Will the decrease in Mongolian mortgage interest rates lead to a greater property supply?
As the mortgage rates drop in Mongolia, will the increased demand and limited supply simply lead to a bubble in real estate prices?
Owning an apartment in Ulaanbaatar is finally becoming less of a dream and more of a reality for a large number of ordinary Mongolian citizens.
It is now possible for a husband and wife of middle income to obtain a 15 year housing loan, in particular if it is in the special government project of “40,000” families. The “Oron Suutsnii Sankhuujilt (State apartment Investment)” corporation which is implementing this project is currently offering a very discounted loan of only 8% annual interest (compared to the current 15% and more which are Mongolian industry standard). The current proposal to decrease the mortgage interest rate to 6% will bring it closer to current global industry standards. According to market theories, mortgage rates must decrease as competition increases. Today the apartment loan interest is 1.3% monthly and 15.6% for one year this is almost two times higher than the government project above mentioned. In addition to which, the 40,000 Families project only requires a 10% deposit instead of the minimal 20 to 30% deposit required by Mongolian commercial banks.
If you were to buy an apartment for 40 Million MNT in the government sponsored projects, you should pay 10% (4 million MNT) and with an 8% interest over 20 years, the total payment would be 62.3 Million MNT. If on the other hand, you were to buy a similarly priced apartment in the private market, you would have to reimburse 525,000 MNT per month for a total of 94.4 million MNT over the 20year period. Commercial banks have for the most parts their hands tied as they have to rely on high savings rate to attract customers, unless there is unilateral regulation to force lower mortgage rates, change will be slow. Rates have never the less come down in recent years from the previous 35% to 25% last year and 15% this year. Rates will in all probability keep drawing over the next few years.
Today the Mongolian Government is discussing the 100,000 families project, it is proposed that the mortgage loan interest will be set at 6%, this will mean that a larger proportion of the population will be able to afford new apartments but the bigger questions is, are there enough apartments available to buy? The demand for 1 to 2 Bedroom apartments has increased exponentially and is almost sold out. The Government is supporting the demand side but they certainly don’t do enough to support the supply side. As a result of this, house prices might rise yet again. According to a survey from the Ministry of Road, Transportation, Construction and Urban Development, 240 new residential projects were built with 32,000 units combined in 2009 alone. The Government sold about 1500 1 to 2 bedroom units with low interest rates to veterans and public servants, those are now nearly all gone.
Now there are nearly 10,000 new apartments being built that meet those criteria but they are in such high demand that they are getting very expensive. Average house prices in Ulaanbaatar are currently ranging from 850,000 MNT to 1,480,000 MNT per square meter. Experts are saying that this average price might increase to over 3 million MNT per square meter in the near future in Mongolia.
Owning an apartment in Ulaanbaatar is finally becoming less of a dream and more of a reality for a large number of ordinary Mongolian citizens.
It is now possible for a husband and wife of middle income to obtain a 15 year housing loan, in particular if it is in the special government project of “40,000” families. The “Oron Suutsnii Sankhuujilt (State apartment Investment)” corporation which is implementing this project is currently offering a very discounted loan of only 8% annual interest (compared to the current 15% and more which are Mongolian industry standard). The current proposal to decrease the mortgage interest rate to 6% will bring it closer to current global industry standards. According to market theories, mortgage rates must decrease as competition increases. Today the apartment loan interest is 1.3% monthly and 15.6% for one year this is almost two times higher than the government project above mentioned. In addition to which, the 40,000 Families project only requires a 10% deposit instead of the minimal 20 to 30% deposit required by Mongolian commercial banks.
If you were to buy an apartment for 40 Million MNT in the government sponsored projects, you should pay 10% (4 million MNT) and with an 8% interest over 20 years, the total payment would be 62.3 Million MNT. If on the other hand, you were to buy a similarly priced apartment in the private market, you would have to reimburse 525,000 MNT per month for a total of 94.4 million MNT over the 20year period. Commercial banks have for the most parts their hands tied as they have to rely on high savings rate to attract customers, unless there is unilateral regulation to force lower mortgage rates, change will be slow. Rates have never the less come down in recent years from the previous 35% to 25% last year and 15% this year. Rates will in all probability keep drawing over the next few years.
Today the Mongolian Government is discussing the 100,000 families project, it is proposed that the mortgage loan interest will be set at 6%, this will mean that a larger proportion of the population will be able to afford new apartments but the bigger questions is, are there enough apartments available to buy? The demand for 1 to 2 Bedroom apartments has increased exponentially and is almost sold out. The Government is supporting the demand side but they certainly don’t do enough to support the supply side. As a result of this, house prices might rise yet again. According to a survey from the Ministry of Road, Transportation, Construction and Urban Development, 240 new residential projects were built with 32,000 units combined in 2009 alone. The Government sold about 1500 1 to 2 bedroom units with low interest rates to veterans and public servants, those are now nearly all gone.
Now there are nearly 10,000 new apartments being built that meet those criteria but they are in such high demand that they are getting very expensive. Average house prices in Ulaanbaatar are currently ranging from 850,000 MNT to 1,480,000 MNT per square meter. Experts are saying that this average price might increase to over 3 million MNT per square meter in the near future in Mongolia.
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