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Subsidized financing for 100 000 apartment program has officially began, to impact favorably property development, concrete and cement sector

According to Government of Mongolia on February 21,2012 (http://open-government.mn/read-1317-.html) Government resolved the issue of making a reality for citizens 6 per cent soft  financing for residential purchases. Government has resolved for Development Bank of Mongolia to issue securities up to 200 billion MNT(149 million USD using Bank of Mongolia’s today’s reference rate). Finance Minister is to issue a Government guarantee for payments for principal and interests of the securities.

Until funding from issuance of securities of Development Bank of Mongolia will come in, commercial banks are issue soft loans to citizens from their own capital. Finance Minister, Minister of Roads, Tranportation, Construction and Urban Development and Mayor of city of Ulaanbaatar have  approved on February 21,2012 procedures to issue soft loans up to 50 million MNT( 37 thousand USD) with 6 per cent interest and duration of 20 years to citizens with low and medium income.

  • The apartments must be enrolled in 100 thousand apartments program which includes 75 thousand apartments in Ulaanbaatar
  • Borrowers should be able to make 10% down payment
  • The apartments will be a collateral and borrowers can pay off loan ahead of schedule
  • Apartments will be built in locations such as Yarmag, Zuun ail, Televiz and 13th subcommittee and state will be responsible for financing required for infrastructure. Also ger substandard housing district will be moved and apartments built. In this way cost of the apartment will be reduced
  • At the moment 79,486 families have been selected from 159 thousand applications into 100 thousand apartments program
  • 28,300 apartments from total apartments in the program will be ready within 18 months and 6,341 apartment have area of 50 sq. meters
  • Government increased area to 55 sq. meters, therefore it has become possible for citizens now to purchase 9,017 apartments
  • For a start, possibility is created for first time buyer families with 1 to 4 family members of 1-18 age  to purchase apartments
  • Government aims to fully implement 100 thousand apartment program by 2016

According to major Mongolian daily “Zuuny Medee” on February 29, 2012 Chairman of Land Relations, Construction, Surveying and mapping agency Ts. Gankhuu clarified regarding 100 thousand apartment program situation

  • It is planned to issue bonds of Development Bank on the domestic market, bonds will be issued, authorized by Financial Regulatory Committee and auction organized
  • Lending by commercial banks will start probably on March 15-20,2012
  • State Bank and Capitron bank have resolved for a start to issue loans from their internal sources
  • Government has approved a plan to build over 63 thousand apartment by 54 companies in Ulaanbaatar until program is completed in  2016
  • Under 55 sq. meters means either two big rooms or smaller three rooms apartment
  • The construction of the apartments must be completed for 50%
  • Income of the family must be not less than 750 thousand MNT(560USD) per month
  • Citizens can apply monies from Human Development Fund towards payment for the apartment
  • Registration will start tomorrow, March 1,2012
  • Soon construction companies with agreement for 100 thousand apartments will be announced through media, 192 companies submitted applications for 158 thousand apartments
  • State will not participate in issue of price of the apartments

In separate article on 9739 apartments to be built in Bayangol district following developments are listed among others

  • 4800 apartments by Eco Construction LLC
  • 462 apartments by Nomin Construction LLC

According to concrete producer Remicon Joint Stock Company(MSE:530/RMC), those developers are among its major customers (http://www.remicon.mn/index.php?option=com_content&;view=article&id=88&Itemid=105)

CEO of Remicon JSC E. Munkhsaikhan commented to Frontier Securities

  • This measure by Government to resolve residential issue of the population is of real support to construction and developer companies. In this way amount of construction will increase and following that there is a trend of increase in need for concrete. This is to impact favorably operations of our company. Besides increase in purchases by our regular customers, opportunity will be created to increase number of new customers for our company

CEO/Chairman of Asia Pacific Investment Partners (http://apipcorp.com/) Lee Cashell, a Mongolia focused fast growing operating company that has a range of subsidiaries primarily focused around property development and cement production and that aims to list on the Hong Kong stock exchange within the next twelve months  commented to Frontier Securities

  • We certainly welcome this stimulus measure into the construction and real estate sector that overall will result in general increased residential appetite of the population and more robust market, although we will be impacted favorably primarily through our cement sales, not necessarily from a developer point of view as we are high-end premium housing developer. As a matter of fact, we are feeling positive impact now already, we are able to lock in prices for cement sales contracts for the next year and our customers are prepaying us large down payments in order to secure cement for the next year.

Dale Choi

Chief Investment Strategist,

Frontier Securities