Housing programs in needs of support
Thousands of ger district residents and renters are very interested in taking part in the low-interest mortgage program. The affordable mortgage programs are of crucial importance to reducing Ulaanbaatar’s air pollution by allowing ger district residents to move into apartments.
Major financial challenges face real estate developers and construction companies as there have been an imbalance in supply and demand caused by the nation’s economic downturn in recent years.
Increasing financing to continue the mortgage program and executing a smart policy to expedite the transition of city residents from ger district housing to the new apartments that are waiting for buyers are the government’s main concern.
In 2016, the government faces questions about continuing the low-interest mortgage program.
At the beginning of 2017, Mongol Bank changed its mortgage loan regulations. Under the previous regulations, Mongol Bank issued mortgage loan financing to commercial banks without the requirement of a thorough application
approval process. Under the new regulations, after receiving and reviewing documents supporting mortgage loan applications, commercial banks need Mongol Bank’s approval to issue mortgage loan financing for eligible applicants.
...Major financial challenges face real estate developers and construction companies as there have been an imbalance in supply
and demand caused by the nation’s economic downturn
in recent years...
The International Monetary Fund (IMF) advised that Mongol Bank should not be in charge of mortgage loan financing, but a solution needs to be developed as the government is looking to take advantage of mortgage loans to address rural-to-urban migration and to continue ger district replanning efforts in Ulaanbaatar.
The government made an initiative to help build houses in ger districts, provinces, and soums by financing mortgage loans, but no more ger district applicants can receive mortgage loans due to lack of financial recourses. If the government’s initiative works out, people building houses are able to apply for mortgage loans with approved blueprints for houses that are 45 to 80 square meters in size.
Another housing initiative being developed by the government is the State Rental Housing Program. Households with a regular income but not enough savings to buy an apartment are eligible to register for the program. Unfortunately, the program is not able to reach its intended target because of a lot of requirements such as age, income, and other factors determining applicants’ need for access to affordable rental housing.
The monthly rent fee for statefunded rental housing program is lower than the market rate, which is why many want to access it, but low-income families, which is the main target, cannot take advantage of this program due to shortage of rental houses.
Public service employees such as public school teachers, nurses, and young doctors, people with disabilities, families with four or more children under the age of 18, pensioners, newly married couples under the age of 35, and other recipients of state welfare are considered to be preferred applicants for the rental housing program, most of them cannot access to rental housing program as thousands of individuals are in the range of these people.
Thanks to the ongoing mortgage program, 13,851 households moved into apartments in 2013, 14,592 residents moved into new apartments in 2014, 11,731 in 2014, 7,826 in 2015, 7,826 in 2016, 5,829 residents in 2017, and 3,107 residents in 2018.
The government expect to provide nearly 6,000 households with mortgage loans this year.
From this report, we can see the outcomes of the mortgage program in recent years, and how the construction business depends on the economic situation, as well as how important financial resources and smart business model are for continuing the mortgage program.
Construction businesses have been under financial pressure from the banks and most companies have some sort of debt. Another challenge is that construction companies spend a lot of money to work around bureaucracy within government authorities from which the companies take a number of approvals and signatures from to proceed with their project. The price of bureaucracy is also reflected in the price of property in Mongolia.
Many representatives of the construction sector and experienced construction engineers say that they have no hope to revive the construction business in the near future due to today’s economic situation.
To address this matter, the government should create a better plan to deal with the fact that the construction industry, which was a large part of the nation’s economic growth a few years ago, has frozen up in recent years due to lack of new home buyers, and that there is a need to facilitate the mortgage program.
The government should also provide tax relief to building material manufacturers and to carry out policies promoting domestic manufacturing.