mongolian markets. Research Squared excel provides investment research and market analysis, as well as economic and social data pertinent to investment decision-making. Our services include due diligence, business environment brie!ngs and feasibility studies. We also specialise in design and implementation of reliable, context appropriate research solutions. Based in Mongolia’s capital, Ulaanbaatar, our international team combines industry-leading research and analytic skills with local knowledge to help make the risk of emerging markets work for you.

Research Squared was set up in 2011 as a subsidiary of M.A.D. Investment Solutions to provide in-depth analysis and market data on Mongolia. As Mongolia continues in its transition to a fully "edged free-market economy new practices new systems are gradually being developed to meet the information demands of a large and competitive private sector. Nevertheless, market research remains limited within Mongolia and is even thinner on the ground internationally. With over 16 years of combined experience in the Mongolian market the M.A.D. Investment Solutions team created Research Squared in order to provide market research and analysis that investors, both domestic and international, are desperate for. We have conducted extensive market research in the sectors of healthcare, real-estate, !nance and banking. Our client base extend across Asia, the U.S.A. and Europe and include one of some of the largest real estate investment advisors on the planet. Our international staff of researchers, based in Ulaanbaatar, combine local knowledge with robust analysis to deliver thorough and practically focussed views of Mongolian markets.

As the !rst major commercial study of the real-estate market in Mongolia this document provides an in-depth history of the development of real estate markets in Mongolia as well as detailed information for each market segment. More than just a market overview, the Mongolian Real Estate Report 2012 is designed to furnish the reader with in-depth, practically oriented and up-to-date knowledge the Mongolian real estate market and its functioning. The private property market in Mongolia has only been developing for two decades, making kind of long-term projections that underpin investment decisions in more developed markets are not yet possible. In this context investors rely more than ever on on-the-ground information. With this in mind the Mongolian Real Estate Report 2012 delivers the combined insight of our experienced team in a single encompassing document designed to give robust information, practical guidance and a feel for the urban spaces of Mongolia.

M.A.D. INVESTMENT SOLUTIONS LLC

With established on-the-ground expertise, M.A.D. Investment Solutions provides a wide range of turn-key Real Estate Services including investment trips, due diligence, Rental & Sales, project management and property valuations both within Ulaanbaatar as well as high-growth secondary cities. The M.A.D. expat management team has been operational in Mongolia for an average of 8 years each and have been involved with an estimated 1,500 real estate transactions throughout their careers in Mongolia. They are dedicated to furthering the Mongolian business environment and creating a sustainable investment environment for its clients. Today M.A.D. offers a unique dedication to service and providing all the tools necessary for foreign investors to make the right investment decision in Mongolia. In 2011, M.A.D. Investment Solutions published Mongolia's !rst truly comprehensive property market study through Research Squared, its subsidiary investment research company.

Website: http://www.mad-mongolia.com

AUTHORS OF THE MONGOLIAN PROPERTY REPORT 2012

Alex Skinner, Christopher de Gruben, Joachim Bertot, Uyanga Tsoggerel, Tsolmon Dorjgotov,

Gansukh Khurelbaatar, Lhagvasuren Erdenchuulun, Chinguun Enkhbayar, Otdgonbayar Magvan.

EXPERT OPINION CONTRIBUTORS TO THE MONGOLIAN PROPERTY REPORT 2012:

Mr. Tom Holland, Managing Partner, Cube Capital

Mrs. Burmaa Ukhnai, Managing Director, Uils Real Estate Agency

Mr. Marat Utegenov, Managing Partner, Mongolian Development Resources

Mr. Jim Dwyer, Executive Director, The Business Council of Mongolia

Research Squared - Mongolian Property Report 20122 / 343

http://www.mad-mongolia.com

http://www.mad-mongolia.com

EDITORIAL

Global Crisis 2011/12 - The potential impact on the Mongolian Property Sector

Will we see a repeat of the 2009/10 crisis or is Mongolia now in a better position to weather the international storm?

As the world seems to, yet again, slip into a global recession, we look at the potential impact this could have on the Mongolian Property Market and its subsequent attractiveness to foreign investors. The Mongolian Property Sector is currently under threat from two separate fronts, the !rst is increasingly similar to the 2009/2010 commodity crisis which impacted the Mongolian real estate market rather considerably. Not only did foreign investors reduce or completely halt their investments into Mongolia (on which the Mongolian economy was entirely reliant) but as the western world descended into recession, it reduced exports from China which in turn drove down China’s need for basic mineral commodities from Mongolia but also globally reduced commodity prices due to a sudden lack of demand, therefore drying up new mining investments. A serious !nancial crisis in China, which could lead to a weakening of its real estate market would create a pan-regional domino effect which would, in turn, severely impact Mongolia.

As if the concerns of an impending global recession were not enough to worry potential investors, the current levels of political bickering and nationalistic sentiments amongst the Mongolian population are setting a dreadful precedent (or maybe a reminder) of the constant underlying threat of political instability. As we approach the parliamentary elections (June 2012), it is likely that we will see an increasing number of anti-foreign public initiatives from parliament members desperately seeking marginal votes in a bid to clinch to power and the lucrative opportunities this presents. A clear and recent example of such a position was the sudden, and very public, declaration that the Mongolian state wished to renegotiate the OT agreement. While this was swiftly reversed, it has resulted in a serious blow to the international reputation of Mongolia.

Mongolia’s insistence to develop its railway infrastructure towards politically relevant Russia and its sea ports rather than business oriented China thus making Mongolian commodity export considerably less pro!table, has been a disappointment to foreign mining investments. The Khan Resources uranium license case, the rejection of the Tavan Tolgoi bidders (previously publicly announced by the government as a done deal) in addition to the current nationalistic positions towards OT and foreign investments can only send negative signals to those investors who are becoming increasingly risk-averse and frustrated of Mongolian politics. During the previous crisis, the property sector was impacted in various degrees. Practically all construction projects in the city halted and while prices only dropped by an average of 20% across the city, liquidity dropped dramatically with very few transactions taking place. This only changed after Oyu Tolgoi started signi!cantly investing in Mongolia, thus signalling to the foreign investment community that Mongolia was once again a desirable global investment location.

Mongolia’s overall economic position today is only slightly improved from where it was in 2009. The country has had the chance to grow its economy over the last year (14% YoY GDP Growth), it has secured and started the Oyu Tolgoi development, improved !scal policies as well as foreign reserves and has managed to marginally diversify its economy but the country has, on the other hand, become more reliant on foreign debt, increased its trade de!cit and is burdened with high in"ation as well as high (unof!cial) unemployment rates. Over the course of 2011, the Mongolian Property market not only recovered remarkably well but increased levels of foreign investments kept pushing up capital growth and rental prices as Mongolia became the media darling of the world; an attractive story in an otherwise gloomy world.

The current growth in the UB property market is very much linked to the burgeoning emerging middle class purchasing property on the back of the rapidly increasing wage levels across the capital. Should the global crisis take a considerable turn for the worst, foreign investment will most certainly slow down over the coming 8 months of winter, wage levels may thus drop as fewer companies hire aggressively and may in turn lead to a drop of consumer con!dence in property. This is in contrast to the recent announcement from the Mongolian Government of a 53% rise in public servant wages and pensions, if this is followed through, it is inevitable that in"ation will rise further and we may well start witnessing the onset stages of the infamous “Dutch Disease”.

However, the fundamentals of the real estate market are still extremely solid, the country is guaranteed a relatively safe future double digit GDP growth based on the existing levels of foreign investment through the commitments that mines such as OT have already made, therefore feeding the construction and mining supply chains. The current levels of FDI enjoyed by the Mongolian government are not solely reliant on the exports of minerals but rather on the long-term development of those mega-mines that take generally a few years to bring to production and require enormous up-front capital and human investments. This thus means that even if there are no signi!cant new numbers of expats relocating to Mongolia, the current residents are here to stay and will keep renting apartments.

Ulaanbaatar itself keeps witnessing considerable levels of urbanisation as nomads leave the countryside to seek their fortunes (or more often - survival) in the capital, adding to the already considerable demand pool for low-to-mid end residential properties in the city. Lets not forget that over half of the city inhabitants still reside in the traditional nomadic tents known as gers. This demand, in addition to the increasing number of high-net-worth Mongolians investing in the property sector regardless of global economics, as well as those private investors that strongly believe in the future potential returns of Mongolia over those of more established western economies is most likely to keep fuelling demand across the city centre. In addition to which there is a very real “shadow FDI”, essentially private and very discreet foreign investment, mostly from China, that invests across the board in all types of assets regardless of economic logic.

It is also highly likely that large foreign institutional investors realise the opportunities afforded in a market with strong fundamentals and invest heavily in existing built properties to make the most of the situation without carrying construction risks, thus, while new developments may slow down, the prices of existing properties may keep rising. In addition to growing demand, supply of new properties in the city keeps dwindling as scarce land becomes increasingly expensive and both skilled labour and construction materials are constantly diverted towards the Eldorado of the south Gobi and its enormous mining projects. As mortgages in Mongolia are still too expensive to be attractive to a vast majority of the population (less than 10% of Real Estate purchases in Mongolia are mortgaged), there is little risk of a true collapse in the industry as widespread foreclosures are impossible in a cash driven market.

With the typical seasonal drop in demand over the winter months combined with the increasing uncertainty over politics and the state of the global economy, it is possible that general property prices may stagnate over the winter months with a potential small dip within some sectors of the capital but a price drop would only be short lived as the summer of 2012 will no-doubt bring renewed investment to the country’s mining sector (probably post-election) supported by, it is hoped, a more stable global economy. We furthermore expect to see a number of dedicated property funds launching their operations by mid-2012 who are, in turn, likely to single-handedly raise prices across the board.

Suburban areas such as Zaisan and the stadium areas are most likely to see a noticeable drop in prices while the Star Apartments area, the CBD and the State Department Store / Ulaanbaatar Department Store areas are most likely to see continued growth. It is essentially clear to those on the ground, that, despite repeated setbacks, Mongolia has !rmly set itself on a path towards extraordinary growth and, pending a catastrophe, shows no signs of slowing down in the near future.

Christopher de Gruben

M.A.D. Investment Solutions

Managing Partner

Ulaanbaatar, Mongolia. 21 October 2011


TABLE OF CONTENTS

-----------------------------------------------------------------------------------------------------------------------------------Glossary 9

----------------------------------------------------------------------------------------------------------------------Executive Summary 13

Demographic Factors 18

Residential 19

Retail 25

Of!ce 27

Hotel and Serviced Apartment Market 29

Construction 32

Land and Property ownership - structures and functioning of the market 34

Legal Environment 36

Doing Business in Mongolia. 37

Tier 2 Cities 39

Dalanzadgad - Даланзадгад 39

Erdenet - Эрдэнэт 40

Khan Bogd - Ханбогд 40

---------------------------------------------------------------------------------------------------------Mongolia in Macro-perspective 44

Background 46

Ethnic Composition 46

Language 46

Religion 47

History 48

Geography and Climate 50

The Mongolian Psyche 51

Consumption 52

Government Expenditure 53

Investments 54

The Business Environment 56

Net Exports 57

Foreign Reserves 58

Regional Trade 59

Banking and Currency 62

The Mining Sector 62

Coal 64

Copper 64

Gold 65

Uranium 66

The Mining Policy Environment 66

Demographic Trends 68

Employment and Wages 72

Wealth Distribution 77

Employment Risk Analysis 78

Risk Factors 79

Dutch Disease 79

Mining and Social Security 80

Political Stability 80

Natural Disaster: Earthquake 80

Natural Disaster: Flood 81

-------------------------------------------------------------------------------------------------------Political, Legal and Tax Systems 84

Overview of the Political System 84

Ministries 85

Political Environment and Perceptions of Government 87


Third Neighbor Policy 87

Corruption 88

Overview of the Legal System 89

The Legal Profession 90

International Law 90

Law and Property Rights 91

The Rights of Foreign Citizens 91

Expropriation 91

Overview of the Mongolian Tax System 93

Property Taxes 94

Value Added Tax 95

Personal Income Tax and Compulsory Insurance 95

Corporate Income Tax 96

The Mongolian Tax Environment in International Comparison 97

--------------------------------------------------------------------------------------------------------------------Real Estate Overview 101

The Development of Private Property in Mongolia 101

Land Ownership 103

Property Related Risk Factors 108

Market Characteristics 108

Currency Risk 108

Reliance on Key ‘on-the-ground’ Personnel 108

Regulation and the Legal Environment 109

Taxation 110

Expropriation 110

Corruption and Political Factors 110

Insurance 111

International Comparison 111

Benchmarking 112

International Market Comparisons 116

China 116

Russia 117

Kazakhstan 118

Overview of the Real Estate Market 119

National Market Volume and Liquidity 121

Planning Restrictions in Ulaanbaatar 123

Existing supply depreciation in Ulaanbaatar 124

Redevelopment in Ulaanbaatar 124

Building Restrictions in Ulaanbaatar 125

Infrastructure in Ulaanbaatar 125

Electricity 125

Water 128

Road networks 129

Construction Sector Overview 131

Labour 134

Timescales 135

Cost of Corruption 135

Real Estate Legal Environment 135

Legal Structures of Immovable Property Ownership in detail 137

Registering an Immovable Property 137

Legal Structures of Land Ownership 138

Land Possession Rights in Detail 139

Legal Protections and Expropriation 142

The Mongolian Legal Environment in International Comparison 142

Master Plan 2020 - The Future of Ulaanbaatar 143

Development Plan 145


Legal and Land Allocation Framework Revisions 146

Housing Development in the UBMP 2020 147

Speci!c Projects 149

Expectations for housing development 150

Housing Target 150

Transport 150

Roadways 152

International Airport 152

Railway 152

Bus Services 153

National Development Integration 153

The Industrial and Technological Park 153

Improvements to Social Infrastructure 153

Disaster Management Strategy in the Master Plan 154

Fire 154

Ulaanbaatar Economy 154

Budget and Investment 154

Ongoing improvement projects 155

Critiques 155

-----------------------------------------------------------------------------------------------------------------------Residential Market 157

Residential Rental Market Supply 157

Expat Rental Markets 159

Residential Housing Supply in Mongolia 160

Ulaanbaatar Residential Supply 162

Overview 162

Inner City Ger Areas 163

Mid Ger Areas 163

Peripheral Ger Areas 163

Apartment areas in the inner city 164

Detached housing in ger areas 168

Housing Market Demographic Breakdown 168

Mortgage Markets in Ulaanbaatar 170

Ulaanbaatar Residential Project Overview 173

A note on aesthetics, furnishings and renovations 176

District by District analysis 177

Bayangol District - Баянгол 181

Bayanzurkh District - Баянзүрх 186

Khan-Uul District - Хан-Уул 192

Sukhbaatar District - Сүхбаатар 199

Chingeltei District - Чингэлтэй 206

Songinokhairkhan District - Сонгинохайрхан 211

-----------------------------------------------------------------------------------------------------------------------------Of!ce Market 215

Of!ce Supply 216

-----------------------------------------------------------------------------------------------------------------------------Retail Market 224

---------------------------------------------------------------------------------------------------------------------Warehouse Markets 233

--------------------------------------------------------------------------------------------------------------------Parking and Garages 236

-----------------------------------------------------------------------------------------------------------------------------Hotel Markets 239

Overview 239

Rates 242

Hotel Supply 242

High End Hotels: 3*+ 244

Mid-to-low end. 245


Future Supply 245

-----------------------------------------------------------------------------------------------------------Serviced Apartment Markets 248

Overview 248

Serviced Apartment Supply 249

District by district trend analysis 252

------------------------------------------------------------------------------------------------------------------Entertainment Markets 255

Overview 255

Entertainment Supply 256

------------------------------------------------------------------------------------------------------------------------------Land Market 258

Overview 258

-------------------------------------------------------------------------------------------------------------------------Secondary Cities 264

Darkhan - Дархан 265

Growth Factors 266

Residential 267

Hotel 267

Construction 267

Of!ce 267

Retail 267

Sainshand - Сайншанд 268

Growth Factors 269

Residential 269

Hotel 270

Construction 270

Of!ce 270

Retail 270

Dalanzadgad - Даланзадгад 271

Growth Factors 272

Transportation and Communications 272

Infrastructure 272

Retail and Commercial 273

Khan-Bogd - Ханбогд 273

Growth Factors 275

Residential 275

Hotel 275

Construction 276

Of!ce 276

Retail 276

Erdenet - Эрдэнэт 276

Residential 277

Hotels 277

Zamiin-Uud - Замын-Үүд 278

Residential 279

Hotels 279

Bayan-Olgii - Баян-Өлгий 279

Hotels 280

Residential 280

Land 281

Retail 281

Sukhbaatar - Сүхбаатар 281

Growth Potential 282

Residential 282

Land 282

Khovd - Ховд 283


Infrastructure 284

Travel and communications 284

Residential 284

Hotels 284

Retail 285

Land 285

-------------------------------------------------------------------------------------------------------------------------------Appendices 287

Notes on Methodology 287

References and Bibliography 287

How To Guides 289

Locating a Property to Rent of Buy 289

Property Transaction Process 290

Rental Contract Considerations 291

Due Diligence Checks 292

Paying bills Associated with a Property 292

Water, Heating and Electricity Payments 292

Telephone and Cable Television Payments 293

Internet Payments 293

Building and Grounds Maintenance Payments 293

Obtaining Work Visas 293

Translations of the Laws of Mongolia 294

Law of Mongolia on Land fees 304

Primary Mortgage Providers 316

Major Development Companies Operating in Mongolia. 322

MCS Property LLC 322

Just Group 323

Jiguur Grand Group LLC 323

Chono Corporation - Chono Properties Co,.Ltd 323

Bridge Group LLC 323

Gangar Holding LLC 324

Gandirs Group LLC 324

Monnis Properties LLC 324

Nomin Construction 324

Modun 325

Maks Urgoo LLC 325

Bodi Construction 325

Delta Construction 326

Altai Construction LLC 326

Eco Construction LLC 326

Government Agencies 328

Real Estate Companies 329

Property Insurance Providers 332

Consumer Price Index 333

Sample Real Estate Documents 340


I. GLOSSARY

Aimags of Mongolia, with Standard AbbreviationsAimags of Mongolia, with Standard AbbreviationsAR Arkhangai

BO Bayan-Olgii

BKH Bayankhnongor

BU Bulgan

GO Govi-Altai

DO Dorngovi

DD Dornod

DU Dundgovi

ZA Zavkhan

OV Ovorkhangai

OM Omnogovi

SU Sukhbaatar

SE Selenge

TO Tov

UV Uvs

KHO Khovd

KHS Khovsgol

KHE Khentii

DA Darkhan-Uul

UB Ulaanbaatar

OR Orkhon

GS Govisumber

Central Districts of Ulaanbaatar with Standard AbbreviationCentral Districts of Ulaanbaatar with Standard AbbreviationSBD Sukhbaatar

CHD Chingeltei

K-UD Khan-Uul

SKD Songinokhairkhan

BGD Bayangol

BZD Bayanzurkh

Outer Districts of Ulaanbaatar with Standard AbbreviationOuter Districts of Ulaanbaatar with Standard AbbreviationBND Baganuur

BKD Bagakhangai

NKD Nalaikh

De!nitions of the Regions of Mongolia as established by the National Statistical Of!ce of Mongolia (NSOM)De!nitions of the Regions of Mongolia as established by the National Statistical Of!ce of Mongolia (NSOM)De!nitions of the Regions of Mongolia as established by the National Statistical Of!ce of Mongolia (NSOM)De!nitions of the Regions of Mongolia as established by the National Statistical Of!ce of Mongolia (NSOM)De!nitions of the Regions of Mongolia as established by the National Statistical Of!ce of Mongolia (NSOM)Western Region Khangai Region Central Region Eastern Region Ulaanbaatar

Bayan-Olgii Arkhangai Govisumber Dornod Ulaanbaatar City

Govi-Altai Bayankhongor Darkhan-Uul Sukhbaatar

Zavkhan Bulgan Dorngovi Khentii

Uvs Orkhon Dundgovi

Khovd Ovorkhangai Omnogovi

Khovsgol Selenge

Tov


Glossary of TermsGlossary of TermsAcronyms of Organisations, NGOs, Projects and PublicationsAcronyms of Organisations, NGOs, Projects and Publications

ABD Asian Development Bank

USAID United States Aid

MCA Millennium Challenge Account

NBFI Non-Banking Financial Institution

PRC People’s Republic of China

EBRD European Bank for Reconstruction and Development

MPP (formerly MPRP)

Mongolian People’s Party (formerly Mongolian People’s Revolutionary Party)

DPP Democratic People's Party of Mongolia

VSO Voluntary Service Organization

GTZ Deutsche Gesellschaft fur Internationale Zusammenarbeit

FIFTA Foreign Investment and Foreign Trade agency of Mongolia

WB World Bank

IMF International Monetary Fund

UNDP United Nations Development Program

ADRA Adventist Development and Relief Agency

NSOM National Statistics Of!ce of Mongolia

GoM Government of Mongolia

LME London Metals Exchange

MSE Mongolian Stock Exchange

LSE London Stock Exchange

MRAM Resource Authority of Mongolia

NMMA National Mongolian Mining Association

HIES Household Income and Expenditure Survey 2008 (NSOM and World Bank)

NRA Nuclear Regulation Authority of Mongolia

UB2020 The Ulaanbaatar Master Plan 2020

JICA Japanese International Cooperation Agency

MMC Mongolian Mortgage Corporation

Economics and GeographyEconomics and Geography

CBHI Central Business Height Index

GNP Gross National Product

GDP Gross Domestic Product

RGDP Regional Gross Domestic Product

GDP Per Cap GDP per capita

ROI Return on Investment

CPI Consumer Price Index

MiningMining

OT Oyu Tolgoi

TT Tavan Tolgoi

MMC Mongolian Mining Corporation

CurrencyCurrency

US$ United States Dollar

MNT Mongolian Tugrik

RMB Chinese Yuan Renmimbi

RUB Russian Ruble


Glossary of Mongolian TermsGlossary of Mongolian TermsDzuud A winter of extremely heavy snowfall, often following a very dry summer, in which livestock are unable to !nd fodder through the

snow cover. This is a catastrophic event in which large numbers of animals may die due to starvation.

Aimag The largest administrative unit of Mongolia. May be translated as Province. There are 21 Aimags in Mongolia, established since 1921

Soum A Soum is the second level administrative district of Mongolia. The 21 Aimags of Mongolia are subdivided into 329 Soums. Each Soum administers a territory of rougly 4,200 square kilometers or around 5,000 people.

Bag The Bag is the third-level administrative subdivision of the Mongolian territory . Most bags are not administrative territories as such and serve to sort families of nomads of Soums into groups.

Dureg Literally meaning District. The capital city of Monoglia, Ulaanbaatar, is divided into 9 districts, 6 central and 3 peripheral.

Khoroo Khoroos are administrative subdivisions of Ulaanbaatar. The term is often translated as subdistrict. There are 132 subdistricts of Ulaanbaatar.

Khoroolol Khooroolols are the third-level administrative divisions of Ulaanbaatar. Translated as microdistrict or neighborhood, these are the smallest subdivisions of the capital city and are represented by local level administrative organizations.

Ikh Khural The Ikh Khural, translated as the State Great Khiral, is the name for the unicameral Parliament of Mongolia. It represents the legislative and Government.

Ger A traditional, round, felt and wood-frame dwelling used by nomadic pastoralists in Mongolia.

Baga Toirog This is the name commonly given to the political and economic heart of Ulaanbaatar, now commonly known as the CBD.

Baga Toiruu This is the name given to the central area of Ulaanbaatar surrounding the small CBD and political heart of the city, encompassing parts of Chingeltei and Sukhbaaatar Districts

Bayshiin Literally building, an apartment or house.

Barilga Literally construction or the act of building. This is a also the name of a well known trade magazine. In spoken language it is pronounced Barilag.

Khashaa A small, fenced plot of land upon which a family may pitch a ger or build a property. In Ulaanabatar these are usually around 250 - 700 square meters in size, corresponding at the high end to the maximum size of land plots able to be privatised by a family or individual.

Exchange Rates used in this ReportExchange Rates used in this ReportExchange Rates used in this ReportSymbol Foreign Currency Mongolian Tugrik Rate

US$ United States Dollar 1.245

RMB Chinese Yuan Renminbi 195

RUB Russian Rouble 41.5


CHAPTER 1

THE EXECUTIVE SUMMARY


II. EXECUTIVE SUMMARY

Ulaanbaatar is fast becoming one of inner Asia’s most exciting and vibrant cities. A city has stood where Ulaanbaatar is today since 1639, originally named 'Nomin ih huree', today’s Ulaanbaatar is the thriving political, cultural, economical and educational centre of Mongolia and is home to a population of over 1.2 million people (around 44% of Mongolia’s total population), the majority of whom inhabit the ger districts (a ger is a traditional nomadic dwelling made of wood and felt) which surround the city on all sides, while a select few enjoy the trappings of increasing wealth brought about by the mining boom in Mongolia. Since the dissolution of the Centrally Planned economy in the early 90’s, Mongolia has opened up to global economies and in!uences, nowhere is this more visible than in the capital city. Land-cruisers and Hummers now vie for space on the crowded roads, whilst the burgeoning, style-conscious middle-class shop in Louis Vuitton and Hugo Boss. The city is bustling with change and is full of expectation. Mongolian traditions are never the less still strong and herding continues as a viable way of life in many of the 'Aimags' (regions). This can clearly be witnessed in the architecture of this sprawling city, wherein Soviet era buildings, are juxtaposed against new towering steel and glass structures and a few remaining Chinese/Tibetan imperial style palaces.

The precocious development of this vast and sparsely populated state is increasingly catching the eye of the world’s "nancial communities. World Bank "gures indicate that Mongolia's economy grew by 17.3 percent in the second quarter of 2011, although annualised "gures produced in the fourth quarter of 2011 indicate that growth for the year may end up closer to 40%. This has led to the rise of household income, which has risen 4.5% in the last year alone. Poverty in Mongolia has also fallen and continues on a downward curve. In 2008 23.1% of the population of Mongolia were identi"ed as living on or below the minimum level of income necessary to achieve an adequate standard of living (currently de"ned by the World Bank as US$1.25 at 2005 purchasing-power parity).

For the "rst half of 2011 GDP Mongolia’s annualised GDP growth was a remarkable 17%, with annualised in!ation vacillating from a low 2% to a high of 10% between January and June 2011. In!ation is on the rise, even again after the Government of Mongolia implemented measures in spring 2011 to curb runaway food in!ation. Nonetheless, a "scal surplus of 7% of GDP reported by the end of the "rst half of 2011 is a good indicator that Government spending is becoming more responsible. Nonetheless, there are concerns that "scal spending will increase drastically with the promise of mining revenues luring a Government well known for electioneering into making impudent promises. Adoption of counter-cyclical "scal policy provides further indication of increasing "scal maturity in the Government of Mongolia. Foreign exchange reserves are high, at 40% of GDP, or $2.6 billion. There are calls from some parts of Government to spend some of these reserves, although prevailing opinion seems to favour building foreign currency reserves, in order to improve Mongolia’s credit rating. Domestic currency is displaying 9% appreciation against the US$ despite money supply increasing 67% during 2011 year-to-date and net trade continuing in its de"cit status. All indications point to a continuing appreciation of the MNT against the US$ as mining exports continue to exert upward pressure on the value of the


Mongolian currency. After net exports levelled out at near equilibrium in 2010, this year has seen Mongolia becoming a net importer again as huge mining projects continue construction and infrastructural development. Nonetheless, this process is all geared towards initiation of major mining projects through 2013 to 2016, such as Oyu Tolgoi and Tavan Tolgoi, that will thrust commodity exports to huge new highs. On top of all this, capital markets are rapidly improving. Plans to move the stock exchange onto a new electronic trading platform by mid- December and the promise of international trading through the LSE by Q1 of 2012 year will bring with it capital in!ow increases that should bring performance of the exchange back closer to 2010 levels , when the exchange experienced a run up of 121% in a single year. Foreign investment into Mongolia for 2011 year will likely continue to rise and should easily trump the US$ 1.4 billion invested in 2010 as new investors clamour to gain exposure to Mongolia’s mineral wealth and increasing exports and mineral rich deposits, despite unsteady in!ation and mineral sector dependence. In the "rst 5 months of 2011 investment already reached US$ 1.2 billion. The European Bank for Reconstruction and Development (EBRD) reported investors contributed to 26 percent of the GDP in 2010.

The Mongolian economy is export and commodity based, with the minerals sector making up 22.5% of total GDP in 2009. Rapid recovery and expansion of exports combined with commodity price rises have led to projections of accelerated GDP growth, with nominal GDP growth rate projections peaking as high as 30%. An improving macroeconomic situation coupled with greater monetary liquidity and more developed mortgage markets will drive growth in property markets. Demographic indicators that project increased demand from a young, urbanising population also support this growth projection. At present mortgage lending is not well developed in Mongolia, with commercial banks offering rates of between 15% and 17% per annum on average. Successive reductions in the Mongol Bank interest rate and improved credit policy, should ensure greater access to mortgages for the wealthier segment of almost three-quarters of a million people in Ulaanbaatar who presently live in accommodation not serviced by basic infrastructure. This, in turn, will drive up demand for a limited supply and exert considerable upward pressure on prices.

This impressive growth is being driven by exploration and extraction of Mongolia’s breathtaking mineral wealth. Beneath Mongolia’s vast and diverse terrain there are well over 8,000 individual deposits, containing a wealth of over 440 different minerals. Of these around 600 deposits and outcrops thereof have been more fully explored and their extent determined. Much of this exploration began during the socialist period One example of a successful existing project is the Erdenet copper mine. Established in the 1978 with an initial production capacity of 4 million tons per year, the mine was producing nearly 24 million tons per year by the transition period and still has reserves enough to keep the mine producing for up to 40 years hence. The nation also has a long history of uranium exploration, dating to joint Mongolian-Russian exploration projects in the 1950s of deposits in the Dornod and Gurvangulag areas of the country. Atomredmetzoloto indicates that Russia spend over US$600 million on uranium exploration and development in Mongolia up until 1995.

Known mineral deposits include over 180 gold deposits, 5 copper molybdenum deposits, a lead deposit, 5 tin deposits, 10 steel iron deposits, 4 silver deposits, 42 deposits of brown and coking coal, 42 !uorspar deposits, 12 salt and 10 sodium sulphate deposits, 6 semi-precious stone deposits, 9 crystal deposits, over 200 deposits of minerals used in production of construction materials and a wealth of rare-earth metals. By 2011 well over 200 of these deposits are already being exploited. The vast majority of current individual mining operations are on in gold deposits, with copper, coal, salt and other minerals making up the remainder. Mongolia is ranked second in the world in terms of copper reserves, with the Oyu Tolgoi copper deposit considered to be over three times larger than EMC. Alongside this !agship reserve the Erdenet mine is still producing 25 million tons per annum and in 2010 was responsible for 12% of Mongolia’s GDP. Today Boroo Gold, a subsidiary of Centrera Gold, remains the largest single player in the gold sector. Boroo was estimated to have increased the entire country’s GDP by between 5% and 7%. The Gold and copper sectors are about to transform as Oyu Tolgoi mine comes online in 2013. This project has already committed US$7 billion to the Mongolian economy and as revenues from the projected 46 million ounces of gold it will produce will be a major driver of growth growth to over 20% The coal sector in Mongolia is now transitioning from exploration to large-scale production. In 2010 production reached 22.5 million tons, almost doubling that of the previous year. Exports rose by 218% year-on-year 2009-2010 to 16.6 million tons. The new Tavan Tolgoi coal mining operation, for which a national share release is scheduled to take place in 2012, will reach full capacity in 2016. The estimated reserves in Tavan Tolgoi amount to "ve billion tons. Mongolia already supplies Chinese steel mines via Jiangsu Province. Expected expansion of Chinese markets will underpin further demand for Mongolian coal.

The mining policy environment remains somewhat capricious and calls to renegotiate the landmark Oyu Tolgoi agreement in 2011 were fuelling fears for the future of Mongolia in an already dif"cult global economic climate. These calls are perhaps more of a show for the electorate in the run up to the 2012 elections rather than a show of intent and all calls to renegotiate have been quashed. The most dif"cult period for foreign capital mining investments in Mongolia looks to be well behind us now, with windfall taxation on mining revenues being withdrawn and major projects such as Oyu Tolgoi and Tavan Tolgoi looking set to drive the Mongolian economy forward.


EXPERT OPINION - CHRISTOPHER DE GRUBEN - M.A.D. INVESTMENT SOLUTIONS

CHALLENGES AND OPPORTUNITIES FACED BY MONGOLIA IN DEALING WITH THE INFLUX OF FOREIGN ENTITIES. MONGOLIA IS QUICKLY BECOMING AN “ELDORADO” DESTINATION FOR MANY FOREIGN INVESTORS.

Its mining resources, close proximity to the Chinese and Russian markets as well as its stable politics and excellent business

environment makes it a favoured destination in today’s turbulent world. This presents a unique opportunity for growth and the re-development of the country, the question is of course how to make the most of today’s situation in a way that allows for a win-win for both the foreign partners and Mongolians themselves? For a little while, Mongolia was considered as one of the most powerful and feared nations on earth but this has since changed drastically with the Manchu rulers and then the Soviet in"uence over Mongolia during the course of the last century. I think that it is only fair to say that Mongolia has only very recently started emerging from centuries of foreign rule or in"uence and its primordial that its current independence strengthens with each new foreign investor rather than see its identity and heritage diluted. Today’s Mongolia is a country which does not manufacture substantial amounts of !nished goods and cannot sustain economic growth without signi!cant exports of resources to neighbouring countries. Mongolia itself does not currently have the skill base, the capital nor the

capacity to carry out large mining projects and built up the infrastructure the country so desperately needs to improve its ailing trade balance. Mongolia has no choice but to open up its borders to foreign investors and hope that it will manage to resist the temptation of greed, it must also tread carefully in order not to loose !ckle foreign investor con!dence (as it currently risks doing by cancelling the TT tender and wanting to re-negotiate the OT agreement) which would be even more disastrous to an over-exposed Mongolian economy, particularly with a global recession on the horizon.

Mongolia has either been blessed or cursed (depending on your own perspective) with an unfathomable quantity of mineral wealth, the survival of the country depends on the fair exploitation of those resources in a way that bene!ts the Mongolian people as much as the foreign companies who come to partake in the mining boom. To further guarantee its future independence, the Mongolian Government must invest in its transport infrastructure and concentrate on adding real value to commodities before they leave its borders in order to maintain an economically sustainable environment. The levels of Mongolian economic growth that we are all enjoying so much today is a direct result of FDI, without it, there would be few large scale mines, practically no mining supply chain revenues and certainly none of the trappings of luxury life that are becoming so prevalent in Ulaanbaatar. FDI must be used wisely, in particular by pushing through the diversi!cation of the economy away from a pure mining base towards added-value services, agriculture and tourism. While foreign investment is absolutely essential for the further development of Mongolia, it is also important to remember that foreign companies and international markets need Mongolia as much, if not more, than Mongolia needs them. Cheap Chinese manufacturing, which underpins much of the western economies, relies on affordable and quick access to the resources that Mongolia posses in such vast quantities, China itself relies on those resources to keep the momentum of domestic growth and thus avoid social unrest. Japan needs rare earths to keep its high tech industries (on which so much of the economy is based) to maintain their position as a leading Asian economy, Korea seeks land on which to grow food to feed its population. Mongolia is truly the last untapped answer to so many puzzling problems and international questions but, at the same time it is attracting a lot of envious stares from its over-populated and under-fed neighbours.

Mongolia may be a “wolf economy” but it is cornered by a much larger Russian bear and a !re-breathing Chinese dragon, an explosive situation to say the least. It is too easy for Mongolia to falter and become, either through the greed of their politicians or the demands of foreign investors, yet another resource-rich country from which much was expected but so little achieved. The region is littered with examples of such failures, the Kazakh identity has been so diluted by decades of Russian in"uence and foreign corporate activity that the best examples of its cultures are to be found in Mongolia’s own Bayan-Olgii region. In Russia it is corruption and a connected elite that squander its wealth while in China, power is maintained by the few to the detriment of the many. Mongolia is not new to diplomatic and geopolitical games of states and has so far played this delicate balancing act exceedingly well, implementing its third neighbour policy, courting world leaders and playing foreign powers against each other to obtain as good a deal as can be hoped for its mining licenses. It is important for Mongolia to remain on this path of stable social and economical progress but it is ultimately down to the people to use their voice to urge their politicians to refrain from excessive temptation. The State must always be held accountable its people and not the people to the State. From a foreign investor’s point of view, the perspective of investing in Mongolia brings its own set of challenges. There seems to be an industry wide lack of understanding in the basic requirements of due diligence, problems in transparency and issues with accountability, those are aspects of Mongolia which are slowly improving but are still far from being adequate as many international studies so clearly demonstrate. On the other hand they do provide the opportunity for growth to those companies that manage to satisfy those requirements. Once foreign investors have actually invested in the country, they are faced with catastrophic shortages in skilled, multi-lingual labour as well as the non-existence of reliable, actionable market intelligence. A young, well educated demographic in addition to increasing economic competitiveness will improve those aspects within the coming years but risk by themselves creating a widening gap between the “have” and “have-not’s”.

Should investors resolve the above issues, they must overcome the serious problematic of market size, of the three main investment markets currently attractive (Mining, Stock Exchange and Real Estate) none offer real liquidity nor suf!ciently high ticket sizes, this deters the largest investment groups from taking a bite as they would otherwise be forced into lots of smaller investments which require intensive management and bring relatively little return on their investment. Mongolians are understandably keen to take an active role in the globalisation of their country, to do so, they must adapt to the rulebook of the global players while retaining the unique advantages that makes them competitive. Transparency, due diligence and good market knowledge will only achieve so much, it is managing expectations and deliverables to their foreign partners while remaining dynamic in a fast changing environment that will allow them to succeed where others will eventually fail. Positive as well as negative signs of foreign in"uence are to be seen everywhere around the country but no one will in"uence the future development path of the country more than the return of the re-parts to their birthplace. The re-pats are those young Mongolians who participated in the great brain-drain of the 90’s by going abroad to study and work but who today have realised the promising future that Mongolia holds and are returning armed with the knowledge and understanding of how global organisations function (and how to work with them) while having retained a powerful network within Mongolia and an excellent understanding of local business practices. The marriage of the two skill-sets are a powerful combination that is increasingly seen in business leaders as well as the emerging political elite, who are often one and the same. Foreign in"uence, be it cultural, business, historic or otherwise, is here to stay, It is therefore important to learn from, and dare I say it, exploit, the knowledge and unique skill- set that foreign companies will bring to Mongolia in order to be able to replicate and adapt them to the Mongolian environment once the foreign expatriates have left. Those Mongolian entities that are able to maintain a long-term vision of the development of their companies in a fair partnership with foreign institutions instead of being lured by the gains of short-term pro!ts will not only be building the foundations of their own futures but also the foundations of a strong and independent Mongolia.


Mongolia at a GlanceMongolia at a GlanceMongolia at a GlanceMongolia at a Glance

Metric Value Source Date

Territory 1,564,115.75 sq.km NSOM 2011

Population 2,754,685 NSOM Census 2010

Median Age of Population 26.2 years (25.8 for male and 26.6 for female

NSOM 2010

Average Household Size (Nationally) 3.8 NSOM 2009

Male to female split 49% Male 51% Female NSOM Census 2010

Urbanisation Rate 68% NSOM 2011

Literacy Rate 97.8% NSOM 2008

Labour Force 1,121,000 World Bank 2011

Number of Unemployed 97,000 World Bank Q1 2011

Unemployment 8.7% World Bank Q2 2011

Population Below the Poverty Line 14.8% estimated World Bank 2011

Gini Index Rating 36.57 World Bank 2008

GDP (billion US$) 6.5 NSOM 2011

GDP Per Capita US$3,046 IMF Projections 2011

GDP Real Growth Rate 9% / 17.3% World Bank Q1 2011 / Q2 2011

In!ation 11.4% World Bank Q2 2011

International Reserves (million US$) 2,460 Bank of Mongolia / World Bank 2011

External Trade Balance (Millions of USD) I-VI 2011

-732.8 NSOM 2011

Average Exchange Rate (market) 1 USD = MNT

1,257.3 NSOM Q2 2011

MNT to USD Exchange Rate appreciation year-on-year

9% World Bank Q3 2011

Commercial Bank Lending Rates (%) 18-21 Bank of Mongolia 2011

Bank of Mongolia Policy Rate 11.5% World Bank / Bank of Mongolia 2011

MNT Deposits in Banks 2.6 trillion MNT World Bank Q3 2011

Total FDI 2010 (million US$) 1,025,955.88 FIFTA 2011

Imports % Groth year-on-year 2010-2011 106% World Bank Q3 2011

EXPERT OPINION - MR. JIM DWYER, BUSINESS COUNCIL OF MONGOLIA

My 10+ years residing in UB includes the purchase and sale of a center city Russian apartment for a very good return. It

also includes the purchase of a very nice apartment and living experience with my family in Sansar. That would have continued to this day except for the ever-increasing traf!c congestion causing more and more time spent and uncertainly with commuting to my center city of!ce. So my family recently moved to a new luxury apartment within a short walk of my of!ce.

One challenge owning and residing in a newly built luxury building is that the homeowners are not yet connected on the important aspects regarding their living conditions and protecting the value of their RE investment as is customary in the developed world. This is in a building where probably more than 50% of the apartments are owned by foreign residents and foreigners living abroad. There has never been a list published of owners and people don’t really have any way of

knowing who lives here. A “Management Company” overseeing the building employees working in the building to provide security and other essential services for the owner occupants and renters needs to be clearly established. Most importantly, there should be a Board of Directors representing all apartment owners to direct the Management Company on all aspects of living in the building.

Such organization in UB’s new luxury apartments including a management agent and a functioning Board of representing apartment owners would mirror what is present in most developed countries. It is required to help owners protect their investments in the highly possible boom in UB’s luxury apartment sector.

Another challenge for the UB market is the shortage of parking near residences and near UB businesses. The published report of a City Government of!cial regarding complaints from small business owners (restaurants, shops) on Baga Toiruu (Inner Ring Road) as to the fact that widening the road took away most all parking spaces – “Well, they can build underground parking garages” - is obviously not a solution.


Ulaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a GlanceUlaanbaatar at a Glance

Metric ValueValueValueValueValueValueValueValueValue Source Date

Population 1,240,0371,240,0371,240,0371,240,0371,240,0371,240,0371,240,0371,240,0371,240,037 NSOM 2011

Net in-Migration for 2010 40,64140,64140,64140,64140,64140,64140,64140,64140,641 NSOM 2011

Average Household Size 3.4 in apartment areas / 4.2 in ger areas3.4 in apartment areas / 4.2 in ger areas3.4 in apartment areas / 4.2 in ger areas3.4 in apartment areas / 4.2 in ger areas3.4 in apartment areas / 4.2 in ger areas3.4 in apartment areas / 4.2 in ger areas3.4 in apartment areas / 4.2 in ger areas3.4 in apartment areas / 4.2 in ger areas3.4 in apartment areas / 4.2 in ger areas NSOM 2011

Average Wage 430,00 MNT (approximately US$336.59)430,00 MNT (approximately US$336.59)430,00 MNT (approximately US$336.59)430,00 MNT (approximately US$336.59)430,00 MNT (approximately US$336.59)430,00 MNT (approximately US$336.59)430,00 MNT (approximately US$336.59)430,00 MNT (approximately US$336.59)430,00 MNT (approximately US$336.59) NSOM 2011

Average Wage Increase 2010 -2011

126%126%126%126%126%126%126%126%126% NSOM 2011

Ger Dwelling Households 76,49776,49776,49776,49776,49776,49776,49776,49776,497 Property Of"ce

2011

Apartment Dwelling Households

118,548118,548118,548118,548118,548118,548118,548118,548118,548 Property Of"ce

2011

Individual detached housing (usually in the ger areas) dwelling Households

97,85497,85497,85497,85497,85497,85497,85497,85497,854 Property Of"ce

2011

Estimated average number of new residential units per annum 2004 - 2011 (Estimated)

6,2006,2006,2006,2006,2006,2006,2006,2006,200 R2 Research

2011

Construction and Capital Repair Outputs by Type of Building 2011 I-VI

Residential IndustrialIndustrial Trade/ServiceTrade/Service

Hospital/School/Cultural

Hospital/School/Cultural

Other Total

NSOM 2011Construction and Capital Repair Outputs by Type of Building 2011 I-VI

31,512.2

(US$2.47m)

1,914.6 (US$1.5m)1,914.6 (US$1.5m)

4,800.1 (US$3.76m)4,800.1 (US$3.76m)

15,022.8 (US$11.76)15,022.8 (US$11.76)

14,322.1

(US$11.76m)

97,498.5 (US$76.3m) NSOM 2011

Construction and Capital Repair Outputs by Type of Building 2011 I-VI

% increase over 2010 I-VI% increase over 2010 I-VI% increase over 2010 I-VI% increase over 2010 I-VI% increase over 2010 I-VI% increase over 2010 I-VI% increase over 2010 I-VI% increase over 2010 I-VI% increase over 2010 I-VI

NSOM 2011Construction and Capital Repair Outputs by Type of Building 2011 I-VI

207.0% 237.9%237.9% 497.4%497.4% 177.9%177.9% 296.4% 174.4%

NSOM 2011

Number of Serviced Apartments

444444444444444444 R2 Research

2011

Estimated Number of Hotel rooms 3*+

1,2731,2731,2731,2731,2731,2731,2731,2731,273 R2 Research

2011

Estimated Retail GFA (A and B grade)

208,285208,285208,285208,285208,285208,285208,285208,285208,285 R2 Research

2011

Estimated New Retail GFA 2010 (A and B grade)

25,30025,30025,30025,30025,30025,30025,30025,30025,300 R2 Research

2011

Estimated Of"ce GFA (A and B grade)

226,000226,000226,000226,000226,000226,000226,000226,000226,000 R2 Research

2011

Estimated New Of"ce GFA 2010 (A and B grade)

44,32744,32744,32744,32744,32744,32744,32744,32744,327 R2 Research

2011

Average Residential Price per sq.m

Mid-Upper Purchase (per sq.m)Mid-Upper Purchase (per sq.m)Mid-Upper Purchase (per sq.m)Mid-Upper Purchase (per sq.m) Upper/Luxury Purchase

(per sq.m)

Upper/Luxury Purchase

(per sq.m)


(per sq.m)


(per sq.m)


(per sq.m)

R2 Research

2011

Average Residential Price per sq.m

1,007.51,007.51,007.51,007.5 1386.51386.51386.51386.51386.5

R2 Research

2011

Average Residential Price Change 2010-2011

Mid-Upper and Luxury Rental (per month)Mid-Upper and Luxury Rental (per month)

Mid-Upper Purchase (per sq.m)Mid-Upper Purchase (per sq.m)Mid-Upper Purchase (per sq.m)Mid-Upper Purchase (per sq.m)


(per sq.m)


(per sq.m)


(per sq.m)

R2 Research

2011

Average Residential Price Change 2010-2011

21.9%21.9% 19.4%19.4%19.4%19.4% 26.2%26.2%26.2%

R2 Research

2011

Estimated Residential GFA 15.85 million sq.m15.85 million sq.m15.85 million sq.m15.85 million sq.m15.85 million sq.m15.85 million sq.m15.85 million sq.m15.85 million sq.m15.85 million sq.m R2 Research

2011

Number of Cars, buses and work vehicles Registered in the City

162,720162,720162,720162,720162,720162,720162,720162,720162,720 NSOM 2011

Immovable property transactions in 2010

11,65011,65011,65011,65011,65011,65011,65011,65011,650 Property Of"ce

2011

Land transactions in 2010 5,2845,2845,2845,2845,2845,2845,2845,2845,284 Property Of"ce

2011


1. Demographic Factors

Mongolia displays manifold favourable demographic characteristics pertinent to the development of its economy. The most signi"cant of these is a a young and growing population (2.75 million people in 2010 compared with 2.37 million in 2000) entering or poised to enter the workforce. Projections from a JICA study as part of the Ulaanbaatar 2020 Master Plan indicate that the city will continue to swell, with as much as 55.5% of the total population of Mongolia residing within the capital by 2030. This represents a real population increase of over 716,000 people within the next two decades. Urban and infrastructural development of Ulaanbaatar is already struggling to meet the demands of its current population, with almost three-quarters of a million people already without appropriate and well serviced permanent accommodation, just over 300,000 of which live in gers. Population density in the capital has increased by two-thirds from 2000-2010, standing at 246 persons per kilometre. This stands in stark contrast to the national average (including the capital) of just over 1 person per square kilometre.

Following a jump in population growth rates in the 1950s that accompanied the entire socialist period, rate of population increase has slowed and levelled at 1.46% per annum. Of the population 37% are between the ages of 20-39 and an identical percentage are between 0 and 19 years of age. This gives the nation a young, active workforce to support its current and mid-term growth. Household sizes are also falling both in urban and rural areas. In 2008 average household size stood at 4.0 persons per household, dropping to 3.8 persons per household in 2010. This is indicative of slower population growth rates and smaller family sizes that in the urban context has been linked to standard of living improvements. In terms of household composition the nuclear family is most prevalent. Census "gures for 2010 indicated that 62.3% of households are nuclear family units, with 24.9% being extended family households. This is particularly indicative of increasing wealth, with an increasing number of individuals and families able to afford single generation housing.

Over the past 20 years migration has been a key driver of economic growth, particularly in the real estate sector where labour mobility and patterns of migration as an economic necessity are dominant factors. Over the past 10 years the population of the capital city, Ulaanbaatar has jumped from 760,077 to 1,154,290 according to census data from the National Statistics Of"ce of Mongolia, an increase of 151.9%. Ulaanbaatar is, unsurprisingly, home to by far the largest economically active population in Mongolia, at just over 500,000 persons. There is also a trend of increasing migration to centres of mining activity, including Dalanzadgad and Sainshand in the Gobi region. The pull of high wages in mining centres is now exerting more as signi"cant an in!uence over economic migrants as the capital city.

Average national monthly household income in Mongolia increased 20.5% year-on-year (Q4 2009-2010) to 444,700 MNT. The mining and transport/communication sectors have seen the strongest wage growth (44.9% and 41.3% respectively from 2009-2010) and a year on year rise Q1 2010 to Q2 2011 of 29%. The "nancial intermediation sector, which has seen large wage increases since 2008, saw a rise of 23% between 2010 Q1 and 2011 Q1. Nevertheless, wages in the "nancial sector remain the highest in real terms, standing at an average nationally of 814,000 MNT according to NSOM "gures. However, within large mining organisations such as Oyu Tolgoi, skilled Mongolian personnel may earn several million MNT per month. The smallest growth in wages was in the "eld of health and social security (2.8%). Agriculture, hunting and forestry have both seen -14.3% negative growths in wages between 2009 and 2010 as a result of harsh conditions the previous winter that resulted in catastrophic livestock losses. This catastrophic event is not uncommon in Mongolia and has been given the name dzuud. It refers to a situation wherein lack of summer rains followed by heavy snowfall in wintertime create conditions whereby animals cannot get to weak low-lying plants beneath the snow and ice blanket, causing many to starve. Mongolia has experienced two such events in the past 10 years, both of which have hit the agricultural industry - upon which a majority of rural people rely - very hard.

0

15

30

45

60

2007 2010 2015 2020 2025 20300

475

950

1,425

1,900

37.742.8

47.1 49.8 52.5 55.5Population forecasts for Ulaanbaatar city 2007-2030

% o

f Nat

iona

l Pop

ulat

ion

Year

Ula

anba

atar

Pop

ulat

ion

x000

Per

sons


2. Residential

Demand across Mongolia is being driven by "ve key factors:

• Explosive economic growth, with GDP expected to double every two years for the next decade and rising real wages across the economically active population.

• Signi"cant FDI in!ows, at 40% of total national GDP, on the back of mining developments and the mining supply chain.

• Population growth and migration, with the population of the capital expected to grow to 1.5 million by 2015 and second tier cities close to large centres of mining activity (including Dalanzadgad, Sainshand and Khan Bogd) experiencing population growth of well over 35% per year.

• Demand for housing among a population where 32.7% of the population still live in gers and over 700,000 residents in the capital city still live in informal accommodation without access to running water, centrally provided heating or reliable electricity.

• Lack of urban infrastructure and insuf"cient funding to make rapid infrastructural developments, creating a bottleneck expansion of urban infrastructure and the built environment in the capital and major secondary cities that is enhancing demand pressures.

Housing market price data indicates that average housing prices across the Ulaanbaatar market began to climb above US$1,000 per square meter as early as 2007. At this point in time prices were rising rapidly, approaching a 30% year-on-year increase from 2006 "gures. During the "nancial crisis the global collapse of commodities and lack of new in!ows of FDI into Mongolia led to GDP contraction of -1.6% for 2009. As a result the housing sector took a dip back below the US$1000 mark before rallying again in late 2010 and during 2011. Prices have already risen considerably beyond those seen in 2007 and 2008, with growth rates set to outrun 30% by the end of 2011. This price dynamic is thoroughly indicative of demand and supply curves that are non-convergent in the near future.


The National Mongolian Real Estate Market at a GlanceThe National Mongolian Real Estate Market at a GlanceThe National Mongolian Real Estate Market at a GlanceThe National Mongolian Real Estate Market at a GlanceThe National Mongolian Real Estate Market at a GlanceThe National Mongolian Real Estate Market at a Glance

Metric ValueMetric ValueMetric ValueMetric Value Source Date

Total Housing Stock estimate (GFA)

16.2 million sq.m16.2 million sq.m16.2 million sq.m R2 Research Estimate

2011

Numbers of households residing in gers

322,836322,836322,836 NSOM Census 2011

Numbers of households residing in apartments

882,808882,808882,808 NSOM Census 2011

Residential dwelling Breakdown for Mongolia

Type Of Accommodation No. DwellingsNo. Dwellings

NSOM Census 2011Residential dwelling Breakdown for Mongolia

Ger 322,836322,836


Apartments 535,146535,146


Individual detached housing (connected to infrastructure)

3,8393,839 NSOM Census 2011Residential dwelling Breakdown for Mongolia

Individual detached housing (informal or not connected to infrastructure)

209,931209,931


Student and Workers dormitories 12,44412,444

NSOM Census 2011

Residential dwelling by ownership/rental type for Mongolia

Type of Occupancy No. Households Urban

No. Households Rural

NSOM Census 2011Residential dwelling by ownership/rental type for Mongolia

Private Ownership 401,089 217,945


Rental 40,903 4,048 NSOM Census 2011Residential dwelling by ownership/rental type for Mongolia Informal Rental or living free of

charge in another’s accommodation

32,980 10,564


Other 4,531 1,720

NSOM Census 2011

Number of Immovable Property Transactions 2010

45,00045,00045,000 Immovable Property Of"ce 2011

Number of Newly Privatised Land plots from the Government 2010

16,91516,91516,915 Immovable Property Of"ce 2011

Today housing remains the subject of sustained public, political and economic discourse, both in the capital of Ulaanbaatar and nationally. Housing for low- to mid-income families has been a high priority for successive Governments attempting to grapple with problems caused by rapid in-migration and densi"cation of the ger districts. Ministry of Roads, Transportation, Construction and Urban Development "gures from 2010 estimate that 126,000 families in Ulaanbaatar alone are presently living in structures which do not meet basic sanitary requirements and which are not connected to heating and water infrastructure. Far reaching city plans already in play place heavy emphasis on meeting the vast majority of these requirements by 2020.

Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011Numbers of Residential Units Built in Ulaanbaatar by Year 2004 - 2011

2004 2005 2006 2007 2008 2009 2010 2011

Apartments 4,297 3,939 5,819 6,181 9,244 7,806 11,650 6,580

% change - year-on-year

-8.33 147.7 149.5 149.5 -15.5 149.2 -43.5

Source: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 Research

As in any major city the types of structures in which people live are highly varied. The large wealth gap, lack of infrastructure and traditional housing patterns makes Ulaanbaatar’s housing pro"le even more diverse than many other cities around the world. In the centre of the city the stock of housing is mostly apartments in multi-level buildings, built between the late 1950s and 2000s. The total apartment stock in the city centre accommodates just over 116,000 households. Beyond these, outside of the city centre, there are a number of settlements known as ‘ger districts’ which consist of small, fenced plots of land (called khashaas in Mongolian). The majority of these plots are privately owned by the households living on them. Many households have built permanent housing on their land, although very little of this housing stock is connected to even basic infrastructure. At the end of 2010 "gures from the Property Of"ce of Mongolia indicated that there were 98,000 households living in this type of housing housing in ger districts of the city. Large detached housing structures structures connected to some infrastructure house around 878 households and small apartment buildings built on ger district land house no more than 3000 households. Just over 312,000 people presently reside in traditional Mongolian gers in the ger districts, these also have no sewerage, formal electrical supply, central heating connection or plumbed potable water supply.


In all this equates to 443,600 individuals in Ulaanbaatar living in accommodation attached to heating, sewerage and water supplies as well as having access to good amenities and roadways. A further 398,000 live in detached, often informal, housing within the ger districts. This creates a potentially signi"cant market for improved residential units connected to all amenities of over 706,000 people, or just under 175,000 households. This represents 55% of the total population of Ulaanbaatar by the end of 2010. With in migration increasing faster than most Government projections have heretofore indicated and supply of new apartments already being outstripped by demand on a yearly basis, this "gure is expected to grow rapidly as a result of both migratory pulls towards the capital and natural population growth. However, the question remains: how will this population begin to afford new housing?

Across most economies only a very small proportion of the population can afford to purchase housing with their savings along. As the housing market in Mongolia develops, functioning and ef"cient primary and secondary mortgage markets are necessary to ensure housing remains affordable and obtainable. The majority of housing transactions in Mongolia remain cash transactions. Nonetheless, increased economic stability, rising real incomes and declining interest rates have created favourable conditions for mortgage lending. In September 2006 the Mongolian Mortgage Corporation (MIK) was established. A joint-founding agreement between The Bank of Mongolia and ten commercial banks (Capitron, Golomt, Khan, Mongol Post, Trade and Development Bank, Xas Bank, Zoos Bank and Anod and Ulaanbaatar Bank) established MIK as the "rst private sector controlled secondary tier mortgage institution in Mongolia. The objective of this organisation is to develop both primary and secondary mortgage markets by issuing and selling mortgage-backed securities on both domestic and foreign markets. The MIK was instrumental in working with Government in order to establish a legal infrastructure governing sale of Mortgage Backed Security markets. In 2003 the Government of Mongolia passed a resolution on the creation of Mortgage Backed Securities and subsequently passed the Law of Mongolia on Asset Backed Securities in 2010. The "rst asset backed security sold by MIK was in 2009 MIK purchases

As a solution to Ulaanbaatar’s housing problem the Government of Mongolia is already backing projects to reduce mortgage rates though the Apartment Investment Corporation, which is already offering mortgages at 8%. Extension of the mortgage markets relies upon a well functioning secondary market. The efforts of the Mongolian Mortgage Corporation to prepare and sell mortgage-backed securities will create the necessary economic conditions for a successful market. The regulatory framework governing mortgage providers must also improve drastically if commercial banks are to eliminate some of the risks that currently push up interest rates on mortgages, including poor loan quality as a result of lack of rigorous checks as well as lack of legal recourse to seizure of property. Solutions include better credit reporting systems and the creation of standardised loan issuance procedures across all banks. Before mortgages can become affordable the real estate market must also adapt, developing professional surveying and valuing services that will underpin a market based undergirded by fundamental property values as well as supply and demand dynamics. This will provide extra security for lending institutions. Finally, and perhaps most importantly, the sanctity of property rights should be reviewed to make it easier for banks to foreclose on property attached to defaulted loans. Without the assurance of being able to foreclose on immovable property in a timely manner most commercial banks are unwilling to risk lower interest rates as in the event of default they presently have little certainty of obtaining a collateralized property asset. These requirements are presently being worked through by the Government of Mongolia in cooperation with several multilateral organisations in order that Mongolia’s mortgage market can fuel growth in the property sector and contribute a solution to Ulaanbaatar’s housing shortage.

The annual percentage change in median apartment prices was 34.8% in 2009 and 19.3% in 2009. Following a downturn in late 2009, precipitated by the international "nancial crisis, prices have risen again across all districts of Ulaanbaatar,

Source: R2 Research - based upon Mongolian Property Of!ce data and JICA Master Plan Report projections

0

15,000

30,000

45,000

60,000

2006 2007 2008 2009 2010 2011 2012 2013

Apartment demand/supply curves (minus development of detached housing)

Num

ber o

f Uni

ts

Year

Apartment Supply Cumulative Demand (cumulative minus expected growth of detached housing


reaching all time highs month by month over Q2 of 2011. By the end of this period average prices across Ulaanbaatar had risen by 21%.

House Price Changes (%) across the Districts of UlaanbaatarHouse Price Changes (%) across the Districts of UlaanbaatarHouse Price Changes (%) across the Districts of Ulaanbaatar

2009-2010 % change 2010-2011 % change

Bayangol District -2.7 7.1

Sukhbaatar District 6.8 17.1

Chingeltei District -6.8 23.1

Bayanzurkh District -12.2 20.5

Songinokhairkhan District -16.5 45.1

Khan Uul District 2.5 22.6

Source: R2 ResearchSource: R2 ResearchSource: R2 Research

The high-end real estate market is displaying remarkable growth. The city centre has witnessed the most remarkable growth, particularly around the State Department Store. New high-end residential properties in the city are rare, with the majority of available residential units being part of buildings dating to the 1950s - 1970s. Nevertheless, prices for these units have risen rapidly, nearly doubling from Q1 2010 to Q1 2011. The highest price rises in the city centre have been in the ‘First 40,000’ apartments which, whilst representing the oldest residential stock of Ulaanbaatar, are highly sought after by virtue of their city centre location.

Areas of Ulaanbaatar Areas of Ulaanbaatar

Area Name Description

The City Centre A thriving and exciting place, transforming each year. The area is geographically very compact but contains the majority of the city’s bars, restaurants, shops and commercial spaces. A majority of expats live within this area, concentrated around a few courtyards of the First 40,000 apartments in the heart of the city. This location offers easy access to shops and entertainments, as well as to the central business district, where the majority of expat employees in the city work. The city centre does, nevertheless, have a number of potential drawbacks, such as high levels of pollution (particularly in the wintertime), severe traf!c congestion and higher rates of crime and vagrancy.

CBD At the heart of the City Centre is the CBD. surrounding Sukhbaatar Square - the majority of of!ces are located here and all of Ulaanbaatar’s grade A of!ce is situated within a few hundred meters of Sukhbaatar Square. There are few residential buildings in the CBD, including the Park View Residence and The Temple. The CBD is also home to some of the city’s best retail, including two "oors of retail in MCS Tower; boasting some of the biggest international brands to have entered Mongolia, such as Hugo Boss, Louis Vuitton and Mont Blanc. When it opens in late 2011 the Blue Sky Tower will also sport high end retail space capable of attracting international brands.

Source: R2 Research

350

413

475

538

600

2008 2009 2010 2011 700

800

900

1000

1100Average purchase and rental prices across Ulaanbaatar ($)

Aver

age

rent

al p

rice

per m

onth

per

sq.

m

Aver

age

purc

hase

pric

es p

er m

onth

Rental Prices Purchase Prices



The State Department Store This landmark store, which at peak times receives over 25,000 visitors a day, is the heart of commercial life in Ulaanbaatar. The building itself, constructed in the 1970s and recently refurbished by new owners Nomin, is a landmark in the city centre and is used as a point of orientation and meeting point for the expat community. The stores inside are frequented by the city’s wealthier residents as well as foreigners and tourists seeking imported food products in Nomin Supermarket as well as high end cosmetics, jewellery, clothing and home-wares.

The First 40,000 Apartments The residential stock of the city centre is made up of the oldest residential buildings in the city. The !rst of these buildings were completed in the late 1950s as part of the very !rst Ulaanbaatar City Master Plan under the socialist government of the time. These three and four storey buildings have risen in price dramatically over the past year, with individual apartments transacting year on year at price increases of over 30%. These are !rm favourites among expats and young, wealthy Mongolians who are looking to live close to the CBD, entertainments and the shops of the city centre. Rents range from around 300,000 MNT per month for a one room apartment which is not refurbished (US$ 234) to over US$1600 per month for a two room apartment refurbished and furnished to high-end European/American tastes. Whilst many apartments themselves have been renovated to a high standard the staircases leading to them have often been left untouched for years. This can lead to a form of culture shock to new residents as they discover world class apartments but third world looking staircases.

The 50,000 Apartments Situated along Peace Avenue, to the west of the State Department Store, these were built just a few years after the First 40,000 apartments. These are generally smaller than the First 40,000 apartments, with lower ceilings. They are largely built of lower quality materials but have still stood the test of time reasonably well. They are less favoured than the 40,000 apartments by expat tenants, although prices in the 50,000 and rising as liquidity in the First 40,000 area is decreasing due to owners becoming aware of the potential for large capital gains in the near future if they hold onto their homes. The 50,000 apartments are also a little further away from the CBD and in the cold wintertime (where temperatures routinely dip below -30) a few hundred metres makes all the difference.

Olympic Street Area This area is still very much under construction but is rapidly becoming the high end district within the heart of the city centre. It currently lacks amenities such as shops and restaurants, but is well served by infrastructure and is just a stones-throw from the heart of the business district itself. Development of the area began around a decade ago with the development of the Star Apartments - which in turn attracted new high end residences such as The Regency Residence, the Embassy Tower, The One Residence and The Diplomat. With the newly refurbished children’s park just re-opened a little way south and the high end Shangri-La hotel due to be completed in 2013, this area looks set to become among the most sought after locations in Ulaanbaatar for residential development.

The Stadium Area The Stadium Area is located in the vicinity of the National Stadium of Mongolia, south of the city centre, over Peace Bridge and the railway lines. It extends all the way south to the Tuul River and included the International School (situated within the Japan Town complex), as well as the National Mongolian Chamber of Commerce and a new Corporate Hotel, to be completed within the next two years. This area is popular with families and is within walking distance, across the bridge, to the city centre. Many of the new developments here are what might be called ‘dormitory towns’ - large, somewhat faceless developments of high-rise residential units which are mostly inhabited by middle-class, professional Mongolian families, young blue-collar workers, as well as a handful of expats. The areas does feature a few well known restaurants, such as American Ger’ll and Pizza Dela Cassa. There are also a few small supermarkets.

The Zaisan Area This areas, south of the Tuul River, is popular with wealthy Mongolians and a few expat families who prefer more expansive accommodation in gated compounds. Because it is further away from the polluting northern ger districts this area is less polluted than the city centre. The area was almost completely undeveloped around a decade ago and the glut of new high-end properties which have sprung up in Zaisan have transformed this previously ‘protected area’ into a suburb of gated communities for the wealthy. Developments such as Bella Vista and River Town are among the most expensive real estate on the primary market but are !nding buyers as wages rise and ostentatious displays of wealth through real estate purchases become more important to the ‘New Mongolians’. Zaisan is not without its drawbacks. There are only two bridges between here and the city centre and they are prone to becoming clogged with traf!c during rush-hours; extending a journey of 10-15 minutes to well over an hour at times. The area also suffers from a lack of nightlife, convenience shops and restaurants, leaving it somewhat isolated. New developments in the area are more and more including mixed use retail and residential facilities (case and point being the new Shine Ger development to the far south of Khan-Uul - a little way out of Zaisan itself, which will contain 16,000 square meters of retail space). There are also issues with the legality of these developments as they are technically located in a ‘strictly protected area’ (this issue is addressed in detail in the Khan Uul district description).



The University Area To the north of Parliament, within Sukhbaatar District, the campus of the National University of Mongolia extends out to the north, around the ring-road that serves the city-centre. This area contains housing built in the 1960s and 1970s, which is not yet experiencing such precocious price rises as in the First 40,000 area, although its proximity to the CBD may mean that price rises are imminent. The area is home to a number of student dormitories and has a large student population (who also rent smaller apartments in the area, sometimes with more than one student to a room). Many of the city’s cultural institutions are located here, including the Children’s Palace. Metro Mall also provisions high end retail space. Nightlife is generally geared towards the lower end of the market and the streets are lined with inexpensive bars and restaurants catering for the student and young-professional populace. One of the city’s best nightclubs - Brix - is located in this area, as is the French bistro; a favourite among expats. This part of the city is less popular as a residential location with wealthier Mongolian families and expats due to the higher levels of air pollution which "oat down from the nearby ger areas in wintertime.

Sansar Sansar - literally meaning ‘outer space’ - was named as such because the residential developments therein were completed around the time of the Soviet Union’s !rst space mission involving a Mongolian cosmonaut. Sansar is situated to the east of the city centre and is in The Bayanzurkh District. To the far south of this area is the Ulaanbaatar Wrestling Palace and to the north low-end housing. The Kempinski Hotel is also situated here, although this location does it no favours. In the main the area is residential, with low-end bars and entertainments - including the newly opened Hennesy’s Bar, which is rapidly becoming a popular hang-out for young expats. House prices in the area are far lower than in the city centre, still at around US$830 per square meters at the low end. Expats and middle class Mongolians tend not to live in this area, although it is popular with low-waged NGO workers and professional Mongolians working in professions such as teaching and skilled manual labour.

The 3rd District Shopping Area The 3rd District is Ulaanbaatar’s second major retail centre. Situated in Bayangol District - just east of the northern tip of the Gandan ger area - this long street of store-front retail caters to mid-upper retail and contains well over 30,000 square meters of ground "oor retail space. Major brands such as Benetton and Adidas have opened shop-front stores here although the majority of stores are domestic retailers occupying small plots in medium-size B- and C grade retail facilities. The street is surrounded on all sides by imposing tower blocks, many of 10+ storeys. These poor quality pre-fabricated buildings were built with Soviet assistance in the 1980s (some in the 1970s) and are known as the Brezhnev era buildings as many were built following a landmark visit to Mongolia by Leonid Brezhnev, during which time Soviet support was offered in exchange for the stationing of troops in Mongolia. This poorer quality residential space is not experiencing rapid price growth, although remains popular with lower income expats and early career professional Mongolians due to its proximity to shops and entertainments.

Gandan The Gandan area centers around the Gandan Khiid Buddhist Monastery. The expansive monastery complex itself is surrounded on all sides by a ger area which has grown up since the establishment of the monastery itself 173 years ago. Whilst the urban fabric of the Gandan ger area has changed dramatically - a vast majority of residents now living (at least seasonally) in reasonably large brick, concrete or wooden construction houses, many of which have electricity, plumbing and telecoms infrastructure installed by virtue of their city center location - the con!guration of land plots (Khaashas) remains similar to how it was as Mongolia entered the twentieth century. This long-standing community is still, in signi!cant part, based around the operations of the Monastery. As well as being an active teaching Monastery, home to around 150 monks, the site is also a tourist attraction and an orientation point within the city.

EXPERT OPINION - MRS. BURMAA UKHNAI, UILS REAL ESTATE

Mongolia is not only booming in its mining industry, but it is property market is also seeing huge growth. The Mongolian

economy is not yet much integrated with the world economy. But at the moment this is a good thing as we are not too badly impacted by the world economic recession.

Today, an increasing number of foreign invested companies are opening up of!ces in Mongolia. They are all required to rent or buy of!ce space for their operations. 2 years ago of!ce rent was around 15-35USD per square meter while sales price was 1200-1500USD per sq.m. Currently, rents go between 30-65USD per sq.m and sales price is around 3000USD per sq.m. Over the past two years, of!ces have doubled in prices.

All foreign expats are also in need of foreign accommodation. They mostly rent. Residential rental prices have also increased by more than 60% over the last two years. Many foreign investors are generating good pro!ts by investing early

in apartments developments as well. They sign in apartment purchase contract and after 2 years when the development is completed, they can sell back with a minimum pro!t of 40%.

So, Mongolia is today !lled with opportunities for those investors that can move fast and are clever enough to see the potential.


3. Retail

The retail sector too has changed dramatically in the transition from a centrally planned to a market economy. Prior to the 1990s private trade was prohibited, although during the 1980s a number of semi-legal exchange sites grew up on the outskirts of every provincial capital and other large cities. Following new legislation on private trade and pro"t-making by the Government of Mongolia in the 1990s many of these markets, including the “Black Market”, now known as “Naran Tuul Market”, to the south-east of Ulaanbaatar, grew and began to formalise. Macroeconomic indicators in Mongolia’s retail sector appear very positive. Final Consumption GDP rose 128.2% from 2009 to 2010 at current prices, with wholesale, retail and trade making up 15.7% of total GDP in 2010 (a rise of 2% since 2008).

The number of domestic wholesale, retail and trade companies registered as active in Mongolia in Q1 2011 rose to 19,368, a greater volume than for any other sector. The actual increase in numbers of businesses registered in this sector was 27% year on year between 2009 - 2010. This provides a good indicator of the robustness of domestic retail business in Mongolia and if these trends continue, indicates signi"cant extra demand for retail space over the short term. Nevertheless, it must be noted that the number of international retailers in the market at present is small. A tiny, but growing, market for mid- to high end international brands, coupled with logistical bottlenecks makes Mongolia a dif"cult prospect for many large scale international high-street brands and it will likely be a while before these move in en-masse.

In terms of supply, around 26,600 square meters of high end A, B and B- retail space came online during 2011, with an estimated 104 thousand square meters coming online in this sector within the past 5 years.

As the graph above indicates, growth of A grade retail has only really begun since 2008 and the development of these large shopping centres. Concomitantly the growth of notably B and C has been remarkably slow in the past 5 years, indicating a focus on constructing new A grade in this small marketplace. Uptake has been high, although the vast majority of shops taking up those retail spaces are lone domestic entities, occupying plots of between 30-50 square meters.

Uptake for A and B space only is growing rapidly at around 68% in 2010 and 85% in 2011. Rental Rates in the retail sector are growing at a slower pace than in other areas and this may be to do with the limited engagement of high-end companies bringing new products onto the market as well as purchasing power reductions as a result of high in!ation in 2010. In 2010 average rental rates per square meter across A and B retail space was an estimated US$20.85.


Signi"cant pipeline projects include retail space in the new Shangri-La development and Peace Plaza the high end and a new indoor market taking the place of the famous Naraan Tuul market in the low end of the sector, as well as a number of projects in the Zaisan area which form part of new primarily residential developments. These include retail space being developed on the ground !oor of the KH Apartments complex and Mogul Town, as well as 16,000 square meters of retail space available for sale in the MCS Shine Ger project.

Source: R2 Research

0

10,000

20,000

30,000

40,000

2006 2007 2008 2009 2010 2011 2012 2013

Retail new supply and uptake by year for A grade and B grade Retail

Squa

re M

etre

s

Year

New supply (sq.m) Annual uptake estimates (sq.m)

Source: R2 Research

0

50,000

100,000

150,000

200,000

2006 2007 2008 2009 2010 2011

Cumulative Office Supply by year

Squa

re m

etre

s

Year

Grade A Grade B

INFORMATION BOX - THE ILLEGAL DEVELOPMENTS IN ZAISAN

The zaisan area, to the south of Ulaanbaatar, is favoured by high ranking politicians and expats alike for its cleaner air quality as well as gated compound security. With the enormous amount of construction currently taking place in the valley, one could be forgiven for thinking that all those mega-construction projects are built with the full approval of the state and have all required licenses. In truth, practically none of the projects under construction or already built have been done with all required documents and permits. The Zaisan area is part of the Bogd Khaan National Park (delimitated by the tuul river) in which it is illegal to built residential or commercial use buildings, the only types of buildings that can be legally built are public use buildings. While technically nearly every building in zaisan has some form of public use (a tiny museum, a school with a sole teacher and student, a small medical centre or a "tourist" facility) this is clearly a breach of the law and is the reason why very few buildings (such as Green Villa) have the immoveable property certi!cates. Nearly all other buildings rely on the value of the sales and purchase agreements to ascertain a claim towards ownership but it has little legal value. The government is trying to regularise the situation by applying !nes to landlords in exchange for immoveable certi!cates as has been the case with the Blue Sky development. There is a further aspect that should be noted by foreign investors, it is technically illegal for foreign investors to invest in property in national park, regardless of the type of property, it would thus be entirely possible for the state to annul whatever certi!cates or contracts are today in place and thus places foreign investors in Zaisan at risk. The actual risk is minimal but it is worthwhile to note that foreign investors in the area may have no legal recourse if the state seizes the properties.


4. Of!ce

In recent years Ulaanbaatar has seen the rapid new development of ambitious of"ce and mixed use projects. This new development is strongly encouraged by Government ambitions towards the creation of a business hub in Ulaanbaatar. The vast majority of construction projects that had stalled during the economic downturn have now been heavily reinvigorated by capital in!ows and are moving towards completion in 2011 or 2012.

The rapid growth of commercial activity in Ulaanbaatar has increased demand for commercial real estate several times over the past "ve years and the current A grade stock of the city was entirely constructed within this period. Private companies in Mongolia are responsible for 88% of the national GDP, starting from almost nothing pre-1990. The Business Register of Mongolia indicates signi"cant growth necessary to drive the development of new of"ce and commercial premises as new companies start up and existing companies up-scale in a growing marketplace. Numbers of establishments dealing in "nancial serviced and other business activities have grown steadily with almost uninterrupted year on year growth since the transition to a market economy. In the last quarter of 2010, 1,208 companies in the "nancial services were registered as operating in Mongolia, with 884 listed as active and operating. The remaining are registered companies which are not presently actively doing business or not yet started doing business (e.g. not transacting and submitting tax returns without change). These "gures are based upon The Business Register of Mongolia "gures, which only take into account incorporated companies and do not register informal companies; although these are almost non-existent within the "nancial and business sectors. On top of these the number of "nancially active registered business’ entities in Mongolia was 2,589 at the end of 2010. These sectors are key drivers of demand for of"ce space in Ulaanbaatar for the future, whilst mining and mining supply companies are presently among the biggest occupiers of A grade of"ce space. As an example, Monnis Tower is populated by Oyu Tolgoi, South Gobi Sands and Leighton Asia.

FDI is also a signi"cant driver of of"ce demand. The number of registered companies in Mongolia operating with FDI stood at 10,709 in 2010. After a fall in new registrations of companies set up with FDI in 2009 (due to the economic crisis) 2010 saw a resurgence of international companies entering the Mongolian market with international funds. This upward curve is expected to continue in 2011.


Grade A of"ces in the city experience high occupancy rates, typically over 85%, although new developments such as Blue Sky Tower are presently exhibiting higher vacancies of above 10% reported and far higher observed. Over 73% of the total grade A of"ce supply in Ulaanbaatar is located within Sukhbaatar District, at the heart of the CBD. The remaining space considered to be of A grade quality lies to to the west of the central business district in a single development: Jiguur Grand Plaza. Whilst the pipeline for of"ce supply in the medium term is slowing there are some signi"cant projects already underway and scheduled for 2012/2013 completion. This includes the Peace Plaza mixed use building which will be the only high-end of"ce building presently in pace along the central stretch of Peace Avenue and UB Tower, which is opposite the Ulaanbaatar Hotel. These two projects, scheduled to be online by early 2012 will bring around 15,000 square meters of A grade of"ce space onto the market.

B grade of"ce supply in Ulaanbaatar is estimated to be over 165,000 square meters, representing almost half of the total supply within the city. The scale of grade B developments means that they easily dwarf smaller grade C developments at the present time. Vacancy rates are generally far higher among grade B of"ce properties than grade A due to a glut of supply in 2008 and 2009, coming online at the same time as a large supply of A grade of"ce space (an estimated 66,000 square meters has come online in the last 3 years). Observed vacancies around the grade B of"ce supply of Ulaanbaatar lead us to posit a vacancy rate of 20%, although grade B of"ce buildings in the CBD may display vacancy rates closer to 40%. In the short term the question of an oversupply dynamic in the upper end of"ce sector has already been raised. It is likely that rapidly rising of"ce prices will need to stabilise in the near future, although Mongolia’s bright economic future will provide sustained demand in the form of new and expanding domestic companies as well as international companies searching for well-served and prestige of"ce space.

Source: R2 Research

0

10,000

20,000

30,000

40,000

2009 2010 2011

Grade A office supply and update over the past 3 years

Squa

re M

etre

s

Year

New Supply (sq.m) Estimated uptake (sq.m)

Source:R2 Research

0

7,500

15,000

22,500

30,000

2006 2007 2008 2009 2010 2011

B Grade Office supply and uptake over the past 5 years

Squa

re M

etre

s

Year

New supply (sq.m) Estimated total Uptake (sq.m)


5. Hotel and Serviced Apartment Market

One highly visible result of Mongolia’s fast economic growth is a renewed in!ux of foreign workers, entrepreneurs, consultants and tourists, creating conditions for expansion of the hospitality industry both horizontally - expanding demand for existing domestic hotel and serviced apartment facilities - and vertically - creating new opportunities at the upper end of the market for luxury hotels and serviced apartments catering for executive travellers . Levels of registered FDI in tourism in Mongolia has !uctuated in recent years, reaching a high of US$1.4 million in 2005 and falling to just US$371,000 in 2010 in accordance with "gures provided by FIFTA. Nevertheless, income from tourism is on the rise after a lull in 2009. In 2010 the National Tourism Centre reported income from tourism gathered by domestic "rms reached US$ 222 million Nevertheless, much spending in the industry goes unregistered as informal tourism markets are signi"cant and highly seasonal. Nevertheless, the increasing presence of international executives and consultants has been driving up the level of comfort and amenities required to the point where international brand hotels see a suf"ciently large corporate travel market in Mongolia’s capital city to warrant entry. In 2011 a new Ramada hotel opened its doors, the "rst in a new wave of international brands to move into Ulaanbaatar. Construction projects are already underway for Shangri-La, Best Western, Hilton, Sheraton, Hyatt and Radisson. The Intercontinental has also been in talks with Chono Corporation, the owners of the Blue Sky Tower, concerning the possibility of setting up an Intercontinental managed hotel therein. However, indications from within Chono Corporation suggest that they may elect to manage the hotel themselves, under the name ‘Blue Sky Hotel’.

In terms of real "gures, the total numbers of visitors entering Mongolia have been increasing yearly since 2005. The number of tourists visiting Mongolia continued their upward curve again in 2010 after falling in 2009 - impacted by an international decline in international travel as a result of the global economic crisis. The year-on-year growth in tourist "gures was 19% from 2009 to 2010 and the overall growth in visitors during this period was 10%. This is indicative of growth in corporate travel alongside tourist numbers. Nevertheless, growth of the tourism and corporate travel sectors are facing signi"cant bottlenecks in the form of a limited international transport infrastructure. At present the Chinggis Khan International Airport of Ulaanbaatar receives and sends 209 domestic and foreign !ights per week. Of these around half are to international locations including Berlin, Moscow, Seoul, Tokyo, Beijing and, as of summer 2011, Hong Kong. These !ights carried a total of 155,400 passengers into and out of Mongolia during the "rst half of 2011. This "gure represents an increase of 141.5% over the numbers of passengers carried during the same period in 2010 but is still very low. Air travel accounts for around one-third of total cross-border travel volume, the remainder being by train and road. The trans-Mongolian railway that links the nation with Russia and China is a critical artery that carries the majority of international travellers each year. Many of these are Russian and Chinese traders, as well as backpackers. Tourism and international travel in general in Mongolia is highly seasonal. Although seasonal "gures are not released by the National Statistics Of"ce, during the cold winter months many guesthouses close down and tourist numbers decrease dramatically. Corporate travel does not drop in volume to quite the same extent, however between October and April the volume of international visitors may as much as halve.


During the wintertime the number of trains into Ulaanbaatar from China are also decreased, as are the number of international !ights. Summer, by contrast, is a time of frenetic travel activity and in 2011 it was almost impossible to book an air-ticket in or out of Ulaanbaatar at late notice.

Development of Mongolia’s Hotel industry has resulted in rapidly rising prices at the high end of the market, although a the low end per night prices remain quite low and facilities rather basic. Rack rates for high end hotels have risen by as much as 83% in the past 4 years to US$ 104 - 225 per night in 4*+ sectors and US$ 37 - 180 in 3* the sector. These are expected to continue this upward trend. A survey of hotels in Ulaanbaatar in Q3 of 2011 indicated that there were around 2,417 rooms in domestic rated 3* or above accommodation. Whilst these hotels rarely measure up to rigorous international standards the majority reach the baseline for 3* status - incorporating facilities such as daily turn-down of beds, television in every room, basic toiletries provided and a restaurant serving meals most nights. Moreover, the capacity of Ulaanbaatar’s hotel sector is set to double within the next three years, with over 1200 new rooms coming online. This expansion also represents a huge incursion into high-end markets heretofore untapped within Mongolia. The majority of these new rooms will be of international 3-star standard or above and will largely be clustered to the south of Ulaanbaatar’s Central Business District.

EXPERT OPINION - MARAT UTEGENOV, MONGOLIAN DEVELOPMENT RESOURCES

Property will be one of the sectors that will bene!t from the growth in the mining industry as it has been the case in

resource rich countries like Qatar, Kazakhstan and Western Australia. As projected by IMF, real growth of GDP is expected to be double digit over the next decade, growing from current level of $7bn to $24bn, and GDP per capita from current $3K to $8.3K in 2016. This is massive growth in just !ve years. Given that Mongolia has very limited housing stock per capita with more than half of the population living in gers (nomadic tent housing). With income per capita growing in multiples people will afford proper housing, it is unlikely that supply will meet growing demand any soon. With in"ow of foreign capital and rapid growth of production and export of key commodities like coal, copper, gold and iron ore – businesses will also expand and demand for commercial space will be constantly growing. Mortgage loans have been very limited in Mongolia, given relatively small size of the banking sector. With economy expanding in double digits we expect banks will also grow in total assets and are likely to match the GDP of the size of $24bn in 2016 from its current

size of under $6bn. Limited mortgage penetration has been a reason of relatively undervalued property prices. Rental yields currently exceed 10% up to 15-20% in central locations due to lack of property and increasing economic activity. With a view that Mongolian currency is expected to appreciate on the back of increasing foreign investments, growing exports yields in Mongolian tugrik will provide additional income on top of capital gains and rental yields. It is important to also look at opportunities in second tier cities and mining towns. South Gobi province, home to both OT and TT, has total population of just 50 thousand people. Mining boom will cause transformational growth in population and business activity both in resources and across all the mining supply chain.

Source: NSOM

0

150,000

300,000

450,000

600,000

2005 2006 2007 2008 2009 2010

Annual numbers for International Visitor and Tourist Arrivals 2005-2010

Num

ber o

f Visi

tors

/Tou

rist A

rriva

ls

Year

Visitors (de!ned as the total number of international arrivals into Mongolia) Tourists (The portion of international visitors who report their purpose of stay as tourism)


The serviced apartment market is in its nascent stages and the market has yet to fully professionalize but it is experiencing growth of demand on the back of increased executive travel. Presently within Ulaanbaatar the total stock of serviced apartments is 61 units, many of which are not permanently available as serviced apartments. These are presently spread between two high-end residential housing developments, one hotel and city centre apartments. The vast majority are owned by foreign landlords and let by foreign invested management companies for up to a 10% management fee. Whilst supply remains thin on the ground demand is growing year on year. The National Population and Housing Census 2010 indicated that there were 16,428 foreign citizens living in Mongolia for more than six months during 2010, of these at least a signi"cant number would have been staying on long term work visas. The serviced apartment market is distributed between professionals, mid-management, consultants, senior executives or diplomats. This is the key target demographic of the serviced apartment market in Ulaanbaatar and represents over 90% of serviced apartment leases surveyed. Of these the most heavily represented demographic segments in the sector are professionals and mid-management/consultants. These two sectors combined make up 88% of total per night occupancy. This segment typically have budgets of between US$1000 - US$ 2800 per month and prefer studio, one bedroom or two bedroom accommodation close to the CBD.

New supply is expected to jump in the coming years as the Shangri-La brings online new supply when it opens (projected 2013). As new FDI comes into the property sector the popularity of individual managed apartments will grow and there is already interest from international serviced apartment providers such as Oakwood and Fraser. Despite this, the barriers to creating serviced apartments in the city centre with attached amenities such as leisure and business facilities are manifold. There is presently no legal provision for block buying property, making acquisition of entire blocks of individual residential units complex and potentially costly unless a company chooses to develop themselves or buy into a developing project.

Source: R2 Research

0

0.15

0.30

0.45

0.60

2008 2009 2010

Occupancy Rates by Hotel Sector 2008 - 2010O

ccup

ancy

Rat

es (%

)

Year

Guesthouse 2* 3*+

Source: R2 Research

0

33

65

98

130

2006 2007 2008 2009 2010 2011 20112 2013

Number of Serviced apartments in Ulaanbaatar (projections 2011 - 2013)

Num

ber o

f Apa

rtmen

ts

Year

EXPERT OPINION - MR TOM HOLLAND, MANAGING PARTNER, CUBE CAPITAL

“Mongolia is the odds on favourite for highest expected GDP growth over the next decade. On top of that – it is a jurisdiction that

currently has no capital controls and a relatively benign tax regime. As we haven’t hit the J-curve yet for Mongolian GDP growth – now is an exceptional time to get exposure to Mongolian real estate assets.”


6. Construction

Mongolia’s construction sector is !ourishing again after the global economic downturn and its impact on commodity prices and FDI in!ows hit the burgeoning industry hard. At its peak in 1989 the construction sector made up 10% of the GNP of Mongolia. Once Soviet subsidies dried up the sector all but ceased to function. Until 1996 the state continued to undertake almost all construction activities but by1998 the industry was almost entirely privatised. Today Mongolia boasts over 100 architectural and engineering design companies with 800 construction companies. Around 40 of these are large operations which handle every stage of the development process. To grow Mongolia requires new expertise and technology, particularly in the "elds of concrete production and cold weather construction.

The global economic downturn and its impact on commodity prices and FDI in!ows hit the burgeoning construction industry in Mongolia particularly hard, causing many projects to stall as domestic and international funding dried-up. The Mongolian Construction Association lists as many as 450 developments, of various sizes, which remained un"nished as a result of lack of appropriate "nancing. During the downturn the Central Bank of Mongolia responded to rising domestic in!ation by implementing tighter monetary policy. This had a signi"cant impact upon risk factors in the construction sector. These issues were highlighted in the case of the new 100,000 housing unit program, where less favourable rates and conditions commercial bank "nancing had signi"cant impact on the construction feasibility. As Mongolia emerged from the

Source: NSOM

0

10,000

20,000

30,000

40,000

2010 I-IV 2011 I-IV

Construction and Capital Repair Output 2010 I-VI -2011 I-VI (mln MNT)

Mill

ion

MN

T

Year/Quarter

Residential Buildings Commercial Building Trade and Service - Including WarehouseHospitals, Schools and Social Service / Cultural Institutions Other


effects of the "nancial downturn, investment and productivity have been gradually climbing back towards the levels reached in the "rst half of the decade. Developments within mortgage markets, lower costs of loans and renewed foreign investment have all played a role in a new upturn in construction.

INFORMATION BOX - STAR APARTMENTS AND THE DEVELOPMENT OF THE OLYMPIC STREET

Undoubtedly the most desirable residential accommodation in Ulaanbaatar is the Star Apartments development. This development, completed in 2001 by a Mongolian developer, remains a !rm favorite with Executives, Heads of Mission and Diplomats. The development is a haven in the midst of Ulaanbaatar, replete with well manicured lawns, 24 hour security and facilities including a well serviced gym. Terraced and detached housing in this ultra-luxury development rent for between US$6,000 and US$17,000 per month and there is a long waiting list for rentals. Developed by a single family business, also named Star, this ultra-high end apartment and housing complex is situated to the south-east of the CBD, in Sukhbaatar District. Serviced included are 24 hour security, maintenance of plush grounds and a high-quality on-site gym. Housing ranges from around US$6,000 to US$17,000 per month and there is presently a long waiting list for the units. One secret to the success of this development, apart from the excellent care taken of all facilities, is the fact that the owners have not sold a single property in the development. They retain ownership of all of them and only rent.

Nevertheless, when it was built in 2001 the Star Apartments appeared to be located in a rather strange location. At this time most expats lived in the city centre, including in high end developments such as the Brauhaus. New high end developments had started to spring up in Khan Uul District and the Zaisan area was becoming particularly popular with wealthy Mongolians and expats. This seemed to render the choice of location for Star Apartments unconventional. Located to the south-east of the CBD, just 0.2 km from the border with Bayanzurkh, this location bordered not much more than low-cost housing at the time. The Children’s park was enclosed soon after Star Apartments were built, and whilst there was the promise of of large developments in the area there was nothing visible to suggest that this site may well become the next high-end housing area of Ulaanbaatar. Today the are has been transformed. In 2011 the Regency Residence opened its doors just a few hundred meters from Star Apartments. To a short walk north the imposing Shangri-La hotel is nearing structural completion and plans exist to build even more high-end housing in the area. The family company which owns Star Apartments (Star Holdings) was actually able to attract Hilton to their site and signed a management agreement with them for a landmark new building which adjoins the Star Apartments site. Alas this new hotel development lost funding during the economic downturn and subsequently Hilton pulled out. Nevertheless, the owners are seeking new investment and it is likely that they will eventually turn this structure into a hotel or high end apartments.

So what led to the development of a high-end housing area from a low-end housing area in just a few years. The answer, simply put, is Star Apartments. This development and the dynamics around it, is indicative of the functioning of the Mongolian market at present. There are few designated high-end areas (during the socialist period the limited housing supply meant a good deal of admixture of social groups and segregation was primarily by occupation) in Ulaanbaatar. Successful projects such as the Star Apartments and the early luxury developments in Zaisan actually de!ned the areas surrounding them and led to rapid uptake of surrounding areas by developers keen to copy the model and capitalise on the successes of existing high end projects.

INFORMATION BOX - MONGOLIAN REAL ESTATE MARKETS LACK CREDIBLE VALUERS

The real estate market in Mongolia is not well regulated or professionalized. In contrast to more established markets in Europe, America and Asia, there are limited numbers of trained valuers operating in Mongolia. Prices on the real estate market in Ulaanbaatar are entirely determined by demand and supply dynamics. Even mortgage lenders tend to base their lending decisions on present market values rather than taking into account fundamental property values. The Government of Mongolia does provide a training course, which results in issuance of a State valuation license. However, the training is based largely on outmoded means of price determination established before the market economy was established in Mongolia. Very few professional real estate agencies have obtained this license and with no restrictions on who can value property it confers absolutely no authority at this time.

Companies such as Price Waterhouse Coopers are entering into the Mongolian market but conducting property valuations does not accord with their remit in Mongolia. For institutional investors and funds based around property this poses signi!cant barriers as of!cial valuations of real estate assets are extremely dif!cult to obtain and, where they are conducted by multinational companies, are based upon limited market knowledge.


7. Land and Property ownership - structures and functioning of the market

Following the fall of the Soviet Union and the peaceful democratic revolution in Mongolia private property rights became an instant concern. The Constitution of Mongolia, adopted in 1992 indicated that the State would henceforth recognise private and public property in all forms and would protect the rights of the owner by law. The earliest steps taken in Mongolia towards the creation of a housing market was the recognition of private property. The Law of Mongolia on Immovable Property was adopted in 1997. With the new legal frameworks in place, the process of privatisation began in earnest. The Property Of"ce indicates that over 94,000 apartments were privatised since the beginning of the process. With the development of the housing-sector and rapid appreciation in house prices these units have become stores of signi"cant wealth that a decade later are being accessed. The effects of such large stores of home equity are likely to be signi"cant drivers of consumption spending and will be fully operationalised once mortgage lending rates begin to fall.

The "rst Land Law of Mongolia was passed in 1992 (amended in 2002) and provisioned a tripartite system of land tenure; ownership, possession and use. These are discussed in the section on Property Law.

One year after the second land law, the “Law on Allocation of Land to Mongolian Citizens for Ownership” was passed. This law paved the way for distribution of private land to citizens of Mongolia for family requirements and small scale agricultural purposes (most grazing land remains "rmly in state hands). A household could, for a small administrative fee, register ownership of between 700 and 5000 square meters of land depending upon the location of the plot. The law has since been changed to give individuals as well as households access to land plots for residential use (commercial use is strictly forbidden). Not all land in Mongolia is available for privatisation and the size of individual land plots available for private

Source: Property Of!ce of Mongolia

0

7,500

15,000

22,500

30,000

2004 2005 2006 2007 2008 2009 2010

Volume of validation of household rights of privatized property in Ulaanabatar by year

Volu

me

of V

alid

atio

ns

Year


ownership varies depending upon location. Sales prices for a single unit are determined by the central Government in accordance with "xed parameters concerning location, land use, geological and environmental conditions and socioeconomic factors. Land in Ulaanbaatar was appraised by the Government at a nominal value of around US$8,000 MNT per 0.7 hectares.

Allocation of land on a yearly allocation basis does suffer from certain anachronistic features that make it problematic for uptake into a market system. B. Chinbat, a Mongolian academic who has written extensively on city planning in Ulaanbaatar, wrote in 2010 that out of 19 Government auctions of land in the "rst three quarters of 2007, over one third received either no interest or a single bid, which was therefore not counted. It is posited by analysts, including B. Chinbat, that the “target use” restrictions placed on land parcels in the latest incarnation of the Master Plan actually hinders market imperative of choice. Revision of existing spatial planning methodologies may indeed be necessary if the Government is to successfully develop a thriving land economy in Mongolia. a further problem is the planned redevelopment of the city into a ‘compact’ model as part of the 2020 Master Plan. This involves getting ger district residents to move into apartments where service and infrastructure provision will be cheaper and more effective. This model is laudable and eminently effective in reducing soil pollution from the use of outdoor latrines and air pollution from individual coal "red household ger stoves. Nevertheless, families are not keen to give up their privatised land plots as they not only have their homes there but use the up to 0.7 hectares allocated for informal businesses. Plans to buy back recently privatised land at between 150,000 and 250,000 MNT per square meter (US$116 to US$194) will be costly and likely untenable without deployment of politically highly unfavored expropriation. Residents of the ger districts who have built their own homes are now often just ‘waiting’ for infrastructure to eventually reach them. For this reason our projections indicate that land use in the capital city will continue, in the short- to mid- term, to follow its broadly existing trend, with individual housing taking up demand slack in the low end, whilst mid- to high- end apartments will become more and more expensive due to lack of available land in the city centre.

INFORMATION BOX - JAPAN TOWN AND MARSHALL TOWN - WHAT HAPPENED TO THEIR INITIAL POPULARITY

Japan Town, located in Khan Uul District of Ulaanbaatar, is undoubtedly the largest single real estate development in the city in recent years. With a total GFA of over 14,700 square meters, this expansive development by Suraga Mongol, is a mid-upper and high end development, containing both town houses and apartment space. It is not only located in the Stadium Area but was instrumental in creating this area as a viable residential suburb. The scale of the project was such that infrastructural systems were run from the city centre out to the Stadium Area, provisioning a main infrastructural artery from which new developments around Japan town could draw heating, water and electricity. Japan Town also brought with it other forms of infrastructure and social goods. In a move that was very successful in attracting families to Japan Town the owners of the development invited the International School to relocate to the Japan Town site, giving them land free of charge.

Nevertheless, despite excellent early sales, Japan Town has lost favor with Mongolian and expat households for a number of reasons. The !rst of these is the design of the apartments themselves. Built according to Japanese design, they have extremely low ceilings and are extremely small. As developments have grown up around Japan Town containing more generously proportioned units, the small dormitory style apartments in Japan Town, which remain expensive per square meter, are seeming less attractive. Another disincentive for buyers is the scale of the development itself. Construction is likely to continue on the expansive Japan Town site for close to another decade, meaning that throughout the summer months the area is a hub of frenetic, noisy, dusty construction activity. Continuation of construction makes also makes for frequent interruptions to amenities. When construction is completed this site will likely be a peaceful place to live, but in the mid-term the atmosphere of the development is ruined by ongoing constructions.

Part of the land earmarked for Japan Town was actually sold off for another development, Marshall luxury Village. Next to the city’s only dedicated golf driving-range, the development itself was an ambitious one, with 5,000 residential units planned By Q3 of 2011 less than 1/10th of these had been built and the project had all but stalled due to lack of funds. Located miles from the city centre, upon Ulaanbaatar’s "ood-plain, the development is prone to infestations of mosquitos during the wet summer months and proffers little protection from potential "ooding of the Tuul River. Limited on site-facilities and generally poor !nishings on the construction work have are also reasons why the development has received little sustained interest and those who purchased off plan are now desperate to sell, re"ected in present sale prices lower than those a year ago. The developers have poured money into making cosmetic improvements to the development, although these are not suf!cient to remedy the intrinsic problems with the Marshall Luxury Village development. With unimpressive residential sales the developers have recently given over space to Wagner Asia for a parts distribution facility.


8. Legal Environment

Two decades after the transition towards a market economy began and Mongolia opened itself to the world, it is now not only becoming one of the fastest growing economies around the world but has done so on the foundations of a functioning and stable democratic system. The country has successfully held four elections (both presidential and legislative) and the composition of parliament has changed dramatically across elections these have been accomplished freely and fairly. Both major political parties: The Mongolian People’s Party and the Democratic Party, are broadly supportive of foreign investment and improvement of the market system and have successfully courted FDI in the mining sector from major multinational mining operations. Despite a capricious approach to mining sector investments in recent years, immovable property remains heavily protected. Citizens, legal persons, along with foreign persons, have the right to own, utilize and dispose of immovable property freely. Providing property is properly registered Mongolian laws afford a good deal of protection to privately held real estate. Both legally and notionally, expropriation is heavily eschewed. To date under Mongolian law there has never been a successful case of immovable property expropriation concerning immovable property or land not linked to strategic mineral reserves.

INFORMATION BOX - THE SECRET SALE OF SUKHBAATAR SQUARE

In October 2011 it came to light in the national press that a quarter of Sukhbaatar Square had been sold. Ulaanbaatar’s central square, named for revolutionary hero Damdin Sukhbaatar, is the heart of political life in Mongolia. The site of this expansive 32,000 square meter square was the site of political rallies that ushered in Mongolia’s socialist era and the protests that ended it. During the socialist period it became the focal point for spectacles, including military parades, ceremonies, cultural events and exhibitions. During the Democratic Revolution of 1990 huge demonstrations took place in the square, leading to hunger strikes that eventually persuaded the socialist Government to step down.

In the pre-socialist era this are was a large empty plot of land, ringed on all sides by temples and the residences of the nobility and clergy. The square itself was a site for nothing more than disposal of rubbish. This site, amidst It is said that during a rally on July 8th 192 General Sukhbaatar’s horse urinated on the ground within what is now the square. This was interpreted as a positive omen and the spot was marked. Today Sukhbaatar’s bronze statue sits at the very centre of the square, atop the point on which his horse famously delivered its omen.

However, it appears that even this site has not escaped the drive towards privatisation. It emerged in the press in October 2011 that part of Sukhbaatar Square had actually been sold. The transaction had actually occurred a few years ago, giving as much as a quarter of the square over to Bodi group, who had purchased ‘possession’ rights over the land, giving them a form of leasehold ownership of it. It is very highly unlikely that Bodi will ever be granted permission to build on such a signi!cant site, although the question of how they were able to purchase possession of this land remains unanswered.


9. Doing Business in Mongolia.

In terms of ease of doing business Mongolia compares favourably with the growth economies of east and inner Asia. As a developing economy the tax system remains open to !uctuations, but an overhaul of tax laws in 2007 saw rationalisation of the entire tax environment as well as reductions in income tax, corporate income tax, VAT and customs duties. Roundtrip costs of property ownership are presently among the lowest in Asia, with property sales tax a mere 2% of registered total value and annual property tax on commercial property standing at 0.6% of total value (although this "gure is set to move over to a sliding scale between 0.6% and 1% - depending on value and location - in 2013). Total purchase costs are potentially as low as 0.1% of gross value and sales costs typically as low as 2.1% of gross value.

Property Tax Case StudiesProperty Tax Case StudiesProperty Tax Case StudiesProperty Tax Case StudiesProperty Tax Case StudiesProperty Tax Case Studies

Property Type Ownership Structure Purchase Taxes Tax on rental income

Ownership Taxes Sales Taxes

Residential

Corporate entity incorporated in Mongolia

Notary fees and issuance fees 10% N/A unless earning rental,

then 0.6% 2% income tax

Residential

Corporate entity not incorporated in Mongolia


then 0.6% 2% income taxResidential

Individual Resident in Mongolia



Residential

Individual not resident in Mongolia



Commercial: Of"ce, Warehouse, Retail

Corporate entity incorporated in Mongolia

Notary fees and issuance fees 10% 0.6% p.a. 2% income tax


Corporate entity not incorporated in Mongolia


Commercial: Of"ce, Warehouse, Retail Individual Resident in

MongoliaNotary fees and issuance fees 10% 0.6% p.a. 2% income tax


Individual not resident in Mongolia


Source: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 ResearchSource: R2 Research

Starting a business in Mongolia is less costly in time and capital than in comparative economies around the East Asian and Paci"c region. Foreign investment in Mongolia is regulated by the Foreign Investment Law of 1993. This law was put in place to protect the rights of foreign investors and therefore encourage investment into Mongolia. Importantly, it sets out provisions for tax stability agreements in Mongolia, indicating that for investments of over US$20 million, the Government of Mongolia may, through their representative, agree a 20 year stable tax environment for the investment. The Government


of Mongolia are generally supportive of FDI and there are few restrictions to foreign engagement in most areas of Mongolian business, with the exception being restrictions on ownership of mining rights over strategic mineral deposits.

Foreigners are are able to start a FIFTA (Foreign Investment and Foreign Trade Agency) registered company in Mongolia that shares the same rights as a Mongolian incorporated entity, with the exception that a FIFTA company or foreign individual cannot ‘own’ privatised land, although the FIFTA can possess rights to develop state owned land as allocated by auction by the Government of Mongolia. FIFTA companies can own property and share the same taxation regime and legal requirements with Mongolian incorporated entities. A FIFTA company can be set up, as noted above, with US$100,000 of investment and takes roughly 7 - 14 working days for the process to be completed, at a cost of around US$700. However, many companies entering Mongolia use agencies to handle the set up of FIFTA companies. These may charge around US$2,000 in agency fees to complete the process but are able to do so more ef"ciently due to their knowledge of the process and paperwork required (all of which must be submitted in Mongolian). At present there are no restrictions on foreign entities or individuals entering into contracts, no requirement for them to enjoin a Mongolian partner, and no limitations on share ownership.

INFORMATION BOX - MCS PLAZA REDEVELOPMENT

The MCS Plaza, built as recently as 2002, is to be redeveloped. This of!ce and retail building sits on a plot of land that adjoins the Grand Khaan Irish Pub (comprising of nearly 8,000 square meters in total). It is likely that both buildings will be redeveloped by MCS and that the Grand Khan will be given space in the proposed new development. Tenants of the of!ce and retail space in MCS plaza were informed in November 2011 that they should vacate the premises by November 2012, indicating that redevelopment will begin in spring/summer 2013.

Information on plans is not yet available, although on this prime plot of land, situated at the very heart of the CBD, it is likely that MCS is planning a new high-rise landmark development.


10. Tier 2 Cities

As the only truly tier-1 city in Mongolia, Ulaanbaatar remains the focal point of real-estate investment interest. However, the rapid growth of Mongolia’s mining industry is spurring rapid infrastructural expansion and demographic changes within tier-2 cites. The majority of Mongolia’s growth cities are situated in the Gobi region, wherein mining operations including Oyu Tolgoi, South Gobi Sands and Tavan Tolgoi have been responsible for massive investment in infrastructure, jobs and training. Wages in Dalanzadgad (the capital of Umnugobi Aimag) are rising faster than the capital, with average increases in wages from October 2010-November 2011 around 41.8% for The South Gobi Aimag, whilst the capital, Ulaanbaatar, only saw a 38.1% increase for the same period. Mining expansion remains by far the biggest pull factor in terms of labour mobility and provincial centres such as Dalanzadgad and Sainshand have seen relatively large scale in-migration. Dalanzadgad, the capital of Umnugobi province and the heart of the mining administration in the Gobi region, swelled from around 17,000 in 2009 to 30,000 in 2011. The tiny town of Khan-Bogd, the closest conurbation to the Oyu Tolgi mine site, had a population of 1,200 in 2009, rising to nearly 3,000 by 2011 and expected to reach 15,000 by 2015 in accordance with Asian Development Bank projections. Major mining operations, such as Oyu Tolgoi are obliged by the terms of their investment agreements to procure materials, equipment and personnel locally in the "rst instance before extending their procurement net regionally, nationally and, only in the last instance, internationally. This policy is underpinning growth at local and regional levels and, alongside necessary FDI in infrastructure, remains a driving force in development of both industry and wages around the mining supply chain. This is occurring in the Gobi region in particular.

A. Dalanzadgad - Даланзадгад

As the South Gobi Aimag (province) capital, Dalanzadgad is home to the provincial Government, with whom all mining companies within the region must engage. As a nexus of mining operations all major mining projects retain of"ces and staff within the town. Many supply-chain companies also operate through the city. Domestic and international projects in Dalanzadgad received 2251.4 million MNT in investments in 2009 and with the expansion of mining activities across the Gobi region the city is scheduled to receive signi"cant private investment in the coming years.

Of the permanent, and increasingly wealthy, resident population of 30,000 only around 4,000 presently live in permanent accommodation in the city centre and housing is in extremely short supply. The in!ux of mining industry and mining supply companies into Dalanzadgad has pushed up wages to the highest average in the country. This has also spurred in-migration and transformed the residential real estate market of Dalanzadgad within the space of 18 months. Where city centre apartments could be purchased for as little as US$ 250 per square meter in 2009, prices for older apartments now


starts at around US$500 per square meter and the average is at over US$800 per square meter. Movement of new mining operations and associated supply line business is also pushing up demand for new of"ce, retail and warehouse space. The opening of a new deluxe hotel (the ‘Khan Uul’ Hotel) in the centre of Dalanzadgad, charging between 120,000 and 800,000 MNT per room per night (between US$93 and US$623) for a double room is indicative of the level of investment interest in what was, until a few years ago, a small provincial capital.

Land in Dalanzadgad is rising rapidly in price as developers rush to extend the infrastructure of the city. In Q2 2011 land near to Dalanzadgad city centre, capable of being connected to the city’s infrastructural system, sold at an average of US$113 per square meter, up from around US$108 in late 2010. As new developments spring up around the city (over 20 were counted in Q2 2011), including new affordable apartments as well as civic centres and new of"ce facilities, land in the city centre is set to increase in value rapidly. This makes land-banking an attractive option in Dalanzadgad, as well as in other secondary cities in the region experiencing similar growth.

B. Erdenet - Эрдэнэт

Erdenet is a well established city in the Orkhon Aimag, approximately 150 miles north-west from Ulaanbaatar. As Mongolia’s third largest city (the second being Darkhan) it has a population of just over 87,000 people and, unlike Dalanzadgad and Sainshand, is not experiencing rapid population increase. Erdenet was established around the Erdenet Mining Corporation’s copper mine in the 1970s and still lays claim to the largest per capita GRDP in Mongolia, at US$ 6,400, as a result of the continuing mining operations.

Erdenet is divided into 6 individual districts, with a 7th in planning. Around 50% of the 100,000 inhabitants live in gers, whilst the rest live in mostly socialist era apartments. The 2000 census indicated that 58% of Erdenet residents live in apartments, with 18% living in the ger districts in non-permanent accommodation. 23% lived in individual houses, whether in the city centre our in peri-urban areas. The city’s housing supply is still in de"cit and whilst population growth is not a large driving factor increasing wealth (individual wages in the Aimag rose 121% from the "rst month of 2010 to 2011) as a result of continued mining operations continues to push up prices. Erdenet is also famous for carpet manufacturing and raw animal material processing. The city has been earmarked for expansion of existing processing and manufacturing operations.

C. Khan Bogd - Ханбогд

The built environment of Khan-Bogd remains limited. The town extends over an area of approximately 567,000 square meters, the majority of which is undeveloped semi-desert. The centre of town comprises less than 40 buildings and the small ‘ger district’ extends directly north-west of the conurbation. With such a small existing stock of real-estate, the market in Khanbogd remains barely developed. Few properties come onto the market and prices set based on intermittent transactions. Nevertheless property and land prices are tipped to grow rapidly in the city centre in the short- to mid- term. Lack of urban development in Khan Bogd makes it a potentially risky investment but this small conurbation has already been labelled Mongolia’s ‘richest town’.


10. Consumer Price Index

CONSUMER PRICE INDEXCONSUMER PRICE INDEXCONSUMER PRICE INDEX

Description Quantity Price (MNT)

FOOD ITEMSFOOD ITEMSFOOD ITEMS

Large white loaf 600 g $0.56

Small Brown Loaf 600 g $0.56

French style Baguette unit $1.29

Croissants unit $0.64

Pain au Chocolat unit $0.80

Sandwiches unit $3.53

Crepes unit $2.73

Omelette unit $3.53

Kellogg's 500 g $3.18

Special K 750 g $5.46

Muesli 750 g $4.62

Italian Imported Spaghetti 500 g $1.61

Russian Imported Spaghetti 300 g $0.64

Box of Italian Imported Penne / Fusili / Tagliatelle 500 g $2.01

Russian Imported Penne / Fusili / Tagliatelle 3 Kg $2.81

Pot Noodle (chinese) 120 g $0.60

Minced Beef 1 Kg $7.23

Filet of beef 1 Kg $4.42

Frozen Chicken (American) unit $2.81

Frozen Chicken (Chinese) 1 kg $3.31

Fresh Chicken Legs 1 Kg $2.81

Mutton 1 Kg $3.05

Sheep Head unit $2.01

Kidneys / Heart 1 Kg $2.41

Frozen Smoked Salmon 1 Kg $20.08

Frozen whole !sh (trout or similar) 340 g $8.03

Fresh river !sh (trout or similar) 1 Kg $3.61

Olive oil (Extra Virgin) 1 L $3.78

Vegetable Oil 1 L $2.17

Ketchup 680 g $1.73

Mustard 300 g $1.04

Mayonnaise 300 g $1.20

Table Salt 500 g $0.16

Premium Sea Salt 500 g $1.20

Pepper 500 g $0.64

Premium Whole Pepper 300 g $4.74

Small bags of various spices 25 g $0.23

Frozen Mixed Vegetables (asian) 400 g $2.09

Frozen mushrooms 500 g $0.80

Aubergines 1 Kg $2.64

Carrots (Mongolian) 1 Kg $1.61

Carrots (Imported) 1 Kg $0.63

Onions (Mongolian) 1 Kg $0.80

Onions (Imported) 1 Kg $0.56

Potatoes (Mongolian) 1 Kg $0.64

Potatoes (Imported) 1 Kg $0.80

Peppers (Mongolian) 1 Kg $2.01

Peppers (Imported) 1 Kg $2.16

Clove of Garlic 5 units $1.20


Broccoli 1 Kg $4.02

Salad unit $0.48

Tin of Button Mushrooms 800 g $1.98

Tin of Corn 400 g $0.80

Tin of Green Peas 400 g $0.80

Tin of Haricots 411 g $1.29

Dozen Eggs (Russian) 12 units $2.01

Dozen Eggs (Mongolian) 12 eggs $1.93

1L Tetra pack Milk (Mongolian) 1 L $0.96

1L Tetra-pack Milk (Russian) 1 L $1.20

1L Soja Milk 1 L $1.53

Mongolian Plain Yoghurt 500 g $0.68

Russian Flavored Yoghurt 375 g $2.65

Sliced processed cheese (pack of ten) Pack of 8 $1.97

Gouda Style Cheese 1 Kg $5.22

Brie (imported) 250 g $9.24

Camembert (imported) 200 g $7.63

President Butter 200 g $2.01

Russian Butter 250 g $2.89

Mongolian Butter 500 g $1.29

Fresh Apples 1 Kg $2.01

Fresh Grapes 1 Kg $2.41

Fresh Lemon 1 Kg $3.21

Fresh Pineapple 1 Kg $1.60

Fresh Peaches 1 Kg $2.41

Tinned Peaches 1 Kg $0.96

Tinned Pears 1 Kg $2.65

Tinned Plums 1 Kg $3.21

Jar of Cherries 250 g $0.80

Jar of preserved strawberries 580 g $1.99

Strawberry Jam (Russian) 310 g $1.23

Strawberry Jam (Mongolian) 350 g $1.42

Strawberry Jam (Premium European Imported) 320 g $1.48

Orange 1 Kg $2.40

Watermelon 1 Kg $5.22

Banana 1 Kg $1.60

Green pear 1 Kg $2.01

Gherkin 900 g $2.07

Cofee (Nescafe Classic) 200g $6.43

Cofee (Classical) 200 g $4.82

Tea (Classical) 50 g $1.08

Tea (Lipton) 100 sachets $4.82

Honey 340 g $1.93

Sugar 700 g $1.12

Rice (Normal) 1 Kg $1.12

Rice (Uncle Ben's) 1 Kg $5.54

Flour 1 Kg $0.57

Nutella 750 g $9.39

Orange juice 1.5 L $3.20

Coca Cola 2 L $0.96

Sprite 2 L $0.96

Water 1.5 L $0.40

Aluminium 20m $2.65

Sanitary towel 8 units $0.80

Toilet paper 8 units $4.42

Shampoo 40 cL $3.22

Toothpaste 50 mL $0.56


Toothbrush unit $2.43

Washing powder 1.5 Kg $5.62

REAL ESTATEREAL ESTATEREAL ESTATE

City Centre Furnished Studio (42sqms) - 40k Month $900

City Centre Unfurnished Studio (42sqms) - 40k Month $400

City Centre Furnished 1 Bed (65sqms) - 40k Month $750

City Centre Unfurnished 1 Bed (65sqms) - 40k Month $600

City Centre Furnished 2 Bed (98sqms) - 40k Month $1,500

City Centre Unfurnished 2 Bed (98sqms) - 40k Month $1,200

City Centre Furnished Studio - New Month $800

City Centre Unfurnished Studio - New Month $1,000

City Centre Furnished 1 Bed - New Month $800

City Centre Unfurnished 1 Bed - New Month $1,200

City Centre Furnished 2 Bed - New Month $1,000


City Centre Furnished 3 Bed - New Month $2,008.03


Stadium Area 1 Bedroom Apartment Month $900

Stadium Area 2 Bedrooms Apartment Month $963.86

Stadium Area 3 Bedrooms Apartment Month $979.92

Stadium Area 3+ Bedrooms House in Compound Month $2,200

Zaisan Area 1 Bedroom Apartment Month $1,400

Zaisan Area 2 Bedrooms Apartment Month $1,700

Zaisan Area 3 Bedrooms Apartment Month $2,500

Zaisan Area 3+ Bedrooms House in Compound Month $2,800

Zaisan Area 3+ Bedrooms House Standalone Month $3,500

Grade A Of!ce Space sqm / month $40.80

Grade B Of!ce Space sqm / month $21.90

Grade C Of!ce Space sqm / month $19.20

Grade A Retail sqm / month $36

Grade B Retail sqm / month $23

Grade C Retail sqm / month $16

Warehouse (good condition) sqm / month $5.62

COMMUNICATIONSCOMMUNICATIONSCOMMUNICATIONS

Wi-! Router unit $140.56

Internet connection per month for 512kb (home) month $20.08

Internet connection per month for 1Gb (home) month $26.51

Internet connection per month for 2Gb (home) month $44.18

Internet connection per month for 3GB (home) month $55.42

Internet connection per month for 5GB (home) month $103.61

Telephone call (Postpaid) 1 min $0.04

Telephone call (Prepaid) 1 min $0.06

SMS unit $0.02

City utilities average for studio (electricity) month $8.03

City utilities average for studio (water) month $8.03

City utilities average for 1 Bedroom (electricity) month $8.03

City utilities average for 1 Bedroom (water) month $8.03

City utilities average for 2 Bedrooms (electricity) month $12.05

City utilities average for 2 Bedrooms (water) month $12.05

City utilities average for 3 Bedrooms (electricity) month $16.06

City utilities average for 3 Bedrooms (water) month $16.06

Sansar Cable Television month $4.42

FURNISHINGSFURNISHINGSFURNISHINGS

1 Seater Fabric Sofa 1 $1,124.50



Desk 1 $618.47


Book Shelves 1 $922.89

Chair 1 $128.51

Of!ce Chair 1 $163.86

Double Bed 1 $306.02

Carpet 1 $457.83

Table 1 $1,526.10

Washing Machine (20Kg) 1 $441.76

Fridge 1 $257.03

Freezer 1 $212.85

Stove (electric) 1 $144.58

Stove (gaz) 1 $60.24

Oven 1 $465.86

Microwave 1 $66.67

Coffee Machine 1 $52.20

Hoover 1 $56.22

Humidi!er 1 $28.11

Steak Knives 1 $2.01

Cutlery Set 1 $184.74

Large Plates 1 $1.61

Small Plates 1 $1.61

Bowls 1 $4.02

Mugs 1 $4.82

Pressure Cooker unit $136.54

Pan 1 $24.10

Glasses 1 $2.01

TRANSPORT - PUBLIC TRANSPORTATIONTRANSPORT - PUBLIC TRANSPORTATIONTRANSPORT - PUBLIC TRANSPORTATION

Buses within Ulaanbaatar 1 Way $0.24

Buses to Dalanzadgad 1 Way $17.27

Buses to Erdenet 1 Way $8.84

Buses to Dahan 1 Way $5.62

Buses to Khovd 1 Way $55.02

Train to Sainshand (1st Class) 1 Way $9.16

Train to Erlian (1st Class) 1 Way $149.00

Train to Erdenet (1st Class) 1 Way $5.46

Train to Ulan Udee (1st Class) 1 Way $10.12

Train to Beijing (1st Class) 1 Way $161.29

Train to Irkutsk (1st Class) 1 Way $63.86

Private Car hire with driver in Ulaanbaatar (excluding fuel) Km $0.56

Private Car hire with driver in Countryside (excluding fuel) Day $40

Toyota Land Cruiser hire with driver in Ulaanbaatar Day $100

Toyota Land Cruiser hire with driver in Countryside Day $80

Russian jeep (Waz) rental for a day in Countryside Day $60

Motorbikes hire Day $75

Unmarked Taxi in Ulaanbaatar per km $0.40

Marked Taxi in Ulaanbaatar per km $0.40

Marked taxi from UB airport to city centre 1 Way $16.06

Marked Taxi from City Centre to Airport 1 Way $16.06

TRANSPORT - PRIVATE CARTRANSPORT - PRIVATE CARTRANSPORT - PRIVATE CAR

Premium Car Purchase 1 $8,800

Nissan - Teana 1 $44,497.99

Nissan - In!niti Qx 1 $100,722.89

Nissan - Patrol 1 $79,518.07

Nissan - x trail 1 $37,911.65

Land Rover - Range Rover Sport 1 $145,000

Land Rover - Defender 110SW 1 $61,734.94

Land Rover - Discovery 4 HSE 1 $118,000

Ford - Expedition 1 $75,903.61


Ford - 4*4 explorer XLT 1 $56,000

Ford - AWD Ford Fusion (berline) 1 $39,000

Ford - Euro Ford Focus (berline) 1 $27,000

Ford - Everest XLT 1 $37,000

Chevrolet - Silverado 1 $48,185.46

Chevrolet - Colorado 1 $37,743.69

Toyota - Tundra 1 $30,000

Toyota - Highlander 1 $39,000

Toyota - 4*4 1 $45,000

BMW - 4*4 1 $88,000

BMW - 4*4 break 1 $50,000

Lexus - 470 1 $20,000

Mercedes - G500 1 $50,000

Land Rover - Range Rover 1 $40,000

GMC - Denali 1 $68,000

CAR INSURANCECAR INSURANCECAR INSURANCE

Car insurance - A Value of car 4%

Car insurance - B Value of car 3%

Car insurance - C Value of car 2.40%

Car insurance - D Value of car 1.80%

Car insurance - E Value of car 1%

FUELFUELFUEL

Diesel 1 L $1.00

Petrol 85 1 L $1.00

Petrol 92 1 L $1.20

Petrol 95 1 L $1.26

TRANSPORT - REGIONAL AND INTERNATIONAL FLIGHTSTRANSPORT - REGIONAL AND INTERNATIONAL FLIGHTSTRANSPORT - REGIONAL AND INTERNATIONAL FLIGHTS

Domestic return "ight to Dalanzadgad (Eznis) 1 Return Trip $403

Domestic return "ight to Khovd 1 Return Trip $656

Domestic return "ight to Moron 1 Return Trip $401

Return International Flight to Hong Kong 1 Return Trip $572

Return International Flight to Berlin 1 Return Trip $874

Return International Flight to Beijing 1 Return Trip $379

Return International Flight to Seoul 1 Return Trip $420

RESTAURANTSRESTAURANTSRESTAURANTS

Meal (Medium quality) per person $5

Meal (!rst price) per person $20

ALCOHOL AND CIGARETTESALCOHOL AND CIGARETTESALCOHOL AND CIGARETTES

Vodka (high quality) 1 L $23.36

Vodka (!rst price) 1 L $10.04

Beer (Mongolian) 50 cL $0.86

Beer (Imported) 33 cL $0.95

Chablis 75 cL $19.68

Whiskey (medium price) 1 L $22.88

Cigarets - Marlboro 1 pack of 20 $1.20

Cigarets - Marlboro Light 1 pack of 20 $1.28

Cigarets - Parliament 1 pack of 20 $1.61

Cigarets - Davidoff 1 pack of 20 $1.29

Cigarets - Kent 1 pack of 20 $1.61

Cigarets - Winston 1 pack of 20 $0.88

Cigarets - LM 1 pack of 20 $0.80

Cigarets - Fortuna 1 pack of 20 $0.64

Cigarets - LD 1 pack of 20 $0.80

HOTELSHOTELSHOTELS

2 Star Single Room Night $44

2 Star Double Room Night $53


2 Star Junior Suite Night $58

2 Star Executive Suite Night $68





3 Star Presidential Suite Night $186









5 Star Presidential Suite Night $3,250

Guest House - dormitory Night $5.77

Guest House - private room Night $9.44

CLOTHINGCLOTHINGCLOTHING

Trousers 1 $38.55

Pullover 1 $39.36

Shoes (Suit) 1 $168.67

Sport shoes 1 $152.61

Shirt 1 $30.51

Tee-shirt 1 $20.08

Polo 1 $20.08

Shorts 1 $19.28

Trousers 1 $32.13

Jean 1 $15.26

Pullover 1 $61.85

Sweat 1 $70.67

Suit 1 $237.75

Tie 1 $90.76

ENTERTAINMENT AND LEISUREENTERTAINMENT AND LEISUREENTERTAINMENT AND LEISURE

Tennis Hour $10

Cinema Ticket $3.21

Fitness Month $61

Ski Day $17.99

Jet boating Hour $72.29

Amusement Park attraction $3.21

Roller Blade Hour $1.61

CULTURAL ATTRACTIONSCULTURAL ATTRACTIONSCULTURAL ATTRACTIONS

Choigin Lama Monastery 1 $2.01

Bogd Khaan Palace 1 $2.01

EDUCATIONEDUCATIONEDUCATION

Mongolian language private lesson lesson $4.02

Mongolian language private lesson lesson $7

Private english lesson lesson $7.99

Corporate english lesson lesson $56.22

SCHOOLINGSCHOOLINGSCHOOLING

Registration fee year 150

Capital fund fee year 3500

Preschool year 16000

Primary years program year 22582

Middle years program year 27526

Diploma years program year 29323

Registration fee year $116.47


Kindergarten year $5,823.29

Grades 1-3 year $6,405.62



Grades 9 year $8,734.94




Lunch 1 $2.81

Registration fee year $602.41

Kindergarten year $3,212.85

Primary 1/2/3/4/5 year $4,819.28

Secondary 6/7/8 year $5,622.49

High 9/10/11 year $6,425.70

Lunch year $602.41



THE FULL VERSION OF THIS REPORT IS NOW AVAILABLE FOR PURCHASE DIRECTLY THROUGH RESEARCH SQUARED MONGOLIA.

The full version of the Mongolian Real Estate Report 2012 includes over 400 pages of data and analysis, making this the largest report published to date on the Mongolian real estate sector. Detailed sector-by-sector analysis is underpinned by extensive macroeconomic and demographic data that in itself is a useful tool for investors in one of Mongolia’s most exciting growth sectors. As well as providing extensive data about price, market size and demographics, the full report is designed to be used as a practical investment tool, containing how-to guides and detailed market information designed to give investors an edge in understanding this rapidly developing market.

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