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Division Agriculture, Fisheries and Food

Real Estate Market, MortgageMarket and Cadastre in Ulaanbaatarand Darkhan-City, Mongolia


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Real Estate Market, MortgageMarket and Cadastre in Ulaanbaatarand Darkhan-City, Mongolia

Saskia BaunerBodo Richter

Deutsche Gesellschaft frTechnische Zusammenarbeit (GTZ) GmbHJanuary 2006

Division Agriculture, Fisheries and Food


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Published by:

Deutsche Gesellschaft frTechnische Zusammenarbeit (GTZ) GmbHPostfach 518065726 EschbornInternet: http://www.gtz.de/lamin

Division Agriculture, Fisheries and FoodSector Project Land Management

Responsible:Christian Graefen

Editing:P. Kraus, A. Krause, S. Bauner, B. Richter

Authors:Saskia BaunerBodo Richter

Imprint

Design, Illustration:Open Ffm.www.open-agentur.deVerena Siebert

Print:Gebhard, Heusenstamm


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Table of Contents

Table of ContentsList of Tables 6

List of Figures and Boxes 6

Abbreviations and Terms 7Preface 8

1 Introduction 91.1 Background 91.2 Law in Mongolia and Privatisation Process 10

1.2.1 The law of Mongolia on land 101.2.2 The law on allocation of land to mongolian citizens for ownership 111.2.3 Privatisation process 11

2 Ulaanbaatar 122.1 The Real Estate Market in Ulaanbaatar 12

2.1.1 The privatisation of apartements 122.1.2 The organisation of space in Ulaanbaatar 132.1.3 The social structure of Ulaanbaatar 162.1.4 Institutional foundations concerning the

real estate market in Ulaanbaatar 172.1.5 Activity and price characteristics of the urban real estate market 192.1.6 Real property taxation system 222.1.7 Constraints to the real estate market 22

2.2 The Mortgage Market in Ulaanbaatar 232.3 Conclusion and Suggestions 25

3 Darkhan-uul aimag 273.1 Development of Land Use in Darkhan-uul aimag 27

3.1.1 Development of agriculture in Darkhanuul aimag 273.1.2 The structure of land use in Darkhan-uul aimag 28

3.1.3 Property rights 293.1.4 The current situation of land property and the role

of lease in Darkhanuul aimag 313.2 Conclusion and Suggestions 323.3 The Real Estate Market and Cadastre in Darkhan-City 34

3.3.1 Introduction 343.3.2 Development and current structure of the cadastre 343.3.3 Structure of residential space, housing and ownership

in Darkhan-City 353.3.4 The price structure of real estate 38

3.4 Conclusion and Suggestions 38

Bibliography 40


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List of Tables

Table 1: Privatised apartments during 1997 to 2004 13Table 2: Distribution of households by type of ownership, conventional housing,

living area in Ulaanbaatar, 2002 14Table 3: Year of construction of apartment buildings 15Table 4: Total number of registered owners till december 2004 18Table 5: Type of offered real estate objects 19Table 6: Amount of apartments for rent and sale by district 20Table 7: Sales prices for apartments (Tugrik), excluding newly built apartments 20Table 8: Newly built apartment buildings, by location, number of rooms, price 21Table 9: Conditions of loans provided by SCUs, NBFIs, Banks, Pawn houses 24Table 10: Prices for different types of land in different regions,

their land tax and land fees 30Table 11: Percentage distribution of households living in

conventional housing in Darkhan-City 37Table 12: Prices for apartments in Darkhan-City, 2002 38

List of Figures and Boxes

Figure 1: Yields in Darkhan-uul aimag evaluation 27Figure 2: Ownership by type of housing. 37

Box 1: Map of Darkhan-City 36

List of Tables/List of Figures and Boxes

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Abbreviations and Terms

ADB Asian Development BankALAGaC Administration of Land Affairs, Geodesy and CartographyCOMECON Council of Mutual Economic AssistanceMNT Mongolian Tugrik

(Kurs vom 08.04.2005: 1 USD = 1.186,0000 MNT)(Kurs vom 19.04.2005: 1 EUR = 1.541,4443 MNT)

NBFI Non Banking Financial InstitutionNSOM National Statistical Office of MongoliaSCUs Saving and Credit UnionsSME Small and Medium EnterprisesAIMAG ProvinceDuureg District in a CityGer Felt TentKhashaa Parcel Hedged with a Wooden FenceKheseg Subdivision of a MicrodistrictKhoroo MicrodistrictSum Subdivision of a Province

Abbreviations and Terms

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PrefaceThis report gives an overview of the real estate and mortgage market, as well as the cadastresystem and the development of use of land in Mongolia taking the example of the city of Ulaanbaatar and the province Darkhan Uul. The report is divided in two parts. The first part,written by Saskia Bauner, deals with the real estate and mortgage market in Ulaanbaatar, thesecond, written by Bodo Richter, with development of land use, real estate market and cadastrein Darkhan Uul Aimag. The report was written in January 2005 after two and a half month of fieldwork in Ulaanbaatar and Darkhan in preparation for the new Land Management Projectfinanced by the Germany Agency for Technical Cooperation (GTZ GmbH).

In order to obtain the necessary information, in total 15 interviews with banks, appraisers,realtors, notaries and administrative organisations like ALAGaC, UB City Land Administrationand the Ministry of Construction and Urban Development were carried out. Furthermore,38 inhabitants of gers, apartments and houses were questioned in regard to their ownership,property, income and credit raising.

All data for the second part were obtained by interviews with local authorities, ministries andinstitutions in Ulaanbaatar and Darkhan-City. For information about the price structure of realestate 21 households were interviewed in Darkhan-City.

It should be noted that the results of the questionnaire should be treated with considerablecaution, as they are not representative, but nevertheless give a good overview over thementioned topics.

Preface

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1 Introduction1.1 Background

Real estate markets perform three important functions. They bring together buyers and sellersto facilitate their transactions, they set prices for land and buildings, thus ensuring that land iseffectively used, and they allocate land by setting prices so that the land market clears. Realestate markets will be effective if they are competitive. Therefore six criteria must be fulfilled.These are well defined property rights, many sellers and buyers, their voluntary participation,free access and exit to the market, perfect information (transparency) and a similarity of products(Dowell, 1993:3). Access to registered property, including land, buildings and other movableassets brings many benefits. It can be a means of holding savings and wealth, a basis of earningincome (as a site for service, or as rental property) and finally a means of undertaking othereconomic activity through providing security for a credit.During the socialistic era none of the conditions were given and no real estate market existed inMongolia. This changed with the turning towards a market economy. The first step was therecognition of private property, including both immovable and movable property in 1990. In1992, after years of state ownership of all land and buildings, Mongolia started with privatisingthe ownership of many state property. The privatisation was undertaken through a variety of measures. These included the sale of retail store space, the privatisation of state enterprises andbusiness space and the rapid privatisation of state owned apartments through the PrivatisationDepartment. A restitution of land ownership did not take place as private land ownership has

not existed before the socialist period either.

The outstanding feature of history of the Mongolian land tenure system is the not existingtradition of individual land ownership due to the pastoralist culture. That is why the Mongolianunderstanding of private ownership, especially of land is underdeveloped, because they havebeen using land on a community and public basis for hundreds of years. During the socialistperiod, which lasted from 1921 till 1990, the land was consolidated around the basic principleof state ownership of land and a complex system of allocation of (land) use rights. Unlike landitself, structures on land were held in somewhat different forms of tenure in Mongolia. Never-theless, all apartments were exclusively built and owned by the government. The commontenure form of apartments was renting them from the state. Apartments were allocated through

a waiting list which based on several criteria like: for how long one has been working in thecompany or organisation, how good ones performance was, how many decorations one has received,the existing living conditions, since when one applied for an apartment etc.. Residential rentaltenants had a hereditary, indefinite rights of occupancy, paid small rents and were more or lessimmune against eviction. The buying and selling of apartments or land was strictly forbidden,whereas the exchange of apartments was allowed. However, one exception existed. Housingcooperative members, who supplied the money could build or buy an apartment and receivedcooperative tenure as a joint title to the building. Through the cooperative association theycould lease or sell their apartments.

Introduction

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1.2 Law in Mongolia and Privatisation Process

With the breakdown of the socialist system in Mongolia an extensive reinforcement of theprivate property took place. The rights of the owner and the protection of the private propertyare both anchored in the new constitution of 1992 (Art. 5 Nr. 2 of the Constitution). Throughthe registering of immovable property at the Immovable Property Registration Office theproprietary right of each owner is guaranteed.In 1996 the Law on Housing Privatisation was established and from 1997 up to 2004 nearlythe entire housing stock was privatised. This was the first step of creating private immovableproperty. It was succeded by the implementation of two new land laws in 2002.

1.2.1 The law of Mongolia on landThe first of the land laws implemented in 2002, the Law of Mongolia on Land deals with thesystem of quasi-ownership of urban and periurban land by the establishment of renewable,inheritable and tradable long term possession and use leases.Land in that coherence is defined as a piece of space including the land surface, its soil, forests,

water and plants.Pastureland means rural agricultural land covered with natural and cultivated vegetation for

grazing livestock and animals.Agricultural land is defined as land that includes pastureland, hayfields, croplands, lands for

cultivation for fruits and berries, fallow lands, lands under agricultural production.

There are three different types of land tenure to find in that law:1) Ownership of land: This type of tenure means to be in legitimate control of land withthe right to sell, rent or lease this land. According to the law, land excluding pastureland,land for common tenure and land for special government use, can only be owned byMongolian citizens.The land ownership determined by this law only refers to the privatisation and buying of new land with or without structures. An unclear way of proceeding still exists concerningthe communal space within and around apartment buildings. By the privatisation of apartment buildings the owners only obtained ownership on the basis of divided ownership.Whereas nowadays, people who buy a newly built apartment might obtain proportionalownership for the communal space.

2) Possession of land: Only Mongolian citizens, companies, organizations and companieswith foreign investment are allowed to possess land. The possession of land is given by alicense for the duration of 15 up to 60 years. After expiration it may be extended foranother 40 years.

3) Leasing of land: A license for land use can be obtained by foreign countries, internationalorganizations, foreign legal entities and foreign citizens. The duration of a land use licenseis up to five years and may be extended for five years at a time.

Using land , for the sake of completeness means to undertake a legitimate and concreteactivity to make use of some of the lands characteristics in accordance with contracts made withthe owners and possessors of land.

Introduction

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1.2.2 The law on allocation of land to mongolian citizens for ownership

The second law, the Law on Allocation of Land to Mongolian Citizens for Ownership cameinto force in May 2003 and establishes land ownership. The ownership purposes are: 1. familyneeds, 2. agricultural purposes 3. other purposes. Only residential land can be allocated free of charge. The title of the law may be misleading because the allocation of private land ownershipis confined to family households, not individual citizens. It is based on a joint ownership.Single, unmarried people who live outside a registered family are excluded from the land allocation.The law entitles families to land allocation if they officially registered a marriage or as a separatefamily prior to May 21, 2003. Upon registration of this allocated land, a family has to identifyall adult household members on the title document, unless each individual waives these rights.Other mentionable laws concerning the issue are the Law of Mongolia on land fees and theLaw on Real Property Tax.

1.2.3 Privatisation processThe size of the land which is to be privatised depends on the location in Mongolia and thereforeincreases from 0.07 hectare in the Capital Ulaanbaatar, to 0.35 hectare in centres of other regions,cities of Darkhan and Erdenet and other regional base cities and finally 0.5 hectare in aimag, sumcentres and other villages. To obtain ownership of a piece of land people are bound to the city,aimag or sum centre where they are registered. An exception exists for the citizens of Ulaanbaatar.They are allowed to apply for a piece of land in every other city, aimag or sum centre in Mongolia.To gain ownership, former land use or land possession licenses can be transferred or it can beapplied to own a new piece of land. The land to be privatised can be chosen freely within the gene-

ral conditions given by the law. Nevertheless, people already living on the parcel have a prerogative.The privatisation at no cost is restricted to a period of two years, until May 1, 2005. An extensionmay be justified, as probably not all citizens are familiar with the terms of ownership and forthis reason have difficulties in understanding the requirements of the Law and may fail to applywithin the prescribed period.Prior to the allocation of land, 61.753 families living in ger areas were identified whose khesegwas apt to privatise. For another 11.484 families, whose khashaa is located in a disfavourablelocation (e.g. under a power line or in a flood plain) new settlement areas have been providedwhich they are allowed to privatise instead of their present location. This number is probablyestimated to low, as the informal land occupation and existing pressure on settlement 1 in gerareas is constantly increasing.

The ongoing privatisation on land is only slowly progressing, because the carrying out inUlaanbaatar is long-winded, extremely bureaucratic, time- consuming and confronted with alot of problems indicated by:

A high amount of boundary conflicts.A high amount of land conflicts concerning the entitled owner, as often more than onefamily is living on a hashaa and different claims existIn city areas, where the UB Land Administration has other land use purposes in mind,citizens do not get the allowance to privatise their land. 2

Existence of duplicated land use, possession or ownership documents.The very important but still amiss privatisation of land for commercial purpose will probablybe dealt with through public auctions during the following years 2005/2006, as UlaanbaatarCity Land Administration officials said.

Introduction

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1 English for Siedlungsdruck.2 This is based on interview data in the ger area near the Gandaan Monastery. Information from UB City Land Administration

was not available.


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2 Ulaanbaatar

For a better understanding a short overview about Ulaanbaatar shall be given at first:Ulaanbaatar has an administrative expanse of 4700 km 2 and consists of six city districts (duuregs),which form the city (Sukhbaatar, Songino Khairkhan, Bayangol, Khan-Uul, Chingeltei,Bayanzurkh) and three remote districts (Nalaikh, Baganuur, Bayankhangai). The city area,excluding the three remote districts, amounts to 3257 km 2. Each district consists of severalmicrodistricts (khoroos) 3, which are governed by a governor, and are subdivided into khesegs.The city area itself can be divided into two main parts: the built up city centre, where buildingsconsist out of sturdy material, like concrete, bricks or prefabricated slabs and the surroundingger areas, which enclose the city like a semicircle in its northern part. In ger areas the predominantbuildings are gers and simple wooden houses. Furthermore, each parcel (khashaa) is fenced in.The official population is indicated with 893.400 inhabitants (Statistical Yearbook 2003, 33).Unofficially it is estimated to 1.200.000 inhabitants and this number is constantly rising dueto permanent migration to Ulaanbaatar. From 1990 to 2003 the population growth arises to4,9% p.a. The official number of households in Ulaanbaatar amounts to 192.900, which indicatesan average of 4.3 persons per household (Statistical Yearbook 2003, 36).

2.1 The Real Estate Market in Ulaanbaatar

In order to achieve an effective functioning real estate market the necessity of a land reform inMongolia arose after the beginning of the transformation. This includes the privatisation of buildings and land, as well as the evolution of well defined and verifiable property rights whichare the pillar of an efficient real estate market.

2.1.1 The privatisation of apartementsFrom 1997 4 up to 2004 nearly the entire housing stock was privatised leaving only a smallamount of residential apartments in the public sector 5, thus leading to the emergence of aprivate housing sector. According to the Immovable Property Registration Office an amount of 70.010 6 apartments have been privatised since the beginning of the privatisation process.Considering that in Ulaanbaatar an estimated amount of 77.160 households live in apartments

(see table 2), the given numbers for the privatisation process indicate a slow progress during thelast years. The progress of the apartment of the apartment privatisation broken down by years isdepicted in table 1. Within the first three years, a concentrated action of privatisation hastaken place.

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3 In total Ulaanbaatar consists of 74 khoroos.

4 1996 Law on Housing Privatizations.5 Specifically those apartments which were meant for workers of state institutions like military, railway authority orstate own enterprises.

6 In contrast to this figure stands the estimated amount of 84.584 privatised apartments within the first two years,indicated by an UNDP Report (2004a).Two reasons can be the explanation: 1) not all persons who privatised their apartment registered their ownership(see chapter 2.5), or 2) the estimated figure of 84.584 apartments is wrong.


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Table 1: Privatised apartments during 1997 to 2004.

Source: Immovable Property Registration Office, slightly modified.

The ownership of the apartments was passed without charge to their longtime residents. Notprivatised was the common area around and within the apartment buildings, this ownershipstill remains with the state. The former state owned organisations which were in charge of theresidual common property and maintenance were restructured into the new Association of Apartment Owners. It is financed through a monthly paid fee by the apartment owners.However, in most cases they turned out to be highly ineffective (UNDP 2004a, 34). For this

reason, nobody feels responsible for the common space and it is declining.As the privatisation of apartments only concerned 22% of the Mongolian population there hasbeen a huge inequity. Especially with regard to the ger dwellers considering the initial capitalwhich was adjuncted with the privatisation at no cost. The possibility to use privatised apartmentsto serve as collateral for loans stretched the distribution of wealth and income even further.(UNDP 2004a, 33).

2.1.2 The organisation of space in UlaanbaatarIn Ulaanbaatar, structurally different types of property can be encountered, varying from thetraditional ger to (exclusive) apartments, to single family houses, to kiosks and office-buildings.The location of the various property types is restricted to different areas. The traditional ger can

only be found in the ger areas which surround the city in the east, north and west. The livingconditions differ greatly depending on the type of housing and the location. Ger areas, wherenearly 60% of Ulaanbaatars population is living, have hardly been connected with public infra-structure. Without a water supply, sewerage and central heating the living conditions are bad andgetting worse through the constant migration to Ulaanbaatar from the countryside. Accordingto the NSO (2001; 4), 21,8 % (= 35.158 households) of all households in Ulaanbaatar havebeen living in a ger in 2000. This number has probably increased due to the continuous migrationto the capital city and the rising poverty level.In the following table, the distribution of households is depicted by type of ownership, by typeof conventional housing, by the size of the living area and the number of rooms.

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Year Privatisedapartments

Privatised cooperativeapartments

Totalamount

1997 8016 109 8125

1998 23819 219 24.038

1999 14981 293 15.274

2000 6084 308 6392

2001 5435 345 5780

2002 2184 797 29810

2003 1997 965 2962

2004 3339 1029 4368

70.010


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Table 2: Distribution of households by type of ownership, conventional housing, living area in 2000(161.237 households 100%) in Ulaanbaatar.

1: Including simple wooden houses in the ger areas,2: Including homeless people living in roofs, corridors, trenches.Source: NSO (2001): Population and housing census 2000, modified.

An interesting aspect appeared from the questionnaire. 15 of the 38 respondents indicated thatthey owned beside their apartment another immovable property. This is 39,5% of all respondents.The quota of respondants owning more than one apartment is probably overestimated, butas far as the number of respondents allow to draw a conclusion, it is a clear indication for anemerging housing market.

In Ulaanbaatar different types of property could be encountered. For a better overview they havebeen divided into different categories:

A parcel or khashaa with a single structure: In the ger areas the single structure mightbe a simple wooden house or a ger. A new complete ger with room for four to six people costsbetween 450.000 500.000 MNT 7.In peripheral zones like in Khandgait, Gachuurt, Khurkhree, Selbe, to name only the biggestones, the upper middle-class and in particular the upper class have their weekend and summer-houses. Some of these areas already existed during the socialist time, but nowadays as planningand land use regulations are weak, especially for those who have power, money and the necessaryconnections, they start to appear in every area which is far enough away from the city and its air

pollution.Single family houses do not have any tradition and are insignificantly present. Very often theyare rented to foreigners.

A parcel or khashaa with more than one structure: These multi- structured properties forman own category, as they have a potential for formal or informal subdivision within the familyor on the open market. In the ger areas a khashaa with one house and a ger or two gers are thepredominant structure. In most cases they are inhabited by two or more families of the samekinship.

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7 The exchange rate dating 19.04.2005: 1 EUR = 1.541,4443 MNT.

Type of ownership

Government Private Mixed

Ger Conventional Housing Ger Conventional Housing Ger Conventional Housing

0,7% 14.8% 98.8% 83.6% 0.6% 1.5%

Distribution of households by type of conventional housing

House 1 Apartment Public apartment Non living quarters

38.4% 57.4% 3.3% 0.9%

Distribution of households by the size of the living area in m 2 in 2000

Less than 21 m 2 21 40 m 2 41 m 2 and more

27.8% 58.1% 14.1%


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A parcel with a structure divided into multiple property units, such as an apartmentbuilding: Multi-unit buildings are the most land-efficient type of physical property, allowing

many properties and families on a small land parcel, thereby maximizing the density and use of land surface. In Ulaanbaatar city (excluding the ger areas) apartments are the dominant type of housing. The first apartments in Ulaanbaatar were built by the Russians during the 1940s. Theexisting apartment buildings can be distinguished by their year of construction. During thesocialist time there were few differentiating characteristics among properties, except for age,that they differ in height, and apartment buildings from 1970s onwards had an elevator.Recently constructed apartments however, built by private construction companies (Mongolianor foreigners), differ in design and materials. The range now lasts from simple to exclusiveequipped apartments. Generally first floor apartments have become increasingly desirable, asfamilies convert them into commercial space.

Table 3: Year of construction of apartment buildings

Source: Own interviews.

A parcel of vacant land that is potentially usable for building purposes: in the inner-city

there is hardly any vacant land left for building purposes because most of it is allocated for useor possession already. Nevertheless, there are several immense unfinished and abandoned con-structions of buildings, whose land surface lie fallow and could be used more economically.

A parcel with a structure under construction: there is a vast uncontrolled and unplannedconstruction activity taking place in Ulaanbaatar. Apart from office and commercial buildingsthe emphasis in the city lies on apartment buildings for the upper middle and upper class. Inparticular, the apartment buildings for the upper class are constructed as gated communitieswith fences around the compound, a guard, restricted access and very often video surveillance.Gated communities can consist of both, apartment buildings and single family houses, whereasthe demand for the latter is insignificant.

Different construction locations can clearly be identified for the new apartment buildings andgated communities. In the Sukhbaatar district, which traditionally has been the residential areaof the wealthy and upper class, only a few new apartment buildings are being built. For theupper class, the majority of the planned and currently happening construction activity takesplace in the southern part of the city, the Khan- Uul district. It is located between the southernside of the Peace Bridge as one boundary and the Tuul River as the other boundary. During thesocialist period, this area has only marginally been used for residential purposes, due to thenearness of industries and the brown coal power stations, which were responsible for an extremeair pollution. Since the air pollution of the power stations has decreased immensely, leaving theger areas as the pollution cause no 1, the Khan Uul district has however become the favouriteconstruction site in Ulaanbaatar regardless the danger of flooding during heavy rainfalls.Songhinokhairan and Bayangol, in the western part of the city are the districts where the majorpart of construction for the middle class is taking place.

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Year of Construction Characteristics

During 1940s 1950s 3 story buildings, good quality

During 1960 5 story buildings, good quality

During 1970s 1980s 9 story buildings, elevator, good quality

Since 1990 Different type of apartment buildings: normal to exclusive buildings, often bad quality


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In the future, most construction work will be carried out in the Songhinokhairan district, as it hasbeen selected as the future urban expansion area. In Bayanzurkh district, located in the eastern part

of the city, hardly any significant construction for the real estate market is been carried out.

A parcel of public land used as a park or recreation area, or a parcel that is inappropriatefor building: this includes both public land and land left unused by private individuals orbusinesses because it is not suitable for construction.

Roads, sidewalks, and paths that are almost all under state ownership: the majority of public right of way were all constructed during the communist regime according to theplans of a socialist city. Today, these properties are in crisis due to uncontrolled constructionin Ulaanbaatar, which have often spread onto public right of way.

Various type of parcel including other urban properties: such as railways, rivers andbridges are all under state ownership.

2.1.3 The social structure of UlaanbaatarSocial quarters divided by status, as they are common in European cities, do not exist inUlaanbaatar, excluding the ger areas which are dominantly inhabited by the lower class. Thesocial structure in the city is still thoroughly mixed. This dates back to the socialist time whereapartments have been allocated according to a waiting list and not primarily by status. Never-theless, a roughly structure within the city can be encountered. The inner-city around Sukhbaatarsquare has always been a desirable living area and during socialist time, the highly decorated,

better-of and party officials obtained their apartments in these districts. Average workers weremostly allocated to the surrounding districts. The thereby originated social structure will prevailfor the next 15 to 20 years. Reasons are: most citizens can not afford to buy a new apartment asprices for one is unaffordable regarding the average annual income of 978.000 MNT (815 USD)(NSO, 2004, 74); those who gained ownership of their apartment, primarily renovate it, becausethis is cheaper than moving into a new one, or mainly use their apartment to serve as collateralsfor loans or other economic purposes.Nevertheless, a hardly perceivable social demixing process 8 has started, in which social quarterswill gradually evolve during the next decades. This process will be accelerated by constraint migration 9 and segregation processes. A reason for constraint migration is the increase in basicservice charges10 for apartment dwellers after the privatisation, which led in the worst case to a

distress sale. Gated communities, as the first example of a segregation process, will support thedevelopment of social quarters even further.Gated communities are physically a symbol for the fragmentation of the urban fabric, politicallythey are the expression for weak or not existing public control of the urban development and sociallythey stand for a voluntarily chosen segregation which has undeniable negative effects on the society.Spatial segregation increases the trend towards a social segregation. Decisive for the existence of gated communities are very often exorbitant high crime rates. In a city like Ulaanbaatar, with anumber of 9940 offences committed in 2003 (NSO, 2004, 274), this is definitely not the case. Thereason why people choose to live in gated communities is rather the exclusiveness which representa gated community and the demonstrative separation to those who can not afford living there.

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8 English for the German expression: sozialer Entmischungsprozess.9 A constraint migration is a economically caused migration to the next lower social quarter in a city.10 The basic service charges (water, heating, electricity) nearly doubled after privatisation, as these were heavily subsidised

during the socialistic times (UNDP, 2004, 32).


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2.1.4 Institutional foundations concerning the real estate market in UlaanbaatarCadastre: A cadastre consists of maps depicting the property boundaries, thus enabling a clear

identification of land parcels. A public, accessible cadastre serves several purposes: providinginformation about the function of the land market, facilitating collection of land use tax, providinginformation for land use planning and it is used as a support document to register legal ownershiprights. The content of the maps include information about permanent buildings, roads, powerlines and rivers etc..Mongolia has no history of land ownership and property based taxes. For this reason no cadastralmapping has existed until recently. During the last two years, the development of a digitalcadastre program has been started, supported by the ADB. The high amount of boundary con-flicts (about 20% 11 of the cadastre) is among others responsible for the non completion of thecadastre for Ulaanbaatar up to now. The necessary updating of the cadastre has not started yeteither. But in order to establish confidence in public institutions, to depict the actual realitiesand finally to avoid a complete new recording during the next two years, the cadastre should beadapted to the rapid changing structures, in particular in the ger areas, regularly.

Recording and registration of property rights: Responsible for the recording and registration of property is the Immovable Property Registration Office. As institution it was established in 1997parallel to the privatisation of the apartments. In August 2002, it has been united with twoother state institutions the Land Administration Authority (established in 1954) and theState Administration of Geodesy and Cartography (established in 1957) to the new Admini-stration of Land Affairs, Geodesy and Cartography (ALAGaC).In July 2003, the Law on Registration of the Right to Own a Property and of Other Property

Rights Related to it came into force. According to the law, the Immovable Property RegistrationOffice has the duty to register the following land rights: the ownership, lease, mortgage of buildings and apartment units, servitude, usufruct, the right to build on land belonging toothers, land use, and land possession. The issue of a certificate confirms registered ownership. Butregistration is voluntarily unless or until the Immovable Property Registration Office receivesan application for the registration of a sale, lease, mortgage or servitude affecting the property.A certificate of land ownership contains the name and address of the owner, it has a registrationnumber and gives information regarding the location, size and purpose of the land. Not indicatedon the certificate are mortgages or other forms of encumbrances affecting a registered land,building or apartment. These are entered in the register which is kept up to date as new legalinterests in the land or building or apartments are created or existing ones extinguished.

The concept of a unified title does not exist in Mongolia, meaning that an ownership includinga parcel and the attached buildings and other immovable property to it, are registered in twoseparately certificates, thus treated separately. Thus, a person who owns land which contains abuilding and registers both receives two certificates from the Immovable Property RegistrationOffice.The registration of the property is prudent and sensible, although it is not compulsory. The failureof registration might occur out of several reasons: ignorance of the law, unwillingness to registerand most often inability of paying the registration fee. In table 4 the amount of all registeredowners till 2004 is given. Measured by the number of 192.900 households for 2004, it can bepointed out that the registration of ownership is still underdeveloped.

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11 This is a crude estimation, based on interview data. Precise information was not available.


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Table 4: Total number of registered owners till december 2004.

Source: Immovable Property Registration Office, modified.

Notaries: Currently, Mongolia has about 186 licensed notaries. 121 of them are having theiroffice in Ulaanbaatar. In context with the allocation of land their duty is the notarisation of the necessary documents, which the to be owners have to hand in at the Immovable PropertyRegistration Office in order to gain ownership. Concerning real estate transactions they seldomcertify a contract or shorter they draw up a contract.

Realtors: Another sign for the progressing development of a real estate market are real estateagencies. Five have been established in Ulaanbaatar since September 2003. But only three of these offices can be considered as realtors. Two of them do not have an accessible office or even atelephone. The first one was founded by a Mongolian American Joint Venture and is by farthe most professional working one. It has a very good internet appearance, distributes its ownsmall newspaper with the latest offers and is collaborating with an appraiser. Two others juststarted their office half a year ago. Despite the effort up to now, not one of them has a consolida-ted position on the market. The idea of interposing a realtor, in order to find an apartment,house, office or any other location is barely known in Mongolia.

Appraisers: In summer 2002, the Ministry of the Interior issued a license for appraisers whichcould be obtained through an exam, in order to set an official standard for all real estate appraisers.About 30 appraisers received a license. After three years the license expires but an extension ispossible. Surprisingly, since 2002 no further exam was held. Unfortunately, this license is neithera guarantee for a good qualification nor for a good quality of work. Therefore, the current publicreputation of appraisers is bad.At present, all banks conduct their own appraisal, some of them without profound knowledgeof the topic. In connection with the ADB Housing Finance Project all participating commercialbanks 12 developed guidelines in a workshop for the appraisal of land, houses and apartmentswhich should be implemented at the beginning of 2005. To sum up, a transparent and objectivemode of operation and standards do not exist.

Till this day, neither the appraisers nor the realtors have developed regulations in terms of bothethics and expertise or a professional association.

Other related professionals services and activities are architects, lawyers, construction companiesand urban planners. From the lawyers` perspective difficulties in determining land use andownership are of great concern. One of the greatest challenges facing the architectural profession isthe non-enforcement of land use, site plan and building code regulations, which has resulted ina widespread market for self built, unauthorized constructions using inferior building materialsand methods.National and international 13 construction companies, although they are overwhelmed withpermit applications and approval procedures are numerous and busy.

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12 Golomt Bank, Mongol Post Bank, Zoos Bank, Savings Bank, Arnod Bank.13 International construction companies are mainly from South Korea (e.g. Seoul Group building Royal Castle),

Japan (e.g. Suruga Cooperation building Japan Town), China and Russia building Moscow City.

Privatised apartments Khashaa with house Bought apartmentsTotal amount 70.010 12.351 1783


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In general, the construction companies do not act as developers per se, choosing to operate onlywith their own equipment and expertise rather than being involved in buying land or raising

capital. A typical relationship is to lease land from the state for the construction time, presellingunits of a residential development, paying the land fees out of the proceeds from sales and retainingthe left amount for the construction company. The sales generally do not involve realtors.

The current situation of urban planning in Ulaanbaatar is more than inadequate. Complexitiesin the regulatory environment in general and the lack of enforceability of existing urban planningrules in particular, have severely limited the role of urban planning. Additionally, neither a usefulintegrated 14 urban development plan exists, nor a long-term planning model 15.

The existing master plan, on basis of which the modalities of how to cope with the differentareas concerning their usage, function and ownership are determined each year covers to noextent the matters and most pressing problems of urban development Ulaanbaatar is confrontedwith. In addition, no collaboration, communication or exchange of information is taking placebetween the various urban planning institutions on local level and the corresponding ministrieson national level. Responsible persons act mainly independent without any arrangements amongeach other. Often the existing responsibilities are mixed, too, and therefore many actions arecarried out twice. in how far the newly established Ministry of Construction and UrbanDevelopment will affect and change the present situation can not be told yet.

2.1.5 Activity and price characteristics of the urban real estate marketThe current level of real estate market activity is difficult to estimate precisely because many

transactions are taking place outside of formal mechanism for registering such transactions.Nonetheless, in Ulaanbaatar there is a staggering amount of construction and renovation takingplace with numerous new residential units completed each year.Information about the housing and rental market in Ulaanbaatar can be obtained by severalmeans: through newspapers, informal information given by friends, relatives or colleagues,realtors and special TV adds broadcasted by the construction firms.Table 4, 5, 6, and 7 depict data, deriving from an analysis of 1733 announcements in twonewspapers regarding the real estate market. The total amount of announcement was about10.000, but only those, where location and price were given, have been included in the analysis.In table 5, the real estate objects are divided by type. Over 80% of the offered real estateobjects are for residential purposes being an evidence for a vivid housing and the beginning

of a land market.

Table 5: Type of offered real estate objects.

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14 Integrated, meaning including green planning, housing, infrastructure, public necessities, recreation etc.15 English for "Planungsleitbild".

Apartments 990 57%

Houses 75 4%

Commercial Sites 310 18%

Khashaas (including Khashaas with houses) 358 21%

Total 1.733


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The amount of apartments for rent and sale on district level, depicted in table 6, show a clearhierarchy. In Bayangol, Bayanzurkh and Sukhbaatar district, which form the inner-city, an in-

creased concentration (nearly 80%) of real estate activities is taking place. Concerning the rentalmarket, no distinction can be made between these districts. In contrast, an obvious subdivisionexists for apartments for sale. In particular the 3 rd, 4 th and 10 th khoroo of Bayangol district aswell the 12th and 13th khoroo of Bayanzurkh district are popular living areas. Surprisingly, thecriteria for fresh air (as far as this is possible in Ulaanbaatar) only plays an inferior role. The maincriteria for the living conditions identified in the questionnaire were: nearness to the centre andexisting infrastructure.

Table 6: Amount of apartments for rent and sale by district.

Housing and rental prices in Ulaanbaatar are the highest in Mongolia. Unlike the prices for thenewly built apartments, prices for apartments in apartment buildings built before and shortafter 1990 16 , can in general be taken as valid market prices as these prices have established

themselves without interference from the state or city administration during the last ten years.Nevertheless, prices of apartments for sale often represent the best guess of the owners ratherthan a market really determined price, because an appraisal is seldom conducted and as alreadymentioned mostly of inferior quality.

As shown in table 7, only slight differences in apartment prices can be encountered for thedifferent districts of Ulaanbaatar. Nonetheless, the sales prices for older apartments differ,depending on the location, quality, renovation and size of the apartment. The price for apart-ments decrease from the city centre to the fringe.Prices for apartments vary between 7 million MNT to 33 million MNT. Currently, the moreexpensive apartments are located in gated communities, the most expensive apartment building

has a price of 1000 USD per m 2 and an average size of 200 m 2 per apartment. Some people say thatthe quality of construction of newly built apartments is inferior to the one of older apartments.

Table 7: Sales prices for apartments in Tugrik, excluding newly built apartments.

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16 Referring to buildings made from prefabricated slabs.

Apartments for rent and sale divided by district Apartments for sale Apartments for rent

Bayangol 333 33,6% 248 74,5% 85 25,5%

Bayanzurhk 258 26,1% 170 65,9% 88 34,1%

Sukhbaatar 176 17,8% 90 51,1% 86 48,9%

Songino Khairkhan 104 10,5% 82 78,8% 22 21,2%

Chingeltei 80 8,1% 57 71,3% 23 28,7%

Khan Uul 39 3,9% 32 82,0% 7 18,0%

In total 990 679 (69%) 311 (31%)

Districts 1 room 2 room 3 room 4 room

Songino Khairkhan 7 12 mill. 12 23 mill. 18 32 mill. 27 mill.

Khan Uul 10 15 mill. 16 20 mill. 20 26 mill. 26 mill.

Sukhbaatar 10 18 mill. 16 29 mill. 22 33 mill. 27 mill.

Bayangol 13 16. mill. 15 23 mill. 22 30 mill. 26 mill.

Bayanzurhk 14 16 mill. 16 25 mill. 17 30 mill. 28 mill.

Chingeltei 16 20 mill. 17 23 mill. 25 35 mill. 29 mill


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Table 8 displays information concerning new apartment buildings, which are being constructedcurrently or have been built in 2004. The prices for new apartments are much more expensive

and usually overpriced and therefore not in line with market requirements. Until recently, acertain demand for such high priced new apartments was given. But according to the salesmanager of Royal Castle, the demand for this type of buildings is already satisfied because thegroup of people being able to afford apartments like these is very small. Thats why the exclusiveapartments are already facing a lack of demand. For the other new apartment buildings, whosetarget group is the middle income class, a lack of demand seems probable as the monthly averagemiddle class income in Ulaanbaatar is 210.400 MNT (UNDP, 2004b, 30). Thus, within thereal estate market, there appears to be a bad match between what buyers are looking for and canafford and what the construction companies are supplying. Due to that, it is very likely thatUlaanbaatar will face a high amount of vacant newly built apartment buildings during thenext two years.

Table 8: Newly built apartment buildings, by location, number of rooms, price/m 2, price.

1: Information based on interviews with sales manager from Japan Town and Royal Castle.The beginning of construction for Japan town is January 2005.Source: Alpha and Omega, Zoos Bank, modified.

Prices for houses vary, according to the location, quality of construction and size from 15 millionto 300 million MNT. Houses in ger areas are cheaper. There the price ranges between five to

48 million MNT. The same counts for commercial sites, where the cheapest location cost15 million MNT and for the most expensive ones 350 million MNT can be paid for.Rental prices average from 130.000 for an one room apartment to 800.000 for a four roomapartment. Apartments let to the expatriate community are concentrated in the city centre andattract higher rents than those rented to Mongolians.Sellers tend to be owners of older apartments requiring investment or whishing to buy a newapartment and therefore sell their old one. Landlords are often owners who have more than oneapartment and generate their living through renting one.

The actual prices for urban land for residential purpose are ten to 15 times overpriced. Out of this reason, the prices do not comply with the existing purchasing power at all. A critical pointis, that these prices do not embody the general land market concept of the highest and bestuse of a site and therefore lack the opportunity cost of a site.

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Location families Rooms m 2 Price/m 2 Price in USD

Chingeltei District 48 2 4 80 140 650 USD 52.000 91.000

Sukhbaatar District 168 2 3 52 115 540 USD 28.080 62.100

Sukhbaatar District 112 2 5 58 117 470 USD 27.260 54.990

Bayangol District 1 2 42 47 400 USD 16.800 18.800

Bayanzurkh District 2 3 40 57 340 USD 13.600 19.380

Bayangol 1 4 47 140 290 USD 13.630 40.600

Khan Uul (Japan Town 1 ) 3273 3 92,6 800 USD 74.080 USDT

Bayanzurkh (Royal Castle 1) 78 200 1000 USD 200.000 USD


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2.1.6 Real property taxation systemMore than 80% of the notarized contracts concerning the purchase of apartments or houses are

declared as a gift since no tax is levied on gifts. An amendment to the law is intended insofar,restricting the possibility of giving houses and apartments as a gift to relatives only.Right now, according to the Article 21.1 of the Law on Allocation of Land to Mongolian Citizensfor Ownership, owners have to pay immovable property tax on land in accordance with the Lawon Immovable Property Tax. At present, the rate of applicable tax p.a. is 0.6% of the value of the land and the buildings. The value of buildings is assessed on the basis of appraisement. Forland, in contrast, a fixed base value is given. For an urban site in Ulaanbaatar, the base value isappointed with 440 million MNT for one ha land. 17 A 100% of the base value is the basis forthe calculation in the inner-city and 30% of it in the ger areas.Presently, tax on land is not charged regularly, tax on houses is not levied and apartments aretax free. Thats why the tax revenues are still inadequate.

2.1.7 Constraints to the real estate marketAlthough a real estate market has emerged, several constraints are impeding the growth anddevelopment of a well functioning formal real estate market.The most obvious impression of the real estate market in Ulaanbaatar is its intransparencyindicated by limited available information.During the last ten years the most necessary institutions concerning the real estate market havedeveloped. Some of them however, just inchoate like realtors or appraisers. Therefore, their modeof operation is often not only lacking basic standards, but is intransparent as well. In general,all institutions only have a rudimentary understanding for the interaction within the real estate

market, referring to the role of private owners, leaseholders, banks, cadastre, land registry andurban planning. For this reason and for the existing personal difficulties among each others, theexchange of information and collaboration between them is more than underdeveloped.Perhaps the greatest constraint is the absence of a mortgage market accessible for all people.A lack of readily available and affordable credit finance for purchasers of real estate has meantthat only those with sufficient income, cash saving or those who can use a privatised apartmentto serve as collateral, can enter the real estate market (see chapter 3).The general macroeconomic constraint facing real property and mortgage market is the limitedopportunity for the working population. Wage income remains low compared to real estateprices, while actual levels of unemployment remain high. Although commercial activities,remittances from relatives working abroad and other informal or illegal activities supplement

the income in most cases, the possibility for entering the real estate and mortgage marketremains restricted. Due to that, the majority of all real estate activities take place amongapartment dwellers.Most apartments, houses and small enterprises are now clear of privatisation programs, butsome, together with parcels of land and in particular those used for commercial purposes,continue to be affected by privatisation.

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17 Government Regulation Nr. 152.


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The privatisation process itself has created some constraints for real estate transactions. Theseconstraints include boundary conflicts of neighbouring khashaa and unclear entitlement to

ownership. Errors and lack of clarity in many privatisation actions threaten to produce futureinsecurities about who owns what.Privatisation has also motivated illegal construction on the periphery of Ulaanbaatar, withinand outside the city limits and illegal construction on land that has been newly privatised. Thelack of land use control, zoning and planning led to negative externalities. The amount of somany gated communities, the unadjusted supply of newly built apartments to the realities inUlaanbaatar and the existing unfinished and abandoned construction sites are the most obviousindications and call for enforceable planning regulations and an integrated urban development.

2.2 The Mortgage Market in Ulaanbaatar

In Mongolia, four different types of providers for granting loans can be identified. These areCommercial Banks, Non Banking Financial Institutions (NBFIs), Saving and Credit Unions(SCUs) and an endless amount of pawn houses.At the end of 2004, 17 commercial banks were operating in Mongolia. The number of NBFIs isindicated with 112. NBFIs can provide loans and other various financial services, but can notaccept deposits. SCUs are membership organisations characterised by a one-member vote decisionmaking and provide savings and credit services to their members. The pre-condition for foundinga SCU is the necessity of 20 members. Since 1997 a great number of SCUs have been established.Their estimated number lies between 570 600 Unions. Unlike the Commercial Banks and the

NBFIs, SCUs are not supervised by the central bank (the Bank of Mongolia) yet. To reduce theoccurring irregularities in their business practices, the Bank of Mongolia has filed a petition tosupervise the SCUs as well.All three, Commercial Banks, NBFIs, SCUs, deal in credits, whereas they differ in the conditionsfor granting a loan, the amount of payable interests and in the acceptance of collaterals. Ascollaterals, theoretically both movable and immovable assets are accepted, including livestock,licenses, company equipment, jewellery, cars, TV, radios, mobile phones and real estate, whereasthe latter is only widely accepted by banks yet. Conditions to be eligible obtaining a loan varyfrom an extensive proof of credit-worthiness and the fulfilling of specific criteria for certainloans by banks to none at all by SCUs. The conditions required by banks can sufficiently onlybe accomplished by the upper middle and upper class in most cases. Due to this reason, about

90% of all granted loans in Mongolia are provided by SCUs 18. As collaterals serve mainly movableassets. Loans from SCUs are similar to those of banks, but are limited to members only. Typicaltypes of loan products are for business, consumption, salaries and emergencies, but the averagesize of the loan is small compared with that of Commercial Banks and NBFIs.In table 9, the conditions of loans provided by SCUs, NBFIs, banks and pawn houses are shown.

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18 According to an interview with a KfW representative.


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Table 9:Conditions of loans provided by SCUs, NBFIs, Banks, Pawn houses.

Sources 1: With the loan divisions of Golomt Bank, Arnod Bank, Has Bank, Zoos Bank, Mongol Post Bank,Savings Bank and Credit Mongol as NBFI an interview was conducted.

Sources 2: Japan Bank for International Cooperation (2003, 5-11ff.), modified.

Referring to table 9, the main characteristics of the Mongolian loan market are: the long-termloans do not last longer than a maximum of 36 months, interests are very high and spreaddepending on the loan provider. The relatively short duration of loans is based on the short terminvestment behaviour of the clients.For a second or third credit some banks and NBFIs reduce the interest rate for borrowers withgood repayment records.Since the existence of private real estate property in 1997, banks begun to grant mortgages.As a mortgage only houses or apartments are accepted, regardless their location. Land can not

be served as a collateral for loans yet. As explanation banks name two reasons: first of all land asa collateral is not anchored in the law and secondly, land is privatised for specific purpose only,this in turn aggravates the resale of land by potential seizing. Contrary to what was assumed,the disadvantageous regulation concerning the seizure of property 19 is no real hindrance forbanks accepting real estate objects as collaterals.A problem within the mortgage market is the absence of public approved appraisers. In mostcases, banks conduct the appraisement by themselves. Very often the assessed values turn out tobe disadvantageous for the borrower, because assessed values are undervalued. And in generalonly a maximum of 60% of the assessed value is granted as a loan, therefore the borrower becomesreally deprived.

Definitely underdeveloped within the banking sector is the topic of housing loans. Since shortly,banks grant loans where the to be bought apartment or house can be used as collateral. Accor-ding to several loan officers of banks, the bad construction quality of especially new apartmentbuildings are problematic as well as their excessive prices which do not reflect the actual value.These loans again are only accessible for borrowers who possess sufficient money or other meanswhich can serve as collaterals and therefore clearly favours the upper middle and upper class.To sum up, a mortgage market has developed during the last eight years. But concerning theusage of real estate property, it is still small. An expansion is very likely if land can be used as acollateral as well.

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19 Before a seizure can be conducted by banks, it has to be proven in front of a court.

Max. loansize in MNT Loan type

Loan term(month)

Interest rate(month) Collateral

120 mill. SME 24 2.5 4% Movable & immovable PropertyNBFI 1

12. mill Private 1 12 2.8 4% No real estate

1 billion Business 1 36 2.2 3% Movable & immovable Property

Over 20 mill. Private 1 36 2.2 4.5% Apartments onlyCommercialBank 1

20 mill. Private 1 24 2.8. 4.5% Movable property

SCU 2 2.5 mill. Business andPrivate 1 12 4 10% Movable & immovable Property

Pawn house 100.000 Private 8 10% Movable property


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2.3 Conclusion and Suggestions

A real estate market has clearly emerged out of the privatisation of property the state formerlyowned. Legal reform, the creation of Immovable Property Registration Office and notaries,lawyers, realtors and appraisers starting to organize themselves better than before favour thisprocess. However, the overall impact of the emerging real estate market is ambiguous and chaotic.On the one hand there is a building boom in Ulaanbaatar, rapid in-migration and an apparentupward trend in prices. This development appears positive in the sense that it seems to involvelong term investment and the potential for future growth of the real estate market.On the other hand, the real estate market is still plagued by problems of tenure insecurities andunenforced regulations. The lack of regulation and the presence of corruption in the real estatemarket and in the building industry are leading towards a set of negative externalities: e.g. theloss of public space, complications of public infrastructure and utility provision. These negativeelements may ultimately reduce property values, ward off investment and create major problemsfor public finance. The non-enforcement of regulation and the problems inhibiting the develop-ment of a mortgage market limits market entry to those with cash and high income only, possiblyleading to further wealth and power concentration that is inimical to broad based growth.

Recommendations or challenges for the future are:ValuationThe necessity for independent appraisers is clearly given. The implementation of objective,transparent and uniform valuation procedures and standards are essential for a functioningreal estate and mortgage market. The valuation in Mongolia, respective Ulaanbaatar is just

evolving. Therefore, the opportunity should be used to establish clear, transparent andsimple structures in form of an independent institution, which is then responsible for valuationof both land and buildings. Furthermore emphasis should be given to the education of public approved appraisers.

Transparency of the real estate marketTo establish a transparent real estate market, several measures should be undertaken:The implementation of a committee of experts 20, consisting of architects, surveyors,appraisers etc., which is responsible for the annual publishing of market reports includingvacancy, rental and sales prices, construction volume, publicly registered land value and asales price collection as well. And finally, as already mentioned, the establishment of an

independent valuation institution.

Access to real estate marketTo enlarge the existing real estate market, the most important measure is to enable allcitizens accessibility. This means the offering of affordable housing loans for the middle andlower class which will then lead to an increase in real estate demand. Another long termpossibility for the extension is the establishment of building and loan associations.

Housing marketThe supply of new apartments within the housing market is slanted towards the uppermiddle and upper class. Thus, to provide all social levels with adequate housing, socialhousing and affordable apartments for the lower and middle class should be built.

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20 Referring to the German Gutachterausschsse.


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Registration of ownershipTo ensure that all citizens understand the advantage of legally guaranteed ownership rights

as well as the rights and duties connected with it, an information campaign especially for thelower class should be initialised.

Collaboration of the different institutionsTo achieve an efficient and effective cooperation within and among the institutions theinformation exchange as well as the collaboration must be improved. Furthermore the tasksof each institution should be reconsidered and rearranged to reduce existing and avoidoverlapping structures and responsibilities.

Urban PlanningTo improve the current urban planning in Ulaanbaatar several suggestions can be given:an integrated urban development plan has to be developed including a long term planningmodel, furthermore enforceable planning rules and a zoning plan adapted to the realitiesare the fundamental conditions.

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3 Darkhan-uul aimag

3.1 Development of Land Use in Darkhan-uul aimag

3.1.1 Development of agriculture in Darkhanuul aimagDuring the socialistic period in Mongolia and with the pass of the New Land Program in1959 the areas with cropland increased. In that time they reached a dimension of 1.2 Mio. ha.The main regions with areas of arable farm land were the aimags Selenge, Darkhan-uul andBulgan in the North, Dornod and Sukhbaatar in the East and Uvs in the West of Mongolia.

In Darkhan-uul aimag, we find 30,000 ha of the 1.2 Mio. ha. In the socialistic era a plentynumber of kolkhoz (Soviet collective farms) were established to cultivate the areas of arableland. These kolkhoz were strongly subsidized by the Council for Mutual Economic Assistance(COMECON). But yields of one hectare remained relatively low because of increasing deflationand erosion. Additionally, the use of mineral fertilizer caused huge environmental problems theeconomy had to cope with. As a result of the breakdown of the socialistic system and the denou-ement of COMECON in 1990, the kolkhoz collapsed and a time of economical recession began.A big supply gap with agricultural goods arose, which the state wasnt able to solve by importingall needed goods. Furthermore, the entirely failed privatisation process, characterized by a massof dismissals and an increasing unemployment rate, hit the agricultural sector as well. This wasthe situation at the beginning of the transformation phase in the early 1990s.

Since the mid 1990s more and more private farmers tried to cultivate the existing cropland,but the lack of modern techniques, appropriate seeds and the harsh weather conditions made itvery difficult. Thus the gross domestic product (GDP) percentage of the agricultural sector(including hunting and forestry) decreased from 38.0% in 1995 to 26.0% in 2001. From theyear 2003 to 2004 the value added of the agricultural sector decreased from 20.0% (2003) to19.2% (2004) GDP. In absolute numbers the decrease is more obvious. In 2003 225,900 ha of farmland were under crops, in 2004 just 166,700 ha. So there is more than 1.0 Mio. ha declaredcropland not in use.

Figure 1: Yields in Darkhan-uul aimag. Source: NSOM 2003: 156f. and own evaluation

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0

2000

4000

6000

8000

10000

12000

2000 2001 2002 2003 2004

years

tons

cereals potatoes vegetables


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The main reason for that was a 14,000 tons shortfall in seed. Although the state maintains areserve of seed from which needy farmers can borrow, the 18,500 tons set aside for sowing in

2004 were badly depleted owing to poor winter storage or consumption during the winter.Some commercial banks have stepped in with loans to enable farmers to buy new seed, but eventhough not all farmers were able to cultivate their land in 2004. In 2003, 165,000 tons of cereals, 78,700 tons of potatoes and 59,600 tons of vegetables were harvested (the data for 2004are not published at this time) (NSOM 2003: 129 ff.).

The figures in 2004 for Darkhan-uul aimag look like as follows: from the 30,000 ha declaredcropland only a third of it was still under use (9948.4 ha). Mainly, the cropland was cultivatedwith cereals (8,638 ha), 516 ha with potatoes and 794.4 ha with vegetables. The average yieldper ha of cereals was 0,74 tons, of potatoes 9,2 tons and of vegetables 10,78 tons. The harvest of cereals per hectare for this area is the same as for the whole country. For potatoes and vegetablesit is a little higher. The main problems and weaknesses for the farmers are the old mostlyRussian techniques, the ramshackle irrigation system, the destruction by livestock and theincrease of degradation effected by immigrants and their livestock, coming especially fromwestern aimags of Mongolia. Nowadays the loss of cropland by degradation in Darkhan-uulaimag is about 2,000 ha since the early 1990s. Today the most important aimag for agricultureis Selenge, the surrounding aimag of Darkhan-uul with nearly the half rate of arable land inMongolia, it is followed by the aimags Bulgan, Tov, Darkhan-uul and Khovsgol (just mentionedthe five most important ones).

3.1.2 The structure of land use in Darkhan-uul aimag

Darkhan-uul aimag was established in 1961 with a total area of 3280 km2

. Until then it had been apart of the surrounding aimag Selenge. Since 1961 Darkhan-uul aimag is divided in the followingsums: Darkhan-City sum, Orkhon sum, Hongor sum and Shariin gol sum. 86,500 people live in theaimag, about 60,000 of them in the aimag-capital Darkhan. Although with such a small amount of people living in the city, it is the second largest in Mongolia. 81.6% of the population live in urbanareas, 18.4% in rural ones. Each sum has its own hospital. In Darkhan there are 20 secondaryschools, four residential schools and two vocational schools, furthermore, the Agriculture- andTechnical Department of the Technical University of Ulaanbaatar, is located there.The structure of land use in Darkhan-uul aimag is divided as follows: Hongor sum contains nearlythe whole area of farmland which is under crops, Orkhon sum has mainly cropland for vegetablesand fruits with irrigation systems and Shariin gol sum is mainly a coal-mining district. As mentio-

ned above 30,000 ha of the aimag are declared for cultivation but only 10,000 ha are still in use.

South of Darkhan-uul aimag the Hongor sum is located with a total area of 250,000 ha. Huge andlong arable land stripes from former kolkhoz characterise the landscape here. As the governor of thissum explained, 29 crop production companies are registered but just 23 of them are still workingin this business. They cultivate agricultural land from size 500 ha up to 3,000 ha whereas 3,000 haare also the largest size, which the Law of Mongolia on Land allows to have for one cropproduction company. There is just one company that cultivates 3,000 ha (state owned Seed Pro-duction Company), all the others cultivate areas between 500 ha and 2,000 ha. 40 private farmerscultivate agricultural land from minimum size of 50 ha up to the maximum size of 100 ha. All of them, the bigger registered companies as well as the private farmers, cultivate their arable farmlandwith wheat and a few of them also with rape. In Hongor sum the harvest per hectare for the lastthree years was about 0,7 tons up to 1 ton. Today as well as in the socialistic period There isno irrigation system in oder There is not one irrigation system in Hongor sum.

Darkhan-uul aimag

28


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In the northern part of Darkhan-uul aimag Orkhon sum is located. Its total area covers 47,000 ha.The particularity of this sum is the good composition of the soil and the nearby river named

Kharaa. Thus the sum was able to develop the biggest irrigation system that exists in Mongolia.360 ha of cropland with irrigation system are directly located in the sum centre, another amountof 120 ha is located nearby the river Kharaa. At the administration of Orchon sum 10 companiesare registered, which cultivate areas around 10 ha and 707 private vegetable gardeners whocultivate areas between 0.3 ha and 4 ha. The main products are potatoes, carrots, cucumbersand cabbage. As mentioned above, the harvest for the last three years in this sum was highercompared to the average of Mongolia. The yields per hectare were twice as much due to theirrigation systems. Another advantage is the connection of the sum centre to the MongolianRailway. For that reason, it is possible for the farmers to use the direct connection to Ulaanbaatarand get access to the largest market in Mongolia.

The Shariin gol sum is not of interest in this report. The inhabitants of the sum generate theirmain income with coal mining (employment for 1,200 people). A few vegetable gardeners andsmall scale farmers exist who just work for their self-supply.

The situation around the aimag centre Darkhan is nearly the same like in Shariin gol sum butwith one major difference. Around the city of Darkhan are some areas of arable farmland, butmostly farmers living in Hongor sum cultivate these areas. Because of that these areas are notregistered at the administration of Darkhan.

3.1.3 Property rights

Only citizens of Mongolia are allowed to own land, excluding pasture land and hayfields, landfor common tenure and land for special government use. In contrast land possessing andland using is also allowed for companies, organisations and companies with foreign investment.Exceptions again are, regardless of whether they are given into possession or use, pastureland,public tenure land in cities, land under roads and networks, land with forest resources and landwith water resources. Foreign countries, international organisations, foreign legal entities, for-eign citizens and stateless persons may become users of land for a specific purpose and a specifictime period (GOVERNMENT OF MONGOLIA 2002a).

3.1.3.1 Owning landIn Mongolia agricultural land is divided in four zones: The Changai Mountain zone, the Altai

Mountain zone, the Gobi Desert zone and the Steppe. They represent the four existing climaticzones in Mongolia as well. Every territorial unit in Mongolia belongs to one specific zone. With theLaw of Mongolia on Land fees, the Resolution No. 152 in 1997 and the Law on Real PropertyTax (2000) the Mongolian government had determined a fixed price per hectare, a land tax (0,6%)and a land fee rate (0,01 0,03%) (GOVERNMENT OF MONGOLIA 1997a; 1997b; 2000). Toget the sales price for one territorial unit, five pedological indicators 21 respectively factors between0 and 1 must be multiplied with the determinate price. For example Darkhan-uul aimag belongsto the Changai Mountain zone and the calculated sales price per hectare for a territorial unit inHongor sum is finally 1,600,400 MNT. So the land tax for owning one hectare in this area wouldbe about 9,602 MNT per year. But in that case the Law on Real Property Tax rules differes. Thetax is regulated down to 5% of its real price because most of the people in Mongolia are not able topay the real tax for owning a piece of land. Therefore, the land tax for one hectare in Hongor sum isabout 480 MNT per year (GOVERNMENT OF MONGOLIA 1997a; 1997b; 2000).

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21 Soil chararacter (granulation and density), richness of soil, rate of erosion, rate of stones and soil moisture.


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There are only two ways to privatise agricultural land respectively cropland. Firstly croplandmay be sold directly from the authorities to a citizen of Mongolia if she or he had been also

the possessor of the specific piece of land before. Secondly, if a citizen of Mongolia, who doesnot possess agricultural land wishes to own land, the land shall be sold and transferred toownership at an auction, which is also organised by the local authorities (GOVERNMENTOF MONGOLIA 2002b). Therefore, the privatisation of agricultural land is not comparableto the free privatisation of apartments taking place in the end of the 1990s and to the freeprivatisation of land for family needs, which is still in progress.The following table gives more detailed information:

Table 10: Prices for different types of land in different regions and their land tax and land fees:

Source: Government of Mongolia 1997b; modified by the author.

3.1.3.2 Possessing landAgricultural land may be given for possession only by a license through governors of sums anddistricts to Mongolian citizens, companies and organisations as well as entities with foreign

investment. With the intention of cultivating vegetables, fruits, berries and fodder plants thepiece of land may not exceed 0.1 ha and should be located next to the residential plots or in alocation specifically designated for this purpose. The possession licenses to cultivate agriculturalland with a bigger size (max. 3,000 ha) or with cereals and should be sold through a land auctionprocess, which is organised by the local authorities. The highest bidder in the auction shall begiven the specific piece of land if she or he paid the license payment within the time required.

The duration of land possession license is 15 up to 60 years. They may be extended for nolonger than 40 years at a time (GOVERNMENT OF MONGOLIA 2002a). The yearly land feerange (lease) for one hectare is 0.01 0.03% of the base value of one hectare land. Therefore theleasing rate for Darkhan-uul aimag is min. 386 MNT and max. 1,158 MNT. Different land feesdepend on some indicators for each territorial unit, namely the yields per hectare, the soil cha-racter, the richness etc. For detailed information please note the table above (GOVERNMENTOF MONGOLIA 1997a).

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Cropland (ownership is possible)

Zone

ChangaiMountain

AltaiMountain

Gobi desert

Steppe

Price inMNT per

ha

3,859,000

2,253,000

1,738,000

3,843,400

Land tax(0,6%) perha in MNT

23,154(official)1,158

(5% of it)13,518(official)

676(5% of it)

10,428(official)

521(5% of it)

23,060(official)1,153

(5% of it)

Min. landfee

(0,01%)per ha in

MNT

386

225

174

384

Max. landfee

(0,03%)per ha in

MNT

1,158

676

521

1,153

Price in MNT

per ha

548,200

202,900

208,600

381,700

Zone

Mountaingrassland

Mountainsteppe

Flatcountry

Floodplain

Lowland

Price inMNT per ha

2,478,300

2,027,600

912,200

2,090,900

2,675,300

Pastureland(no ownership)

Hayfields(no ownership)


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3.1.3.3 Using landCitizens of Mongolia who are not owners or possessors of a specific piece of land may subscribe

contracts with owners or possessors of land to use it. These are private contracts whose conditionsin each case are negotiable.

To use land is also allowed for foreign citizens, foreign countries, international organisations andforeign legal entities. Land may be given for use to them for up to 5 years through a contract.These contracts can be extended up to 5 years at a time. The yearly charge for using a specificpiece of land is the same like if it is possessed. In some particular cases, it is possible to negotiatethe price, for example if the land is given to the embassy of another country (GOVERNMENTOF MONGOLIA 2002a).

3.1.4 The current situation of land property and the role of lease in Darkhanuul aimagProperty of agricultural land, respectively cropland, does not exist in Darkhan-uul aimag. Everyterritorial unit under cultivation whether it is located in Hongor-, Orchon- or Darkhan-Citysum is on lease (possession or use). The opinions among the local authorities and the farmersabout the wishes of the latter to privatise their possessed cropland are diametrically opposed.The sum governors reported that the farmers are not interested in privatisation of their cropland.Furthermore, many farmers havent got any knowledge about land rights and land use and howproperty rights on land could be a benefit to them. Also the governor of the whole aimag reportedthat cultivating agricultural land is a high seasonable business in Mongolia and that is the mainreason why farmers are not really interested in privatisation of possessed land. In his opinion thefarmers are more interested in other possibilities and offers by the state to generate their income.

But during the field survey every interviewed farmer (in total 11) told that privatisation of cropland is of topical interest to intensify the agricultural land use. They know that this is apotential way to receive credits or mortgages for investments in better techniques or highyieldingseeds. This particular case shows that either the exchange of information between farmers andgovernors is poorly or the local authorities dont give the right information for political reasonsor not clarified reasons.

The duration of lease contracts of all interviewed farmers is as high as the mentioned data above(15 years). But most farmers have the chance to extend these contracts up to 60, in some casesup to 100 years. Thus these contracts are definitely for a longer period than a lifetime periodtherefore comparable with property, but not and that is the important matter - with the pro-

perty rights behind it. Every year the contracts are under review by the local authorities if theyare compliant with the terms, the specified area and the specified use determined in the contract.After that review the governors decide whether the contract can be continued for the specifiedtime or if some new regulations or a termination of the contract is necessary.

The yearly leasehold for arable land in Darkhan-uul aimag is between 386 MNT and 1,158 MNTper hectare. The price depends on some indicators like soil quality and if there is an irrigationsystem or not. For example the wheat farmers in Hongor sum have to pay the minimum rate of 386 MNT per hectare and the vegetable farmers in Orchon sum pay the maximum rate of 1,158 MNT per hectare. But shown in absolute numbers it is the other way around: most wheatfarmers in Hongor sum have averagely 1,100 ha cropland under possession. So they pay about425,000 MNT during a year. Most of the vegetable farmers in Orchon sum cultivate in average3 ha so they pay about 3,500 MNT during a year. On that amount in 2003, the revenues of leasehold in Hongor sum were about 5 Mio. MNT and in Orchon sum just about 810,000 MNT.

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In 2004, the governor of Hongor sum cut the leasehold down to the half of the normalamount (proceeds in 2004: 2.5 Mio. MNT) because of the shortfall of seeds mentioned above

in chapter Development of agriculture in Darkhan-uul aimag.

Concerning the development of the leasehold rate there werent any mentionable variances inthe last ten years. The Law of Mongolia on Land fees was established and passed in 1997.No amendment has taken place until now.The land tax of 0.6% of base value, which is stated in the Law on Real Property Tax, wasadapted to the maximum land fee rate of 0.03% of base value. That means, the charges to possessor to own a specific piece of land are similar after that adaptation. The disparities between landtax and land fee are more balanced now, but in this case it doesnt matter because presently theland tax is not charged (GOVERNMENT OF MONGOLIA 2000).

Most of the farmers want to extend their area under cultivation but this is, once again the totalopposite of the local governments opinion. The authorities debate about a further reduction of the allowed 3,000 ha of land for agriculture use because such huge areas and the more or lessilliquid companies behind it are more vulnerable than smaller ones. But the main reason for notextending the area under cultivation is that there is not enough suitable space for it. Additionally,the citizens from Darkhan-City want also some arable land for cultivation (for means of subsis-tence). In this case the authorities must refer to land, which is located in the surrounding aimagof Darkhan-uul, the Selenge aimag. But for many citizens these areas are too far away and theseaspects create disparities and incur peoples displeasure on questions of land use.

3.2 Conclusion and Suggestions

At first sight the situation of agricultural land use in Darkhan-uul aimag seems to be satisfying.During the short cultivation phase, plenty hectares of cropland are under use and throughoutthe whole year the citizens are able to buy cereals, potatoes and fresh vegetables. AlthoughDarkhan-uul aimag is the second smallest in Mongolia, it is fourth in a ranking by sown areasof all aimags. But many constraints and irregularities are obvious. As mentioned before, theseconstraints and irregularities are the lack of modern techniques, the lack of appropriated seeds,the harsh weather conditions and furthermore the missing of a good information structure,appropriate infrastructure and adapted laws. The agricultural outputs in this aimag could be

much higher but only a third of declared cropland is in use today.

Therefore the question arises: How could these problems be solved in the future and how couldit be arranged that everybody, the farmers as well as the local authorities respectively theiryearly budget, will take a profit out of it?

The main reason for regression of the agricultural sector is the lack of financial resources.Farmers are not able to invest, for example in better techniques, seeds or a renewal of the irrigationsystem to increase the hectare harvests. The average monthly income of farmers in Darkhan-uulaimag is 150,000 MNT. Privatisation of arable land and appropriate credits and mortgagesof banks could be one way for the farmers to solve some problems. But with the pass of theLaw of Mongolia on Land fees and the Resolution of Mongolian Government, No. 152 in1997, the politicians fixed a price for one hectare of cropland that is totally illusive.

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And with a yearly property tax of 0.6% of this price for one hectare, privatisation in contrast topossession or using is absolutely uninteresting. There is also the fact that the duration of leasing

contracts is to long and the fees per hectare are to low. Thus an amendment of the laws is indis-pensable and the politicians have to think about more appropriate guidelines for soil valuationto make privatisation of cropland more attractive. With the aim to increase local revenue thebase value price, land tax and land fees should come closer together, but not such as low likeit is today (5% regulation on the land tax). On the other hand there is the suggestion to privatisecropland for free like the privatisation of apartments in the end of the 1990s and the also freeprivatisation of land for family needs, which is still in progress. Anyway, incentives for privati-sation have to be created.

The information structure, for example about changes in laws or new regulations, has to bedeveloped as well. Farmers should know about their rights and duties. It is not only the exchangeor pass on of information between the local citizens respectively farmers and the local authorities,the exchange of information between different administrative levels is also concerned. In thissituation, the reduction of recently 330 sums down to a third of it is a good approach. Withthis intention the mass of bureaucracy could be reduced, costs could be better allocated andestablished capacities could be more bundled.

Within the mentioned points the establishment or renewal of a provincial cadastre system isof main interest. The current cadastral maps for rural areas are from 1978. Thus, no topicaldigitalised maps or entries like clarified course of the borders exist at the moment and conflictson land will arise if nothing happens in this respect. For transparent and guaranteed property of

land and a developing land market a provincial cadastre system is indispensable. Good capacitiesto build up a cadastre system are available in Darkhan-City but to collect all essential data,training is necessary to qualify more competent staff.

3.3 The Real Estate Market and Cadastre in Darkhan-City

3.3.1 IntroductionDuring socialism no real estate market existed in Mongolia. After the breakdown of socialismand the overcome of a regression phase the government of Mongolia started with privatisingstate property. Since the mid 1990s apartments were privatised for free and a real estate market

began to arise. Free privatisation of land for residential use is still in progress but should beterminated till May 2005.

For a transparent and effective real estate market in Mongolia a land management system isnecessary. Secured property rights, clearly defined prices for residential buildings and residentialland as well as the opp

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