Sandwiched between Russia and China, there lies a gold mine of resources, profit and growth known as the country of Mongolia. With a healthy economy and expanding wealth inside the country, Mongolia is rapidly becoming an investor’s ‘hot spot’ in the global arena. Much of this potential wealth arises from an ideal mixture of supply and demand. An incredibly high demand for city housing primarily in the capital of Ulaan Baatar – combined with a shortage of land supply in the prime city areas creates the ideal investment return. Most importantly in this gigantic economic reaction lies the catalyst mining.
The mineral resources in Mongolia are enormous, providing rich supplies of copper, coal, gold, and possibly even oil. The country became the most prolific copper provider on the globe with the discovery of the world’s largest copper mine, which is expected to provide over $100 billion of ore over the next forty years. With China just to the south, exports of these natural resources are boosting the economy, creating a rising GDP (Gross Domestic Product) each year.
This rising GDP is primarily the result of high copper prices, which rose a whopping 250% since 2002, and the production of gold. Mining is responsible for nearly one fourth of the GDP, three fourths of the country’s exports, and 67% of the industrial outputs. Not surprisingly, some of the world’s largest mining companies such as BHP, Rio Tinto, Ivanhoe, and Centerra Gold are taking advantage of resources by moving in and planting their shovels into Mongolia’s rich soil.
This influx of mining organizations, combined with the already-high amount of international trade with countries such as China, is inviting countless expatriates, ambassadors and executives to the city causing much of the demand in high-end city housing.
When turning to the need for top quality housing, current figures show prices to be within the $900 to $1,300/sqm range. High-grade living rental profit is upwards of $17/sqm per month, causing average rental returns of about 21%. Profit yields from residential accommodation are the highest in all of Asia, coupled with a tremendously high 30% yearly real estate appreciation growth rate.
In addition to the constant flow of foreign business executives, half of the country’s population is dispersed throughout rural areas of the country causing a constant flow of real estate buyers from outside the city creating an unequal displacement of land ownership in the city. This, in turn, has increased demand and limited supply.
Conservative economy predictions based on previous trends can be used to demonstrate the enormous cash return possible five years in the future. Assuming that there is a 5% salary increase per annum, interest rates drop 0,5% per annum, and a conservative 20% yearly capital appreciation, a $100,000 investment would yield $362,762 five years from now a total profit of $262,762.
One concern for foreign property owners, taxes, is discounted by the surprisingly low taxes placed on property owners in Mongolia. There are no property capital gains tax and no withholding tax. Real estate purchase costs are hardly noticeable. Freehold ownership is practised in Mongolia, meaning the purchaser owns not only the property, but also the land it stands upon. This results in making an investor’s ownership rights not only the highest, but also the most secure. With no restrictions on foreign property owners, an investor is free to do nearly anything, whether it be pledging, selling, or leasing the property.
The economic future of Mongolia appears bright as more of Mongolia’s natural resources continue to be discovered, collected, and sold, and the country’s economic growth continues to rise. As the demand for high-end accommodations in the city increase, and supply decreases, investment returns will continue to climb bringing untold amounts of wealth both to the country, and to those prepared to take advantage of the growing economy.
For more information on buy-to-let real estate developments in Mongolia’s capital, Ulaan Baatar contact UK-based Property Frontiers.