Monday, April 25, 2011

Mongolian Government maintains that apartment prices will decrease

The 100,000 families project is set to decrease or at least maintain real estate prices.

Transcript of an interview with the Chairman of the department of Construction and Industry concerning the Ulaanbaatar 100.000 apartments project.

The Mongolian Government has recently decided to implement the “100.000 apartments project.” So where will the budget for this come from and how will it be used?

Within the framework of the “100.000 apartments project” 6 areas of Ulaanbaatar city (Nisekh, Yarmag, Bayangol Am, 7th Khoroolol, 14th Khoroolol and the Radio Television area) are slated to be redeveloped.

To enable the redevelopment of those areas, investments in the infrastructure of those areas must come first and foremost. The engineering and sewage systems are severely lacking. If the Government takes on the job of building the city infrastructure for those areas, it will reduce the construction prices and thus keep property prices lower. The Government is now set to spend 800 billion MNT for the development of infrastructure in Mongolia, 32 billion of which will be spent on railways, 330billion on roads and 447 billion for general construction and infrastructure.

As the Government launched the 100,000 apartments project, the price of construction materials has increased dramatically. Is your ministry doing something to limit the price increases of construction materials.

We are planning to decrease the costs of construction materials stage by stage. The first stage is to stabilise the costs of cement and steel. Of course the market is driven by the private sector so we can’t influence it too much. We are currently stuck in a situation where we are obliged to import all construction materials from other countries, something we don’t want to do. In addition to this, Mongolian procurement companies sell the materials at a high margin. We would like to create construction material centres where we will create policies to keep prices constant and as close to factory levels as possible.

Beyond this, we need to support the local construction material factories, if we are successful, domestic companies can supply 70% of needed materials by 2017. The Cement factory in “Khutul” currently produces 500.000 tons of cement. So we need to increase it’s capacity and improve the technology as it could than produce up to 2 millions tons of cement. Also armature iron factories are just about to start operations in Nalaikh and Erdenet city.

Another problem faced by the construction sector is human resources. Mongolian companies like to employ Chinese workers. But we still have many unemployed young people here in Mongolia. Are salaries for Chinese and Mongolian workers totally different?

That’s true. Nowadays, Chinese workers are doing assembling construction. But as you said there are lots of Mongolian unemployed people. It’s a very disappointing situation. However, we can’t say its the construction companies’ fault. The most important thing is that we need regulations from the government to provide qualified HR to construction companies. There is an estimated 60.000 workers that will be trained in the next 5 years. Also we need to create a new professional training centre.

The quality of construction is definitely one of the biggest problems we see today. We see so many claims and complaints about the quality of construction. How do you regulate those case?

It’s true that we see many complaints and it is very hard to regulate. So we decided to create a new national construction lab that consists of 16 labs nationwide. Also we will create a new lab to carry out research on earthquake risks in Mongolia. It seems that this lab will be finished in 2012. Creating this lab means that the quality of construction will be improved.

Government has reduced the mortgage rate to 6% annually. But even as mortgage rate are decreasing, purchase prices are still increasing. It seems there is no influence on the market price?

-For the new projects, the government has decided to give 6% mortgage loans. We have planned 15.000 of 100.000 apartments to be assigned for low-income people. So the 6% rate will be aimed to those people, very few people will actually get this low rate.

How do you define low-income citizen’s? How can we make sure that some relatives and friends of the Khoroo’s director are not getting those low rate mortgages.

We will do some research on it. The Ministry of Social Welfare and Labour will carry out research concerning low-income citizens. So we will define the requirements based on that research. I’m sure that Ministry of Social Welfare and Labour will regulate it properly in this case.

Experts said that the new mortgage policy for government officers is going well. On the other hand, what do you think about the private sectors. They are still thinking about how to get this quota.

In 2009, the Mongolian Government assigned a budget to about 400 constructions which stopped construction during the financial crisis and called it the “4000 apartments project.” This project had the impact of incentivising government officers and construction companies. So we did 2 things in 1 project and it was efficient. About 3100 officers moved to their new apartment. For the “100.000 apartments project” there is no quota.

What about upgrading the old apartments around the city, what are the plans? According to our research, there are many old apartments which are not earthquake resistant.

There are some apartments which are planned for demolition and reconstruction, known as the “New creation” mid-term project. 40k, 50k apartments and yellow apartments called “Nekhmeliin” in Khan-Uul district are targeted.

It is my understanding that apartment prices will decrease in the future.

If we can do this project well and implement good policies to maintain a balance between demand and supply, it will reduce prices within the real estate market, It is important not to confuse everything, good polices and sound decisions are what is important.

In terms of the “100.000 apartments project”, how are the land acquisitions going and when will this project be completed?

It looks like the land issue will become a really complicated problem. Buying private property, negotiating and setting on a price is not an easy thing to do over such a large scale. It is the same government department which started privatising land that now needs to buy back these same lands. The land registrar has to get involved to help.

As the projects gets under way, how do you aim to solve the various electrical supply problems? How do you aim to bring schools and hospitals into the development.

To solve this problem, we will build a new 110 kVt electricity cable for 80bollion MNT that will go to the various areas.

Because of commercial banks high mortgage rates, ordinary people can’t afford to purchase apartments. How do you plan to regulate that?

The Government cannot say to the commercial banks that they have to reduce their mortgage rates. This can only be solved by negotiations between the Government and the commercial banks by issuing Government bonds through the commercial banks. I think that eventually the commercial banks will reduce mortgage rates but it will take time. In the mean time the Government needs to find a good scheme to help people invest in their apartments.

We had a very nice interview and if all these projects become a reality it would be nice. But some people think that the “100.000 apartments project” and the “New creation project” will be disappear after the 2012’s parliamentary election.

If you want to improve the Ulaanbaatar real estate market and reduce air pollution, please don’t mix it with politics. We need to implement these projects ASAP.

When we were implementing the “40.000 apartments project” in 2008, the construction materials were stuck at the border town of Ereen. Because of that, the project was never completed and we’ve got an economy which is still overheating today. So are there any guarantees that nothing of the sort will happen with those projects?

For those projects, it is not about the capacity of the railway. We need to have local suppliers. That would be best way to solve this problem.

Source : GoGo

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