Eleven years ago, an American private equity fund manager named Lee Cashell flew to this city from his base in Hong Kong and purchased three Soviet-era apartments with US$30,000 borrowed from a friend. He fixed them up, sold them for a profit and started a boutique real estate business in what was then a backwater Asian capital.

Cashell quickly transitioned from flipping apartments to building them. Today, his US$155 million firm, Asia Pacific Investment Partners (APIP), owns a cement factory and several downtown apartment blocks with retail projects in the pipeline. He hopes to list his company on the Hong Kong exchange in the next 12 to 18 months.

His story is as much about successful entrepreneurship as it is about Mongolia’s economic development and real estate boom as property prices have doubled in the past five years.

Boom times for the Mongolian property market
A wall of money has come into the small economy of Mongolia thanks to strong commodity prices, income generated from the sale of government licences to mine in the country, which has resulted in increased government spending. Overseas listings of Mongolian companies has also brought capital into the country.

“This has resulted in excessive amounts of liquidity in the Mongolian economy, much of which makes its way into the property market,” says Cashell.

In downtown Ulan Bator, the average price for real estate is around US$1,300 per square meter, usually for an older apartment block built during the Soviet period, a fivefold increase compared to a decade ago, reports Alex Skinner of Real Source, a research consultancy.

But the condition of these older buildings is generally poor; concrete stairwells are beat up, plumbing is antiquated and the roofs often leak. Yet prices for older blocks have held up, largely owing to their central location – they are close to businesses, shops, restaurants and government services.

Most Soviet-era apartments are 60 to 90 square meters, putting their prices between US$80,000 and US$120,000. Cost depends on the condition. Some have been carefully renovated in a Western style while others haven’t seen a paintbrush in decades. City centre rentals for older apartments can run US$800 to US$1,600 for a two-bedroom unit, translating into annual investment returns of 12 per cent to 16 per cent (assuming the flat is fully paid for, and there are no mortgage costs).

Investors’ focus is increasingly shifting towards higher end, modern developments in the city centre. Where it exists, better quality buildings can run over US$3,000 per square meter. For serious high rollers, the priciest accommodation in the city is Blue Sky Tower, with units selling for US$9,000 a square meter.

Most of the city’s better quality housing is located in the desirable Zaisan neighbourhood, located four kilometres south of downtown, in a narrow valley of the Bogd Khan Mountain National Park.

Property in Zaisan starts at around US$2,000 a square meter and can run up to US$4,000 or more. It’s popular with families seeking fresh air and quiet. But its location, while scenic, is a drawback – the commute into the city through Ulan Bator’s notorious traffic jams is a hassle.

Property investors often overlook the ger districts, which are vast shantytowns home to over 700,000 people, more than half the population of the city. These sprawling suburbs of tumbledown shacks and gers (yurts) lack running water, central heating, paved roads or green space.

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Change may be on the way, however, as a new government has come to power on the promise of bringing infrastructure and permanent housing to the ger districts, opening up a large new housing market.

“Anytime you have hundreds of thousands of people needing a product there is a huge opportunity if you can figure out how to serve them,” said Harris Kupperman, chief executive of Mongolia Growth Group, a Toronto-listed property development firm based in Ulan Bator.

“Despite what most people think, people in the ger districts do have money. They are not all poor. Frequently their land is quite valuable. They can sell that and move into an apartment. It’s a question of creating a product at the right price point.”

Construction is speeding up to address the shortage. Last year, 10,747 units were constructed in Ulan Bator according to the National Statistics Office; a big jump compared to 10 years ago when just 816 units were built.

Mongolia’s second tier cities are also attracting attention, particularly those in the southern Gobi region where most of the large mining operations are taking place. Dalanzadgad, the capital of Omnogov province, has seen its population spike as people more here in search of mining related jobs. A 2011 report by Ulan Bator-based private equity firm Eurasia Capital says that Dalanzadgad’s population will quadruple by the year 2015 and it will have the highest GDP in Mongolia.

Just three years a small storefront shop of 60 square meters in Dalanzadgad would have cost US$20,000. These now cost around US$70,000, according to Cashell.

And, unlike Ulan Bator, where many developers feel the prices have gotten out of hand, the property market in second tier cities is just getting started.

Quick construction has led to massive urban sprawl.
From a legal point of view, Mongolia is investor friendly. There is no limit to the amount of immovable property one may own, although any foreigner wanting to lease land should do so with a Mongolian partner. Annual property tax is low at just 0.6 per cent (on commercial properties). The government levies a two per cent stamp duty on property sales, and a 10 per cent tax on investment income.

The biggest risk in this market seems to be with buying property off-plan, as many projects have been delayed or abandoned. And there is little legal recourse to recoup your investment if a project goes bust.

It is also risky buying property in undeveloped parts of Ulan Bator, as you’ll never know what sort of building might pop up in front of the one you’ve just invested in. To minimise risk, buy in well established, central areas with proven developers and cross your fingers that the boom times for Mongolia are only just beginning.

Resources

There are several ways for overseas investors to get involved in Mongolia’s real estate game. Perhaps the easiest way is to buy shares in a company that specialises in real estate, including the Mongolian Growth Group (www.mongoliagrowthgroup.com).

For a more direct approach, local realtors can help investors purchase an apartment for rental purposes and many offer full management services. These include Mongolian Properties (www.mongolia-properties.com), UBP (www.ubpro.mn) and Master Properties (www.master.mn). For further research on the ins and outs of this complicated sector contact the research firm MAD Mongolia (www.mad-mongolia.com).

Source:http://www.michaelkohn.us/?p=521

Located at the city centre, the upcoming Olympic Residence is expected to become one of Mongolia’s most luxurious properties yet. It is developed by Asia Pacific Investment Partners (APIP), the parent company of Mongolian Properties. Olympic Residence will house upscale boutiques, entertainment facilities and offices in the first three levels, while the fourth to 16th storeys will offer 97 apartments. The units will range from two- and three-bedroom flats to penthouses. The interiors will use Indonesian and African hardwoods, Italian tiles and French fabrics.

Finland-based PöyryArchitects and the local Ideal Group emphasise features such as a Low-E (low thermal emissivity) glass curtain-wall on the building’s exterior to minimise heat transfer through windows. This will keep the rooms warm during cold months, and cool on hot days. The building’s structure will be designed to withstand magnitude-8 earthquakes, while emergency back-up generators will activate in the event of a power outage. For added peace of mind, there will be 24/7 on-site security and
100 real-time motion-sensitive cameras around the property.

Set for completion in the second quarter of 2014, nearly half of the units have been sold, mostly to wealthy locals and overseas Mongolians. APIP is also marketing the residences to foreign investors and expatriate professionals. It banks on the Olympic Residence’s location in the embassy district with Hilton and Shangri-La hotels as its neighbours, and major government and commercial offices within walking distance. The residences overlook Children’s Park (in one interview, Cashell mentioned that he thought of New York’s Central Park and London’s Hyde Park when he bought the land around Children’s Park).

The view includes Tuul River which is considered sacred by Mongols, the Boghd Khan mountain range which is being considered for nomination as   a UNESCO World Heritage site, and Zaisan National Monument, a mosaic war memorial on a hilltop. So if all this sounds like too much glass and steel, all residents will need to do is look out the window to remember the exotic steppes around.

Bond investors seem to think so.

In the latest sign of just how desperate return-starved investors are for incremental yields and their increasing willingness to go down the credit curve to chase them, the two frontier countries on Thursday pulled off issues that stunned the market in both their pricings and take-up rates.

El Salvador raised $800m from international investors with a 12-year dollar-denominated bond. The issue, which attracted $5.1bn in orders, was priced at a yield of just 5.875 per cent. This compares with Portugal’s 10-year bond yield, which currently sits at 7.407 per cent.

Meanwhile, Mongolia, which has been something of a darling among EM investors in recent years but whose shine has been tarnished by weaker global commodity prices and changes to foreign investment rules, succeeded in raising $1.5bn in a two-part offering.

The $500m, five-year tranche sold at 4.125 per cent yield while the larger 10-year $1bn tranche priced at a yield of 5.125 per cent. Spain’s 10-year bond yield is at 5.303 per cent. The Mongolian offering was 10 times oversubscribed, attracting $15bn in bids.

The numbers make for some mind-boggling reading, says Robert Abad, emerging markets specialist at Western Asset Management.

“The Bolivia deal which came out a few weeks ago confirmed that turbo-charged global liquidity conditions are allowing issuers to come to market at yields that are probably half of what they would have had to offer investors if credit conditions were normal”, he told beyondbrics.

“The sub-5 per cent on that particular deal came as a surprise to EM veterans,” he added. “But as we all know, the market has a very short memory, so it is not as surprising to see Mongolia accessing the markets at yields that do not fully capture the risks inherent in a fast growing country with a limited history of managing economic cycles.”

Although Mongolia’s $10bn economy is one of the fastest-growing in the world and the country sits atop vast reserves of copper, coal and gold, Abad said he decided to sit out on the issue.

“In my opinion, these yields reflect very little spread premium, if any, for the risk,” he said.

Not everyone feels that way of course, as the overwhelmingly strong demand for the issue showed.

With returns on investment grade emerging markets such as Mexico and Brazil no longer as attractive as they once were, many investors have started to take their money to riskier places like Zambia, Bolivia and now Mongolia and El Salvador.

“In the case of Mongolia, one way to think about it is would you rather have the financial surpluses but political risk of Mongolia or the euro blow-up risk of Spain?” asks Gabriel Sterne, an economist at Exotix. “I guess the market’s verdict is the former, and I for one wouldn’t quarrel too much with that.

“But if and when the Fed starts tightening, it’s hard too imagine yields staying this low.”

In a market with razor-thin yields, one EM debt banker argued rarity and investors’ desire to diversify their portfolios won the day for both Mongolia and El Salvador.

“Everything is relative,” said the person. “Sub 6 per cent might look cheap for El Salvador but it’s pretty appetizing for investors who are getting 2.53 per cent from Mexico 10-year and 1.61 per cent from US 10-year T-bills.”

But are investors doing their homework? Ultimately, they are making a wager that the countries behind the issues will be able to service their debts. And as the ongoing negotiations over Belize’s default over a $544m bond and the debt restructuring of Saint Kitts and Nevis, the Caribbean island federation, show, governments – when pressed against the wall – won’t hesitate from reneging on their creditors.

The fact that El Salvador was able to pull off its issue at a sub-6 per cent yield is made all the more surprising by the fact that the country was downgraded by Moody’s to “Baa2″, or three levels below investment grade, only last month. (Fitch maintained its “BB” rating on the country with a negative outlook).

In its report, Moody’s called attentioned to El Salvador’s debt, which amounts to 51 per cent of GDP and limits its capacity to resist future shocks.

The US dollar has been the national currency for more than a decade. The country’s export profile is similar to that of its Central American neighbors: the offshore garment and textile industry, tropical fruits and shrimps.

GDP is forecast by Fitch for this year at 1.3 per cent, the lowest in Central America, and FDI is minimal.

The economy is strongly dependent on remittances, which rose 7.2 per cent year-on-year to hit $3.2bn by the end of October. They account for almost a fifth of GDP.

While some critics will point to the two issues as more signs of a bubble forming in the EM debt space, Abad thinks it is nowhere close to bursting yet.

“Rates in the developed world will remain low for some time allowing for more yield and spread compression in risk assets,” he says. “However, because technical considerations are overwhelming fundamentals, the job for investors is to remain disciplined and alert. Without such restraint, they risk chasing yield and falling into an abyss once fundamentals reassert themselves.”

Additional reporting by Ron Buchanan

An American private equity fund manager named Lee Cashell flew to Ulan Bator from Hong Kong 11years ago and bought three Soviet-era apartments with US$30,000 he had borrowed from a friend. He fixed them up, sold them for a profit and started a boutique real estate business. Cashell quickly went from flipping apartments to building them. Today, his US$155 million firm, Asia Pacific Investment Partners, owns a cement factory and several apartment blocks with retail projects in the pipeline. He hopes to list his company on the Hong Kong exchange in the next 18 months. His story is as much aboutentrepreneurship as Mongolia’s economic development and real estate boom. Property prices have doubled in the past five years. Investment money has flooded the small economy of Mongolia because of strong commodity prices and income from the sale of government licences to mine, which have resulted in increased government spending. Overseas listings of Mongolian companies have also brought money into the country. “This has resulted in excessive amounts of liquidity in the Mongolian economy, much of which makes its way into the property market,” says Cashell. In downtown Ulan Bator, the average price for real estate is around US$1,300 per square metre, usually for an older apartment block built during the Soviet period, a fivefold increase compared with a decade ago, according to people active in this market. The condition of these buildings is generally poor. Concrete stairwells are beaten up, plumbing is ancient, and the roofs often leak. Yet prices for older blocks have held up, largely owing to their central location. Most Soviet-era apartments are 60 to 90 square metres, putting their prices between US$80,000 and
US$120,000. Cost depends on the condition. Some have been carefully renovated in Western style, but others haven’t seen a paintbrush in decades. City centre rentals for older apartments can run to US$800 to US$1,600 for a two-bedroom unit, translating into annual investment returns of 12 per cent to 16 per cent (assuming the flat is fully paid for, and there are no mortgage costs). Focus is shifting towards higher end, modern developments in the city centre. Better quality buildings can run to over US$3,000 per square metre. For serious high rollers, the priciest accommodation in the city is Blue Sky Tower, with units selling for US$9,000 a square metre. Most of the city’s quality housing is in the Zaisan neighbourhood, four kilometres south of downtown, in a narrow valley of the Bogd Khan Mountain National Park. Property in Zaisan starts at about US$2,000 a square metre and can run to US$4,000 or more. It’s popular with families seeking fresh
air and quiet. But its location, while scenic, has adrawback: the commute through Ulan Bator’s notorious traffic jams
is a big hassle. Property investors often overlook the so-called “ger” districts. These are vast shanty towns home to 700,000 people, more than half the population of the city. These suburbs of tumbledown shacks and gers lack running water, central
heating, paved roads or green space. Change may be on the way, however, as a new government has come to power on the promise of bringing infrastructure and permanent housing to these districts, opening a new market. “Any time you have hundreds of
thousands of people needing a product, there is a huge opportunity if you can figure out how to serve them,” says Harris Kupperman, the chief executive of Mongolia Growth Group, a Toronto-listed property development firm based in Ulan Bator. “Despite what most people think, people in the ger districts do have money. They are not all poor. Frequently, their land is quite valuable. They can sell that and move into an apartment. It’s a question of creating a product at the right price point.”
Construction is speeding up to address the shortage. Last year, 10,747 units were built in Ulan Bator,
according to the National Statistics Office, compared with just 816 units built 10 years ago. Mongolia’s second-tier cities are
also attracting attention, particularly those in the southern Gobi region where most of the mining takesplace. Dalandzadgad, the capital of Omnogovi province, has grown in population as people move there to
find mining-related jobs. Areport last year by Ulan Batorbased private equity firm Eurasia Capital says that Dalandzadgad’s population will quadruple to about 60,000 by 2015 and will have the highest gross domestic product per capita among cities in Mongolia. Just three years ago, a small street-facing shop of 60 square metres in Dalandzadgad would have cost US$20,000. This would now cost about US$70,000, according to Cashell, who bought property there. And, unlike Ulan Bator, where many developers feel the prices are out of hand, the market in secondtier cities is just getting started. From a legal point of view, Mongolia is an investor-friendly place. There is no limit to the amount of property one may own, although any foreigner wanting to lease land should do so with a Mongolian partner. Annual property tax is just 0.6 per cent. The government levies a 2 per cent stamp duty on property sales and a 10 per cent tax on investment income. The biggest risk in this market seems to be with buying property off-plan, as projects commonly see delays or are just abandoned. And there is little legal recourse to recoup your investment if a project goes bust. It is also risky buying property in undeveloped parts of Ulan Bator, as you’ll never know what sort of building might pop up in front of the one you’ve just invested in. To minimise risk, buy in wellestablished, central areas with proven developers and cross your fingers that the boom times for Mongolia are only just beginning. Resources
There are several ways for overseas investors to get involved in Mongolia’s property game. The easiest way is to buy shares in acompany that specialises in property. These include the Mongolian Growth Group (mongoliagrowthgroup.com).For a more direct approach, local property agents can help investors buy a flat for rental purposes. These include Mongolian Properties (mongolia-properties.com), UB Properties (ubpro.mn) and Master Properties (master.mn). For further research into this complicated sector.
moneypost@scmp.com

A country the size of Western Europe, sandwiched between Russia and China, Mongolia was the fastest growing country in the world in 2011, with real GDP growth at a whopping 17.3%, significantly outperforming every one of the BRIC economies. World Bank estimates suggest 2012 will play out in much the same way: based on Q1 observed data, real GDP growth is forecast to be 16.7%, in comparison to 5.8% across the BRICs, and 2.5% worldwide. As much of the country’s potential remains untapped, double-digit GDP growth is expected to continue well into the mid term.

Much of this growth has been fuelled by investment in the natural resource sector. The estimated value of Mongolia’s resource wealth is approximately US$1.3 trillion. There are approximately 6,000 known deposits of over 80 different minerals in the country, including gold, copper, coal, uranium, molybdenum, tin and iron. Since just 27% of the country has been surveyed to a scale of 1:50,000, the country’s exploration potential remains vast.
The largest natural resource project in the country to-date, Oyu Tolgoi, also represents the largest undeveloped copper deposit worldwide. Ivanhoe Mines, who jointly hold a 66% stake in the project together with Rio Tinto, estimate that the deposit contains around 37 million tons of copper and 1,431 tons of gold, representing a value of circa US$350 billion (around 50x the value of Mongolia’s current GDP). Commercial production is planned to commence in Q1 2013.

The Oyu Tolgoi project, finalized in 2009 after six years of negotiations, has spearheaded what has become a surge of foreign direct investment into Mongolia. The project’s construction budget for 2011 alone was US$2.3 billion (over one third of the country’s GDP in 2010) and an estimated total of US$7 billion of foreign investment will be required in order to bring it to completion. The example set by Oyu Tolgoi and other similar assets, has led to increasing levels of FDI as international investors rush to buy up exploration licenses. With the exception of 2009, which was impacted by the global financial crisis, total FDI flows to Mongolia and the percentage of GDP that they represent have increased consistently. Total FDI reached US$1.6 billion in 2011 (representing 39% of Mongolian GDP) and this level is expected to grow further in 2012. World Bank data based on first quarter results suggest the figure may be closer to US$4.4 billion dollars (roughly half of expected GDP).

IS THE MONGOLIAN REAL ESTATE MARKET THE FASTEST GROWING IN THE WORLD?

Mongolia’s rapid economic growth has also led to considerable increases in the wage rates across many groups of society and the emergence of an increasingly affluent middle class, together with a small group of ultra rich. The average real wage according to the National Statistics Office of Mongolia rose by 13.8% between 2011 and 2012, and in October 2011 the World Bank officially upgraded Mongolia from a low to a middle-income country. The increased spending power by the Mongolian consumer has in turn led to strong growth across numerous sectors of the economy.

Mongolia is generally considered to be a relatively easy country in which to conduct business, with free currency exchange, a stable democratic government, and a favourable tax environment. The country peacefully transitioned to a democratic system in 1990 with multi-party elections adopted in 1992. Quick to embrace Western democratic principles, Mongolia is often used as an illustration of a successful transition in contrast to that of many other former soviet states. In addition, to encouraging FDI, the Mongolian government has adopted a highly favourable tax regime, both for individuals and companies. Personal Income tax is fixed at 10% and corporation tax varies from 10% to 25%. VAT is charged at 10% and there is no capital gains tax.

Unsurprisingly, these positive macroeconomic dynamics have led to extraordinary opportunities in the Mongolian real estate industry, both in terms of high rental yields and strong capital appreciation. Key demand side drivers in Ulaanbaatar’s real estate market include: rapid economic growth expected to continue at double digit pace in the medium term; significant urbanisation and demographic changes; rapid increase in the number of international investors and expatriates looking for international standard accommodation and office space; rises in real wages for a substantial proportion of Mongolian society moving from low to middle-income status; the creation of a growing class of extremely wealthy Mongolians; and rapid development of the mortgage market reducing financing constraints for home buyers.

These positive demand side dynamics are coupled with significant supply side constraints, including: supply chain issues hampering transportation of construction materials; lack of available land in high demand areas in the centre of Ulaanbaatar; spatial development constraints, as projects effectively cannot be built outside Ulaanbaatar’s existing heating grid; geographical constraints caused by the city’s surrounding ger districts, with plot owners enjoying strong land ownership rights allowing them to halt development; and lack of access to financing for many local developers. As a result of these favourable dynamics, residential real estate investors in Ulaanbaatar can generally expect rental yields in the low to mid teens with capital appreciation rates of 20% or more.

In response to burgeoning consumer demand, the retail industry in Mongolia has also experienced rapid growth over recent years. The number of Mongolian retailers increased by circa 34% between 2008 and 2010, whilst GDP generated by the retail sector more than doubled between 2008 and 2011. As a result, rental rates for retail space in Ulaanbaatar’s Central Business District are anticipated to rise sharply in the medium term, although price momentum is expected to vary depending upon the class of asset in question. Grade C, and un-influential Grade B space, are expected to experience significant rental rate increases, but it is the CBD’s stock of Grade A, and well known Grade B space, that is expected to witness the fastest growth over coming years, as a result of strong increase in demand coupled with severe supply constraints. It is anticipated that high-end retail units should continue seeing rental rate appreciation of at least 10% each year over the mid term.

The market for office space in Ulaanbaatar has also exhibited rapid growth, both in terms of size and price level. The total number of active business entities within Ulaanbaatar rose by circa 10% between 2008 and 2011, according to the National Statistics Office of Mongolia. Growth in the financial services industry has been particularly strong, with the number of players increasing sharply, despite a temporary dip in 2010 due to the global financial crisis. Given the resulting strong growth demand for Grade A office space in the Central Business District, together with the extremely limited supply side conditions, monthly rental rates per square meter have more than doubled over the past few years.

In view of these favourable macroeconomic and industry drivers, coupled with ongoing uncertainty across many asset classes, it is perhaps unsurprising that Mogolian real estate is rapidly becoming an attractive portfolio diversifier for a growing number of private and institutional investors worldwide.

REQUIREMENTS
Strong creative, strategic, analytical, organizational and personal sales skills
Must be able to work independently and perform all requirements of position with minimum guidance
Job requires a willingness to take on responsibilities and challenges and being pleasant with others on the job and displaying a good-natured, cooperative attitude
Multinational experience is an asset
Excellent communication skills, demonstrated problem solving skills, strong decision making skills and multi-tasking skills required
Excellent command of written and verbal English
COMPANY OVERVIEW
Asia Pacific Investment Partners (APIP) is a leading real estate developer in Mongolia with several landmark luxury developments in Ulaanbaatar (“UB”) and an extensive land bank in and around UB in locations ideally positioned for further development. APIP also operates the country’s largest real estate agency and owns a portfolio of high-yielding properties outside UB. As an adjunct to its real estate business, APIP owns Mongolia’s third largest cement producer, the only cement crushing plant in Ulaanbaatar. The company is also involved in financial services and mining exploration. The company is planning an IPO on an international stock exchange within the next 12-18 months.
COMPENSATION
Compensation will include a salary in USD commensurate with experience. The successful candidate will be eligible for the company stock option plan after one year of service with the firm.

Glass towers and half-finished buildings loom over the ancient Choijin
Lama Temple in Ulan Bator. Photo: Michael Kohn
An American private equity fund manager named Lee Cashell flew to Ulan
Bator from Hong Kong 11 years ago and bought three Soviet-era
apartments with US$30,000 he had borrowed from a friend.

He fixed them up, sold them for a profit and started a boutique real
estate business.

Cashell quickly went from flipping apartments to building them. Today,
his US$155 million firm, Asia Pacific Investment Partners, owns a
cement factory and several apartment blocks with retail projects in
the pipeline. He hopes to list his company on the Hong Kong exchange
in the next 18 months.

His story is as much about entrepreneurship as Mongolia’s economic
development and real estate boom. Property prices have doubled in the
past five years.

Investment money has flooded the small economy of Mongolia because of
strong commodity prices and income from the sale of government
licences to mine, which have resulted in increased government
spending. Overseas listings of Mongolian companies have also brought
money into the country.

“This has resulted in excessive amounts of liquidity in the Mongolian
economy, much of which makes its way into the property market,” says
Cashell.

In downtown Ulan Bator, the average price for real estate is around
US$1,300 per square metre, usually for an older apartment block built
during the Soviet period, a fivefold increase compared with a decade
ago, according to people active in this market.

The condition of these buildings is generally poor. Concrete
stairwells are beaten up, plumbing is ancient, and the roofs often
leak. Yet prices for older blocks have held up, largely owing to their
central location.

Most Soviet-era apartments are 60 to 90 square metres, putting their
prices between US$80,000 and US$120,000. Cost depends on the
condition. Some have been carefully renovated in Western style, but
others haven’t seen a paintbrush in decades. City centre rentals for
older apartments can run to US$800 to US$1,600 for a two-bedroom unit,
translating into annual investment returns of 12 per cent to 16 per
cent (assuming the flat is fully paid for, and there are no mortgage
costs).

Focus is shifting towards higher end, modern developments in the city
centre. Better quality buildings can run to over US$3,000 per square
metre. For serious high rollers, the priciest accommodation in the
city is Blue Sky Tower, with units selling for US$9,000 a square
metre.

Most of the city’s quality housing is in the Zaisan neighbourhood,
four kilometres south of downtown, in a narrow valley of the Bogd Khan
Mountain National Park.

Property in Zaisan starts at about US$2,000 a square metre and can run
to US$4,000 or more. It’s popular with families seeking fresh air and
quiet.

But its location, while scenic, has a drawback: the commute through
Ulan Bator’s notorious traffic jams is a big hassle.

Property investors often overlook the so-called “ger” districts. These
are vast shanty towns home to 700,000 people, more than half the
population of the city. These suburbs of tumbledown shacks and gers
lack running water, central heating, paved roads or green space.

Change may be on the way, however, as a new government has come to
power on the promise of bringing infrastructure and permanent housing
to these districts, opening a new market.

“Any time you have hundreds of thousands of people needing a product,
there is a huge opportunity if you can figure out how to serve them,”
says Harris Kupperman, the chief executive of Mongolia Growth Group, a
Toronto-listed property development firm based in Ulan Bator.

“Despite what most people think, people in the ger districts do have
money. They are not all poor. Frequently, their land is quite
valuable. They can sell that and move into an apartment. It’s a
question of creating a product at the right price point.”

Construction is speeding up to address the shortage. Last year, 10,747
units were built in Ulan Bator, according to the National Statistics
Office, compared with just 816 units built 10 years ago.

Mongolia’s second-tier cities are also attracting attention,
particularly those in the southern Gobi region where most of the
mining takes place. Dalandzadgad, the capital of Omnogovi province,
has grown in population as people move there to find mining-related
jobs.

A report last year by Ulan Bator-based private equity firm Eurasia
Capital says that Dalandzadgad’s population will quadruple to about
60,000 by 2015 and will have the highest gross domestic product per
capita among cities in Mongolia.

Just three years ago, a small street-facing shop of 60 square metres
in Dalandzadgad would have cost US$20,000. This would now cost about
US$70,000, according to Cashell, who bought property there.

And, unlike Ulan Bator, where many developers feel the prices are out
of hand, the market in second-tier cities is just getting started.

From a legal point of view, Mongolia is an investor-friendly place.
There is no limit to the amount of property one may own, although any
foreigner wanting to lease land should do so with a Mongolian partner.
Annual property tax is just 0.6 per cent.

The government levies a 2 per cent stamp duty on property sales and a
10 per cent tax on investment income.

The biggest risk in this market seems to be with buying property
off-plan, as projects commonly see delays or are just abandoned.

And there is little legal recourse to recoup your investment if a
project goes bust.

It is also risky buying property in undeveloped parts of Ulan Bator,
as you’ll never know what sort of building might pop up in front of
the one you’ve just invested in. To minimise risk, buy in
well-established, central areas with proven developers and cross your
fingers that the boom times for Mongolia are only just beginning.

If Mongolia didn’t pop into your mind first, you’re probably not alone.

This country of just 2.8 million people is landlocked in the middle of Asia, but it’s growing at more than twice the rate of China.

Its staggering rate of more than 17%-a-year growth last year may explain why U.S. Secretary of State Hillary Clinton made a pilgrimage to Mongolia, along with Vice President Joe Biden and before him George W. Bush.

Not to mention a parade of other Western and Asian powers, including China, along with corporate titans by the planeload.

Mongolia’s secret? It sits atop a mountain of mineral wealth: coal, copper, gold and a torrent of global money are all forcing revolutionary changes.

Mongolia has managed the change from traditional nomadic herding culture to major economic political power. And it’s gone from a Soviet-style communism to democracy.

“This is a great opportunity,” President Tsakhiagiin Elbegdorj told CNN’s Christiane Amanpour Monday. “But we have to manage that. We have to share that great opportunity with all our people.”

Inner Mongolians culture clash

Despite this huge wealth, there is growing inequality and worry that it won’t be spread around.

There are also concerns about corruption, as so often happens in rapidly emerging economies.

“I see corruption as a mortal enemy for young democracies,” President Elbegdorj said.

He believes the zero-tolerance policies the country is attempting to implement can help shield the country.

It’s neighbor China is a natural trading partner, but Elbegdorj believes the country must build more infrastructure to create gateways between both China and Russia.

And he believes the U.S. and Mongolia have a common strategic interest.

“Our men and women in uniform actually serve together in Iraq; now we’re serving in Afghanistan, in other hot spots.”

Elbegdorj was recently in Iran for the non-aligned meeting.

He was the first foreign head of state to visit Natanz – Iran’s main center for uranium enrichment.

Why did he visit?

“There was open opportunity to any head of state who is participating in the non-alliance movement meeting, and I thought, why I do not use that opportunity? And I went.”

He said Mongolia’s position is that Iran should comply with the U.N. Security Council resolution.

Mongolia tries to stop sale of rare dinosaur fossil

On the subject North Korea – and the possibility of reform under its new young leader, Kim Jong Un- Elbegdorj sounds optimistic. He says his country has established good relations with North Korea.

“I think Mongolia is really uniquely positioned towards North Korea. We have an embassy in North Korea. We have an embassy in Seoul.”

He says foremost for North Korea must be economic reforms, but that Mongolia could help guide that country because of a potentially shared experience in the transition to democracy and a market economy.

But questions still linger about democracy back in Mongolia.

Elbegdorj was instrumental in fighting for democracy, but the country’s previous president, Nyamdorj Enkhbayar, has since been arrested and there are charges against him.

He and other independent observers have complained that this is entirely politically motivated and that he has not been treated according to internationally admissible norms. Some believe the charges are politically motivated.

“Mongolia has a policy, zero tolerance of corruption.” Elbegdorj says. “And I fought for freedoms since the cold winter in 1989, for 23 years. And I regard that corruption is the mortal enemy, but also no one is above the law. That’s the essence of democracy. And because of that, we have to be very tough in order to sell our people’s historic choice to freedom. And we need to rid of corruption.”

Mongolia’s handling of the case will serve as a gauge of progress for Mongolia’s young democracy.

Terminus of the Trans-Siberian

Josh Haines

Asia Pacific Investment Partners (“APIP”), a Mongolia focused operating group primarily engaged in property development and cement production, has today announced the appointment of its new Chief Operations Officer of Infrastructure and Construction, Joshua Haines.

Joshua will be chiefly responsible for the day-to-day operations of APIP’s current real estate developments and will also oversee Central Asian Cement’s activities.

Prior to joining APIP, Joshua worked with Technologists Inc. in Afghanistan. Here he reported directly to the company owner regarding the project status, managed day-to-day construction activities, and trained over 6,500 Afghans construction workers on modern day construction techniques, safety, quality control and scheduling.

Lee Cashell, CEO Asia Pacific Investment Partners, commented:

“Joshua will provide further strength to our rapidly growing executive team. His extensive experience in Afghanistan should translate well into some of the complexities that exist when operating in Mongolia. I am confident that he will be a very worthwhile hire and will have a significant impact on the rate at which we are capable of growing.”