In from the cold: A major housing project could have a positive impact on many families

A central part of Mongolia’s ambitious New Development Programme (NDP) is the “100,000 houses” project. The aim of the scheme is simple – to construct 100,000 units of affordable family housing across the country, with the majority of these – 75,000 units – being built in Ulaanbaatar. Completing this programme will likely be one of the most important tasks carried out by the construction sector in the years to come.

BOOMING DEMAND: The population of Ulaanbaatar has grown significantly in recent years. Figures from the National Statistical Office (NSO) show 548,400 inhabitants registered in the 1989 census, on the eve of the country’s transformation from a Soviet satellite to a free market economy. Just over 10 years later, the 2000 census revealed a population of 772,969. By the end of 2010, the NSO reported a population of 1.24m in the capital region.

The last few years, in particular, have seen a surge in inhabitants, as many Mongolians have relocated from other parts of the country. This migration is partly the result of the lure of the city, with its promise of higher paid jobs and greater possibilities. Additionally, it is the result of a series of devastating winters, known as dzuds, which have periodically wiped out the livelihoods of many Mongolian herders.

The result is a shadow city of some 170,000 families – or 60% of Ulaanbaatar’s population – who are low-income and live in the sprawling tent cities of the northern districts, spread across the surrounding hills. Inhabiting traditional ger, the characteristic Mongolian round tents, the great majority of this population is not connected to any utilities. Instead, they heat their ger in the winter months – when temperatures can get down to -30°C – with coal or lignite, burnt in iron stoves. However, the smog caused by coal-burning ger inhabitants has made Ulaanbaatar the second most polluted city in the world during the colder months, according to the World Bank. Around one in 10 deaths in the city every year is associated with air pollution, according to a 2011 University of Vancouver study.

HOUSING FOR ALL: Tackling the huge environmental and social problems caused by the ger cities has long been a priority for the politicians in Ulaanbaatar, the national government and international donors. The authorities have implemented a variety of programmes in this vein. On the micro-level, the US-based Millennium Challenge Corporation (MCC), in partnership with the government, introduced a project to swap old, polluting stoves for newer, cleaner ones. Additionally, the World Bank has helped install water piping to supply fresh water to many ger.

These projects and many others have been improving the lives of Mongolians living in Ulaanbataar’s tent cities for years. Unlike these smaller projects, the macro-level 100,000 houses project is expected to have a major impact on a substantial percentage of ger residents. “We thought that it was time,” said Y. Manlaibayar, the director-general of the Department of Finance and Investment at the Ministry of Roads, Transportation, Construction and Urban Development (MRTCUD). “Time that the people living in the gers had access to proper amenities in their own homes.”

URBAN AND RURAL CENTRES: The 75,000 units planned for Ulaanbaatar will not be enough to house the entire current ger population, but they will certainly have a major positive impact on the current situation. In total, around 17 different locations have been set aside for the new housing projects in and around the capital. Furthermore, the initiative is expected to result in the creation of a number of new suburbs and towns in the capital area, with the largest of these taking some 35,000 housing units.

The 100,000 houses developments will require a substantial amount of supporting infrastructure, including roads and bridges; water, power and canalisation projects; social infrastructure, such as shops, offices and commercial buildings; and industrial real estate projects. All of this development will have a huge impact on the demand for construction services and materials in Mongolia. An estimated 1m tonnes of cement is likely needed to carry out the initiative, equal to two-thirds of the entire current annual demand.

The 100,000 houses project also seeks to build 25,000 new family units outside the capital. The rationale for these is that another consequence of the urbanisation that has occurred in the past few years – and indeed, another motivator for people to leave the countryside – has been a neglect of rural settlements and facilities. If rural centres are able to provide better housing opportunities, fewer people will be tempted to relocate to Ulaanbaatar in search of a better life. Thus, each of the four regions of Mongolia – the Western, Khangai, Central and Eastern – will get a share of the 25,000 houses.

The Western Region will receive 5000 units, which will be spread evenly among its four provinces, or aimags. The Khangai Region will also receive 5000 units, to be distributed among its four aimags. The Central Region – excluding Ulaanbaatar – will receive 10,000 units, to be divided among its five aimags. Finally, the Eastern Region will receive the final 5000 units, which will be distributed among its three aimags. This 100,000 houses scheme thus dovetails with efforts to boost rural populations via the soum (county) centres and improvements to the rural road network.

ENTER THE PRIVATE SECTOR: The Mongolian government is quite clear about who will undertake the bulk of the construction on the 100,000 houses project. “We won’t build the houses,” said Manlaibayar. “The private sector will do that.” In an effort to encourage private sector involvement, the government plans to provide land management services; infrastructure such as power lines and other utilities; social infrastructure like schools, hospitals and local government buildings; and a more affordable mortgage system.

The government’s limited involvement in the project leaves the issue of financing and the construction of the houses themselves to private companies, banks and investors. Additionally, ordinary Mongolians are expected to take out mortgages themselves.

FINANCING ASSISTANCE: For many locals, housing loans have long been out of reach, with commercial bank mortgage rates hovering around 16-19% per annum in early 2011, with a low of around 14% in September. With this in mind, the government recently announced that it would assist lower-income earners in accessing the 100,000 houses project. In November 2011 the Mongolian Housing Finance Corporation announced it would offer eligible first-time homebuyers a 6%, 25-year mortgage for apartments less than 50 sq metres in size. Schemes under consideration included potential government subsidies of rates offered by commercial banks, the government establishing its own mortgage facility or a combination of the two. Financing the infrastructure side of the scheme depends largely on the Development Bank of Mongolia (DBM), set up in 2011 with South Korean guidance. Bond issues by the DBM are expected to be a major financing source for many upcoming government infrastructure projects, with the country effectively borrowing on world markets at lower rates than the domestic mortgage rate. Furthermore, the MRTCUD received a $240m loan from China’s Export-Import Bank to help finance the scheme.

CHALLENGES AHEAD: As of late 2011 basic infrastructure work had begun on six sites for the 100,000 houses project, with construction also starting on 15,000 units on Ulaanbaatar’s Yarmag Hill. Many challenges must still be overcome. Combining low-cost housing with market mechanisms creates hurdles. The government is working to make sure the segment of society the project was designed to help is not squeezed out – potentially a major challenge, particularly at a time of high real estate speculation. Base mortgage rates will be dependent on both domestic and international markets, which means the government is at risk of taking on a major financial burden as it seeks to maintain its 6% rate. Furthermore, with the government set to purchase a substantial amount of land for building new suburbs, many landowners have increased prices (see Real Estate overview).

For construction firms, however, the project offers a long-term source of work and jobs. “For the next 15 years this programme will give us work,” said M. Batbaatar, the president of the Mongolian Builder’s Association. For foreign investors, the initiative will likely open up a wide range of new opportunities, from planning and design to site management and specialist services to human resources (HR). “To implement the 100,000 houses project, we will require at least 40,000 construction workers,” said Batbaatar. “HR management and capacity are therefore major issues.”