Construction Sector In Mongolia Busy
Strong demand from both the public and private sectors will keep Mongolia’s construction industry busy for the foreseeable future, though the heavy calls on the building trade is stretching resources and pushing up costs.
According to a World Bank report issued in early 2013, capital expenditure in Mongolia has experienced a 35-fold increase over the past 10 years, with the construction sector’s contribution to GDP expanding by 25.6% in 2012, mainly due to a rise in public spending. More than 16% of all bank loans went to the construction industry in 2012, the report said, up from 11.8% the prior year, while the real estate sector’s share of lending climbed to 17.3%, higher than mining’s 14.4%.
Capacity stretched
Although demand on the construction industry is growing quickly, the World Bank said the capacity of the sector to absorb extensive new projects is not always keeping pace.
“Institutions for project appraisal, procurement, contracting and monitoring are currently under development and are being strained by the rapid increases in the capital budget,” the World Bank report said. The international lender also noted a limited pool of skilled labour and a shortage of material inputs, which could drive up costs and compromise quality.
The government has moved to alleviate some of these constraints, providing $86.3m in working capital loans to 60 companies involved in the supply of construction materials, such as gravel and sand, steel, cement and lime. According to Ts. Bayarsaikhan, the minister of construction and urban development, it is hoped that within a few years, Mongolia will be self-sufficient in steel manufacturing and cement, along with a number of other key materials.
“Construction companies are already being supplied with bricks, PSP pipes for water and windows made by domestic manufacturers,” he said in an interview with the local media on September 4. “Thus, in the near future, we’ll be able to domestically manufacture and supply 15 main construction materials.”
Industry participants say the government programme will have a significant impact in the sector, with plans to have up to 80% of all cement locally sourced by the end of the year, up from 30-40% today.
The government has also taken steps to tighten safety regulations on construction sites, which could attract more labour, particularly local, to the sector. While the effect in the short run has been to delay some projects, the long-term result is expected to be a safer and more secure industry.
Growth areas
One of the fastest-growing segments of the construction sector is transport infrastructure. Mongolia is working to expand its road and rail networks in particular. Almost 3000 km of major roads are under construction, with 1700 km of these due for completion by the end of 2013. There are also plans for building 1800 km of mainline rail lines for dedicated freight cargoes, set to be completed in 2018.
D. Ganbaatar, the president of Max Group, a local conglomerate, said that while road development largely depends on the state, with only so much the private sector could do to drive such projects forward, new plans to connect all of the country’s provinces by road within the next two years should add to the construction sector’s order book.
So too will the increasing urbanisation of Mongolia, with developments in the cities, and in particular the capital, being a growth driver, Ganbaatar told OBG. As more people move to urban areas, the need for both housing and retail facilities is increasing.
“In Mongolia, construction has been positively affected by the fast growth of the retail sector,” he said. “This tight relationship will continue to be a key driver of more construction projects, especially in Ulaanbaatar.”
In the housing sector, strong demand is pushing up prices, with a state-backed, low-cost mortgage loan scheme introduced in June contributing to the upward trend. However, Bayarsaikhan has said inflationary pressures will ease as the state’s efforts to boost the supply of construction materials begin to have an effect. Moreover, according to the minister, some 33,000 housing units are set to come onto the market before the end of 2014.
The expectation is that demand for housing will remain high for some years to come, as citizens in lower income brackets seek to take advantage of inexpensive loans and developers launch real estate projects aimed at the growing higher end of the market. While construction companies could benefit from the substantial need for housing, they are likely to continue facing higher costs for some time.
According to a World Bank report issued in early 2013, capital expenditure in Mongolia has experienced a 35-fold increase over the past 10 years, with the construction sector’s contribution to GDP expanding by 25.6% in 2012, mainly due to a rise in public spending. More than 16% of all bank loans went to the construction industry in 2012, the report said, up from 11.8% the prior year, while the real estate sector’s share of lending climbed to 17.3%, higher than mining’s 14.4%.
Capacity stretched
Although demand on the construction industry is growing quickly, the World Bank said the capacity of the sector to absorb extensive new projects is not always keeping pace.
“Institutions for project appraisal, procurement, contracting and monitoring are currently under development and are being strained by the rapid increases in the capital budget,” the World Bank report said. The international lender also noted a limited pool of skilled labour and a shortage of material inputs, which could drive up costs and compromise quality.
The government has moved to alleviate some of these constraints, providing $86.3m in working capital loans to 60 companies involved in the supply of construction materials, such as gravel and sand, steel, cement and lime. According to Ts. Bayarsaikhan, the minister of construction and urban development, it is hoped that within a few years, Mongolia will be self-sufficient in steel manufacturing and cement, along with a number of other key materials.
“Construction companies are already being supplied with bricks, PSP pipes for water and windows made by domestic manufacturers,” he said in an interview with the local media on September 4. “Thus, in the near future, we’ll be able to domestically manufacture and supply 15 main construction materials.”
Industry participants say the government programme will have a significant impact in the sector, with plans to have up to 80% of all cement locally sourced by the end of the year, up from 30-40% today.
The government has also taken steps to tighten safety regulations on construction sites, which could attract more labour, particularly local, to the sector. While the effect in the short run has been to delay some projects, the long-term result is expected to be a safer and more secure industry.
Growth areas
One of the fastest-growing segments of the construction sector is transport infrastructure. Mongolia is working to expand its road and rail networks in particular. Almost 3000 km of major roads are under construction, with 1700 km of these due for completion by the end of 2013. There are also plans for building 1800 km of mainline rail lines for dedicated freight cargoes, set to be completed in 2018.
D. Ganbaatar, the president of Max Group, a local conglomerate, said that while road development largely depends on the state, with only so much the private sector could do to drive such projects forward, new plans to connect all of the country’s provinces by road within the next two years should add to the construction sector’s order book.
So too will the increasing urbanisation of Mongolia, with developments in the cities, and in particular the capital, being a growth driver, Ganbaatar told OBG. As more people move to urban areas, the need for both housing and retail facilities is increasing.
“In Mongolia, construction has been positively affected by the fast growth of the retail sector,” he said. “This tight relationship will continue to be a key driver of more construction projects, especially in Ulaanbaatar.”
In the housing sector, strong demand is pushing up prices, with a state-backed, low-cost mortgage loan scheme introduced in June contributing to the upward trend. However, Bayarsaikhan has said inflationary pressures will ease as the state’s efforts to boost the supply of construction materials begin to have an effect. Moreover, according to the minister, some 33,000 housing units are set to come onto the market before the end of 2014.
The expectation is that demand for housing will remain high for some years to come, as citizens in lower income brackets seek to take advantage of inexpensive loans and developers launch real estate projects aimed at the growing higher end of the market. While construction companies could benefit from the substantial need for housing, they are likely to continue facing higher costs for some time.
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