Market in Depth

Mongolia stalls, dragged down by money-driven politics

April 19, 2015

Residential property prices in Ulan Bator fell by 1% y-o-y in 2013, pulled down by a combination of high-end oversupply, erratic government decisions, and the flight of foreign direct investments.

The residential real estate market of Ulan Bator is divided between a buoyant lower end, and an upper end/luxury market, which is facing oversupply:
  • Over half of the residents of Ulan Bator still live in traditional dwellings known as gers, or housing not well connected to permanent infrastructure. This is creating a large demand in the lower end market, encouraged by rising wages and massive government-sponsored access to mortgage financing.
  • The luxury end of the real estate market has a significant oversupply of projects in the pipeline competing for a limited number of buyers and scarce financing.

Residential prices have soared in Mongolia over the last decade, boosted by strong economic growth, high copper prices, and large increases in gold production.  The discovery of vast mineral reserves, worth an estimated US$1.5 trillion, made Mongolia one of the world's fastest-growing economies. Between the years 2005 and 2012, residential price growth was in double digits annually.

In 2011 residential prices rose 41.5% in major city centre locations.  By the end of 2013, average per square metre prices across Ulan Bator’s residential markets stood at US$ 1,316. At the upper end of the market, prices stood at an average US$ 2,050 per square metre (primary market sales). Really high-end projects featuring low-density housing maintained an even higher average price point of US$ 3,228 per square metre, according to M.A.D. Research.

However 2014 was a challenging year, as a dispute with Rio Tinto and arbitrary measures by the Mongolian government sapped investor confidence.

Analysis of Mongolia Residential Property Market »

Rental Yields

Rental market growing

Mongolia's rising property prices have resulted in stronger demand for rental property as households choose to rent rather than buy. Mongolia Properties estimates rental yields at about 15-18% per annum.

In Ulan Bator average rental yields between 2005 and 2013 were over 11% per year. Presently the average rental rate of:

  • one-bedroom apartment for local residents is between MNT 300,000-500,000 MNT (US$151-252) per month
  • two-bedroom apartments rent for between MNT 500,000-750,000 (US$252-378) per month.

Prices in the upper end of the residential rental markets (including those geared towards expats) have remained reasonably stable at around US$ 600-800 per month for a one-bedroom apartment near the CBD, based on M.A.D. Research estimates.

Read Rental Yields »

Taxes and Costs

Mongolia has high income taxes for non-residents

Rental Income: Rental income earned by nonresident individuals is taxed at a flat rate of 10%.

Capital Gains: Capital gains are considered as part of income and nonresident individuals are taxed at a flat rate of 20% on their capital gains realized from selling real property.

Inheritance: There are no inheritance taxes in Mongolia.

Residents: Residents are taxed on their worldwide income at a flat rate of 10%.

Read Taxes and Costs »

Buying Guide

Buying costs are very low

The round-trip costs of buying and selling a property are around 5.57% to 6.52%, including legal fees and the agent’s commission (3.5%) and transfer tax (2%).

Read Buying Guide »

Landlord and Tenant

Landlord and tenant


Read Landlord and Tenant »


Tough short-term economic challenges

Mongolia modern houseMongolia's macroeconomic environment changed drastically in 2014, after excellent GDP growth in 2011 (17.6%), in 2012 (12.4%) and in 2013 (11.7%). Although still outpacing its neighbors, the Mongolian economy slowed to 7.8% GDP growth, with a significant boost from the increased production in the first phase of the Oyu Tolgoi project – considered one of the world’s largest untapped copper deposits.

Throughout 2014, however, there has been a constant struggle to push forward with the second phase of the project, mainly stemming from the government’s long-term dispute with its Oyu Tolgoi co-developer Rio Tinto.

Conflicts between the government and Rio Tinto began when the latter's Turquoise Hill Resources arm, which was then operating under its former name Ivanhoe Mines, announced plans to sell its stake in South Gobi Resources (a large Mongolian coal mine) to the Aluminum Corporation of China (Chalco) in April 2012. This was around two months before national elections in June 2012; and the proposed deal allowed populist appealing politicians and pundits to claim that Ivanhoe/Turquoise Hill was not only trying to deceive the people of Mongolia on its biggest mining asset but was also selling a large Mongolian coal mine to China, to which Mongolia has a testy relationship.

Half a month after the deal was announced, the Mineral Resource Authority of Mongolia announced to the media it had requests to suspend South Gobi’s mining licenses. It would take until May 18, 2012, for the government to pass a Strategic Entities Foreign Investment Law (SEFIL) to block the transactional sale of South Gobi to a Chinese company. Three South Gobi executives were detained in Mongolia under Mongolia’s controversial visa exit ban policy and the case continued the following two years. The executives were only released in March 2015.

Mongolia gdpThis has called into question Mongolia’s ability to work with foreign corporations and investors and has ultimately resulted in foreign investments dropping by 47% in the first 8 months of 2013. On November 1, 2013, Mongolia passed a law to reverse the effects of the Foreign Investment Law after seeing foreign investments drop; but the change was too late as disputes over cost overruns, profit sharing, management control and a US$30 million tax bill on the Oyu Tolgoi project scared away more investors and accelerated investment declines into 2014.

Foreign direct investment declined 81% in 2014 compared to 2013, according to the Central Bank of Mongolia. This massive capital flight has also resulted in a 40% fall in the Mongolian tugrik versus the US dollar over the last two years, which has greatly weakened the once hot Mongolian economy and swelled its foreign debt.

This is not the first time the Mongolian government has got entangled in a dispute with foreign mining firms. In 2011, Khan Resources, a Canadian firm looking to mine uranium in the country, took the Mongolian government to international arbitration after the government canceled its licenses to mine the Durnod uranium project in 2009. In late-February 2015, the international arbitration body decided in favor of the Canadian firm and ordered the Mongolian government to pay US$100 million for compensation, further compounding Mongolia’s financial struggles.

A dispute with one firm would hardly be the cause for massive capital flight in most countries, but in Mongolia the dispute centers on two of the world’s largest mining projects that together can boost GDP 50% once at full capacity. The Oyu Tolgoi phase II project, based in an updated feasibility study, has recoverable copper of 24.9 billion pounds, 11.9 million ounces of gold and 78 million ounces of silver over a mine life of 41 years. reports that this is equivalent to a whopping $92 billion at current metals prices.

The Mongolian Government is set to repay some of its swap agreements with China in 2017 and another US$1 billion worth of sovereign bonds is due in January 2018. Mongolia has already requested cooperation from the International Monetary Fund (IMF) amidst increasing pressure on government to raise investments and boost the country’s economy.

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