Mongolia is a fantastic place to invest in property as a foreigner. The regulatory framework on title and property rights, combined with a great tax policy and no exchange controls, make Mongolia one of the best destinations in Asia for property ownership.
Why Mongolia? In addition to being the fastest growing economy in the region and one of the fastest growing in the world, there are a number of compelling reasons why Mongolia is the ideal destination for investors to consider. These include an extremely benign regulatory environment for property ownership, with the rights exercised by international investors regarding property ownership being identical to those enjoyed by Mongolian citizens. The ‘floating freehold’ system provides investors with inalienable freehold rights to real estate in Mongolia.
There are no currency controls. The currency is fully convertible and freely floating and there are no issues repatriating profits out of Mongolia. Indeed, recent exchange rate weakness presents a strong buying opportunity for investors deploying foreign currency into the property markets.
It has fantastic tax laws. The tax laws in Mongolia are clear-cut with the 10 per cent income tax representing one of the lowest income tax rates in Asia. In addition, there is no concept of capital gains tax in the market and only a two per cent stamp duty tax paid upon eventual sale of the property.
There are high overall returns from both cash rental income and capital growth. Mongolia’s property market boasts one of the highest cash rental yields in Asia as well as strong capital appreciation prospects. From 2005 to 2013, the average annual rental yield from residential space was over 11 per cent per year across all of Ulaanbaatar. Rapid growth in GDP per capita, disposable income, and real wages are driving demand for high quality residential and retail space across the city, and the property market has been posting annual growth rates of over 15 per cent per year on average for the past 10 years.
It's below the radar. Mongolia is a fast-growing frontier market that remains relatively unknown to the rest of world. As such, competition for good assets in good locations from other foreign investors remains limited.
According to the Bank of Mongolia, the mortgage penetration rate in 2011 was under four per cent. Credit-driven property price speculation and real estate bubble risk are therefore non-existent in the market at the moment. In 2013 the government created a subsidized mortgage product for low-income families to help them take their first steps onto the property ladder. This mortgage is an eight per cent product for very small, low-end apartments — the remainder of the market remains entirely underserved by credit. However, there has been such demand for subsidized mortgages that banks may consider entering the space with a more commercial product in the coming years. Should leverage be introduced to the system, we would expect prices of property to rise very quickly.
While the herd is chasing Thai, Filipino, or even Myanmar real estate, Mongolia offers one of the fastest growing economies in the world. Buyers can enjoy access to a market where prices remain unaffected by competition, where low taxes and strong property rights protect your investment, and where exchange rate movements can increase profits over and above the already high rental yields that are available today.