• How to Invest in Mongolia’s Property Market: By Mongolian Properties

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    Mongolia has been one of Asia’s best performers in terms of property rental yields and capital appreciation in the past decade. Yet, it’s still not under many investors’ radar.

    At the moment, most attention comes from foreign companies who look for commercial property or housing for expats. With that said, Mongolia is predicted to perform well in the coming years, having one of the fastest growing economies in Asia.

    Today, Mongolian Properties helps to explain how it works when buying property in Mongolia. It’s one of the biggest real estate agencies and a reputable developer that has built many projects in the past.

    Topics covered:

    • Can foreigners buy property in Mongolia?
    • What property types are available to foreigners?
    • How is the real estate market?
    • How is the process when buying property?
    • Can foreigners rent out property in Mongolia?
    • What are the best cities to buy property?
    • What property types should be of interest?
    • How can I transfer funds from Mongolia to overseas?
    • What property taxes do I need to pay?

    Can foreigners buy property in Mongolia?

    Mongolian property laws are comprehensive and well-drafted with good protection of title and ownership rights. This applies to foreigners as well.

    Having a ‘floating freehold’ system, the constitution and other major laws provide both foreign and Mongolian citizens with inalienable freehold rights to immovable property.

    There’s no distinction between local and foreign purchasers in the legal system in terms of property rights.

    What property types are available to foreigners?

    Foreigners can own apartments and houses, but cannot legally own land on a freehold basis.

    If you plan to buy land, you should pay attention to the Mongolian Land Law, which divides land rights into three distinct classes:

    1. Land Ownership

    Meaning legitimate freehold title of land with the right to sell, lease, and transfer the land to descendants. This is only available to Mongolian citizens.

    2. Land Possession

    Meaning temporary and licensed control of land by its purpose of use.

    Possession certificates can be bought or sold to local entities. Mongolians can claim small plots of up to 0.07 hectares within the limits of urban centers.

    This is free of charge for a term of 15 to 60 years, with the possibility to extend the lease for up to 40 years. These plots can be traded freely and passed down to families and relatives.

    3. Land Usage

    Land usage refers to the right to undertake concrete activity and make use of some of the land’s characteristics by contracts made between the owners and/or the possessors of the land.

    This is usually given for 5 years with an option of renewal.

    As an alternative to freehold ownership, land usage rights are offered to Mongolian and foreign residents (present for more than 183 days a year), as well as to companies.

    Foreign registered companies are required to obtain permission from the government beforehand.

    How is the real estate market?

    Mongolia has a steady growing real estate market with a strong future outlook. In 2018, the economy grew by as much as 6.9% and there’s much development planned for the future.

    Foreign direct investment into mining, oil, and construction have surged, and exports grew by 10% in the first half of 2019 to a total of USD 3.9 billion.

    The Asian Development Bank (ADB) sees that the country will keep this trend in the coming years. International ratings agencies have echoed this sentiment.

    At the same time, Fitch upgraded Mongolia’s rating as a long term foreign currency issuer from B- to B, after S&P affirmed their outlook for the country as “Stable”.

    With that said, the real estate market has improved but not yet reached the heights seen at the beginning of the decade.

    As the economy picks up, the market is also beginning to heat up. Being in an early stage, this offers exciting opportunities for investors, looking for both yield and long-term capital appreciation.

    Retail and residential spaces have the potential to enjoy substantial appreciation in the next few years.

    Unlike other cities in Asia, yields are high and prices competitive in Ulaanbaatar, the capital. With a growing number of expats in the city, the leasing market great for high-end units.

    Office Space

    Following the mining-based boom in FDI, which started with the completion of the Oyu Tolgoi Investment Agreement in 2009, demand for offices skyrocketed. Since 2009, the supply of office space increased nearly sevenfold.

    Although demand for office space has grown significantly over the last decade, only certain areas of the city have been impacted.

    The dominant preference of both domestic and international companies have been acquiring space within the Central Business District (CBD), which is primarily situated in Sukhbaatar District.

    The CBD represents the epicenter of Mongolia’s economic activity, encompassing the country’s parliament, stock exchange and the majority of key landmarks. For domestic companies, having their headquarters within this exclusive central geographical area is a symbol of status and power.

    In 2014, demand for office space began to fall. In 2016, the new offices in the Shangri-La complex started charging lower than the prevailing market price, and consequently, pricing on Grade A space in the Central Business District adjusted.

    Retail Property

    The retail sector has expanded dramatically, rising from less than 14% of GDP in 2008 to more than 19% in 2011. The number of establishments operating nationally within the retail industry increased over twofold from 27,112 in 2008 to 60,171 in 2016.

    The total sales of the wholesale and retail trade in the country has maintained double-digit growth since 2010, even in the wake of a weakening external economic environment in 2013 through 2015.

    According to the Mongolian National Statistics Office, annual per capita expenditure on clothing alone increased sevenfold between 2003 and 2016.

    As more international brands such as Burberry, Rolex and Valentino enter the market, demand for high-quality space will increase and as such, retail occupancy rates downtown are extremely high.

    Typical retail leases last for 3-5 years and rental rates are typically fixed for the duration. This means that over the last years recorded rental rates have been relatively stable since most agreements were made when the stores opened in 2010.

    In 2018, the average rental rates for prime downtown retail stood at $26 per square meter per month with 20% in rental yields and a 90% occupancy rate.

    How is the process when buying property?

    Below we’ve listed the steps included when buying property.

    1. Find an Experienced Real Estate Agent

    You should find a local real estate agent earliest possible. The real estate agent is your window into the property market in Mongolia and they should have a deep knowledge about the local market.

    A knowledgeable and experienced agent should be able to find multiple solutions to your needs on time, and negotiate the best price on your behalf.

    2. Check the Immovable Property Ownership Certificate (IPOC)

    Every apartment owner has an Immovable Property Ownership Certificate (IPOC). Your real estate agent should check this to ensure it’s genuine and that the owner is credible.

    This process should take no more than 1 to 2 days.

    3. Check the Property

    It’s important to check whether the building is connected to the central heating, water and, sewage system. If disconnected, think about how much it will cost in the long term.

    Keep in mind that Mongolia has a cold climate during the winter and your electricity bill will be substantial during the winter months.

    4. Sign the Sales and Purchase Agreement (SPA)

    Once you’ve made all the necessary arrangements with the owner, both the seller and purchaser will go to a notary office in the district where the property is located.

    For instance, if the property is in Sukhbaatar then the purchase agreement must be notarized in the same district’s notary office. Both parties are required to bring their passports and the original IPOC.

    Notary fees are generally around MN₮ 10,000 to MN₮ 300,000 (US$5 to US$150), depending on the property value.

    Costs related to notarization of the contract and registration at the district’s Immovable Property Registration Office (IPRO) must be paid by the buyer.

    The notary will draw up a standard contract, which will then be stamped and signed by both seller and purchaser. After you sign the contract, you are expected to pay the outstanding balance by the contract to receive the certificate.

    5. Confirm Payment of the Property Sales Tax

    After signing the sales and purchase agreement, the seller must pay property sales tax equivalent to 2% of the value.

    A receipt of the payment will be needed when submitting documents to the district IPRO, when applying for the ownership transfer, and to obtain a new ownership certificate.

    6. Paying the Agency Fee

    Most real estate agencies do not charge buyers or tenants. In most transactions, the lessor or the seller pays commissions and/or other fees.

    7. Changing Property Ownership

    Once the property sales tax has been paid, go with your agent to the district IPRO, where your agent will assist in filling out the form for ownership transfer and the new ownership certificate.

    It normally takes 3 to 5 working days to receive a certificate and the following basic documents are required:

    • Notarized passport copies
    • Copy of sales and purchase agreement
    • Bank receipt that proves you have paid the property sales tax of 2%
    • Fee receipt (urgent MN₮ 40,000 and regular fee MN₮ 20,000)
    • Application form (your agent will assist with this)

    8. Moving In

    Once the certificate is filed, the current tenant of your new property is allowed approximately one week to move out.

    Withhold a small amount of money on your final payment until you can conduct a thorough inspection of the property on the day of entry. Once you have checked the apartment and have been given the keys, you may pay the remaining amount.

    Can foreigners sublet property in Mongolia?

    Foreigners have no issues to sublet their properties in Mongolia.

    In fact, many foreigners don’t even have to come to Mongolia in person as their properties are fully managed by Mongolian Properties.

    Agents take responsibility to handle all property management and matters relating to tenants for owners.

    What are the best cities to buy property in Mongolia?

    Below we’ve listed some of the most interesting cities to buy real estate in Mongolia at the moment.

    Ulaanbaatar

    Ulaanbaatar is a bustling and rapidly modernizing metropolis that hosts more than half of the total population of Mongolia, or 1.6 million residents. Its residential market is extremely diverse.

    On one end of the market, you have high-end luxury apartments with full modern amenities and sweeping views of the countryside. There are parts of the city, such as Sukhbaatar District and the Zaisan area of Khan-Uul District, where residential real estate has dramatically outperformed the general market.

    Many high-end properties in the Central Business District Area of Ulaanbaatar or Sukhbaatar district generate 10% to 12% in rental yields. The residential sector has been on a sharp upward trend in the past decade.

    Even if the supply has increased, rental and sales prices have increased significantly almost every year. At the same time, you see people residing in temporary felt tents without heat, electricity, or running water.

    These extremes can be found within a few hundred meters of each other. Between them, various Soviet era and modern developments exist.

    Seoul Street

    Seoul Street stretches 3 kilometers from the National Academic Theatre on the east to Ulaanbaatar Railway Administration on the west. It is known to be a busy and vibrant location, due to the concentration of many of Ulaanbaatar’s most renowned restaurants and bars.

    These include California restaurant and drinking venues such as Brauhaus, Great Mongol, Beer House, and Grand Khaan Irish Pub. Nighttime venues are complemented by popular cafes such as The Coffee Bean & Tea Leaf, Cafe Ti-Amo, Peaberry and the Korean franchise, Tous le Jours.

    This is not to say, however, that Seoul Street is purely reserved for leisure.

    A branch of Khan Bank which used to be the headquarters, one of Mongolia’s biggest institutions, is located opposite its competitor Golomt on the other side of the road. The Anti-Corruption Agency and the factory of Ugoodge bakery that caters to many Mongolian families are also located in the area.

    Nonetheless, these sit easily alongside a growing recreational scene that is drawing crowds, especially in the summer months.

    It is a convenient area, where hubs such as Naran Mall and Seoul Plaza vie for attention with several boutiques, all the while sitting easily alongside other amenities such as the State Second Maternity Hospital as well as the Eye Clinic Orbita.

    The East part of the street is home to the palace of the 20th-century prominent leader, Chin Van Khanddorj, as well as a wide range of offices and commercial spaces of both notable local and international organizations, along with one of the oldest public schools in Mongolia, State School Number 1.

    The most recent development on Seoul Street is the foresighted decision by the city administration to reserve 440 meters of its center each evening as a car-free night zone from 10 pm to 6 am.

    This forms a part of the government’s goal to make Ulaanbaatar a tourist hub by 2020 and already is contributing to the creation of a vibrant area in which to eat and drink.

    Such initiatives draw on experiences in other Asian cities and help contribute towards a lucrative night-time economy.

    Darkhan

    Darkhan is the second-largest city with a population of around 84,000 residents. It’s located 230 kilometers away from the capital Ulaanbaatar.

    Darkhan city is the major agricultural producer in Mongolia with rich resources for agricultural development. Darkhan was built in 1961 as the foundation for Mongolia’s major industries, particularly construction materials.

    Erdenet

    Erdenet is the third-largest city with a population of around 100,000 residents. The distance between Ulaanbaatar and Erdenet is 240 kilometers and the city hosts the fourth largest copper mine in the world.

    The Erdenet Mining Corporation was a joint Mongolian-Russian venture, but is now 100% owned by Mongolia and accounts for a majority of Mongolia’s hard currency income.

    Erdenet city mines around 22 million tons of ore, produces 126,700 tons of copper and 1,954 tons of molybdenum per year.

    With that said, Darkhan and Erdenet are not yet as interesting for real estate investments compared to Ulaanbaatar. At the moment, Ulaanbaatar should be the focus in terms of high yields and its growth.

    What property types should be of interest?

    As the economy picks up, the market is beginning to heat up. As mentioned, we’re still in an early stage and this offers good opportunities for foreign investors looking for high yields and long-term capital appreciation.

    Retail and residential spaces have the potential to enjoy substantial appreciation in the coming years.

    Looking at residential property, yields averaged at 11% from 2003 to 2011 in Ulaanbaatar. At the same time, the market has grown 15% year-on-year. Nowadays, yields average at around 10% for luxury property, which is amazing.

    Unlike many other cities in Asia, prices are low and rental yields high in Ulaanbaatar. With the growing number of expats in the city, the leasing market is buoyant for high-end units.

    How can I transfer funds from Mongolia to overseas?

    If you’re a foreigner and sell or transfer money from rents, you don’t have to open a local bank account.

    Instead, the agent normally transfer money from rents to your foreign bank accounts. With that said, foreigners can open local bank accounts, if they prefer to.

    What property taxes do I need to pay?

    Mongolia has some of the most competitive property taxes, not only in Asia, but worldwide.

    Let’s have a look and see what taxes you need to pay when buying, holding and selling property.

    Stamp duty

    There’s currently no stamp duty for property purchases in Mongolia.

    Transfer fee

    The same as it goes with stamp duty, there are no transfer fees when buying property.

    Annual property tax

    The property tax ranges from 0.06% to 1%.

    Withholding tax

    The withholding tax is 2%.

    Rental income tax

    The rental income tax is 10%.

    Capital gains tax

    There’s no capital gains tax when selling property.

    About Mongolian Properties – A Subsidiary of APIP

    Founded in 2001, Mongolian Properties is one of the largest real estate agencies in Mongolia with five sales offices in Ulaanbaatar, having around 50 employees.

    The agency provides valuable current market intelligence for land acquisitions and project planning. It’s also an established sales and leasing platform that the Group uses to market its developments.

    The agency provides a full suite of after-sale property management services to buyers such as leasing, valuations, interior design, furnishing and maintenance services, providing investors with the option of a fully furnished and managed property for rental.

    The customers of the Group’s agency business include local owner-occupiers, overseas relocation companies and corporations (particularly large mining companies) looking to house employees, foreign investors, and government and non-government agencies with accommodation needs for expatriate staff.

    Services include short term rentals, long term rentals, real estate sales & purchase, property investment tours, property research & consulting, legal services, overseas real estate, property management, architecture, interior design & furnishing services, relocation services and construction services.

    Mongolian Properties also develops, sells and manages its own landmark properties in Ulaanbaatar. For instance:

    • The Park View Residence (2007)
    • Temple View Residence (2010)
    • Regency Residence (2010)
    • The Village @ Nukht (2014)
    • The Olympic Residence (2018)

    Future developments include the Park Place (2020), Oasis Residence (2021), and Circus Residence I, II & III (2021 & 2022).

    As a leading developer in Mongolia, we have won many awards for our projects and are well known for providing high quality services to our clients.

    For instance, Mongolian Properties won the “Highly Commended Real Estate Agency in Mongolia” from Asia Pacific Property Awards in 2013 and the “Best real estate agency of 2010-2015” from Forbes Mongolia magazine in 2016.

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