Division Agriculture, Fisheries and Food

Real Estate Market, Mortgage

Market and Cadastre in Ulaanbaatar
and Darkhan-City, Mongolia
 Division Agriculture, Fisheries and Food

Real Estate Market, Mortgage

Market and Cadastre in Ulaanbaatar
and Darkhan-City, Mongolia

Saskia Bauner
Bodo Richter

Deutsche Gesellschaft für

Technische Zusammenarbeit (GTZ) GmbH
January 2006
 Imprint

Published by:
Deutsche Gesellschaft für
Technische Zusammenarbeit (GTZ) GmbH
Postfach 5180
65726 Eschborn
Internet: http://www.gtz.de/lamin

Division Agriculture, Fisheries and Food

Sector Project Land Management

Responsible:
Christian Graefen
Design, Illustration:
Editing: Open Ffm.
P. Kraus, A. Krause, S. Bauner, B. Richter www.open-agentur.de
Verena Siebert
Authors:
Saskia Bauner Print:
Bodo Richter Gebhard, Heusenstamm

2
 Table of Contents

Table of Contents
List of Tables 6

List of Figures and Boxes 6

Abbreviations and Terms 7

Preface 8

1 Introduction 9
1.1 Background 9
1.2 Law in Mongolia and Privatisation Process 10
1.2.1 The law of Mongolia on land 10
1.2.2 The law on allocation of land to mongolian citizens for ownership 11
1.2.3 Privatisation process 11

2 Ulaanbaatar 12
2.1 The Real Estate Market in Ulaanbaatar 12
2.1.1 The privatisation of apartements 12
2.1.2 The organisation of space in Ulaanbaatar 13
2.1.3 The social structure of Ulaanbaatar 16
2.1.4 Institutional foundations concerning the
real estate market in Ulaanbaatar 17
2.1.5 Activity and price characteristics of the urban real estate market 19
2.1.6 Real property taxation system 22
2.1.7 Constraints to the real estate market 22
2.2 The Mortgage Market in Ulaanbaatar 23
2.3 Conclusion and Suggestions 25

3 Darkhan-uul aimag 27
3.1 Development of Land Use in Darkhan-uul aimag 27
3.1.1 Development of agriculture in Darkhan–uul aimag 27
3.1.2 The structure of land use in Darkhan-uul aimag 28
3.1.3 Property rights 29
3.1.4 The current situation of land property and the role
of lease in Darkhan–uul aimag 31
3.2 Conclusion and Suggestions 32
3.3 The Real Estate Market and Cadastre in Darkhan-City 34
3.3.1 Introduction 34
3.3.2 Development and current structure of the cadastre 34
3.3.3 Structure of residential space, housing and ownership
in Darkhan-City 35
3.3.4 The price structure of real estate 38
3.4 Conclusion and Suggestions 38

Bibliography 40
 List of Tables/List of Figures and Boxes

List of Tables

Table 1: Privatised apartments during 1997 to 2004 13

Table 2: Distribution of households by type of ownership, conventional housing,
living area in Ulaanbaatar, 2002 14
Table 3: Year of construction of apartment buildings 15
Table 4: Total number of registered owners till december 2004 18
Table 5: Type of offered real estate objects 19
Table 6: Amount of apartments for rent and sale by district 20
Table 7: Sales prices for apartments (Tugrik), excluding newly built apartments 20
Table 8: Newly built apartment buildings, by location, number of rooms, price 21
Table 9: Conditions of loans provided by SCUs, NBFIs, Banks, Pawn houses 24
Table 10: Prices for different types of land in different regions,
their land tax and land fees 30
Table 11: Percentage distribution of households living in
conventional housing in Darkhan-City 37
Table 12: Prices for apartments in Darkhan-City, 2002 38

List of Figures and Boxes

Figure 1: Yields in Darkhan-uul aimag evaluation 27

Figure 2: Ownership by type of housing. 37

Box 1: Map of Darkhan-City 36

6
 Abbreviations and Terms

Abbreviations and Terms

ADB Asian Development Bank

ALAGaC Administration of Land Affairs, Geodesy and Cartography
COMECON Council of Mutual Economic Assistance
MNT 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 Institution
NSOM National Statistical Office of Mongolia
SCUs Saving and Credit Unions
SME Small and Medium Enterprises
AIMAG Province
Duureg District in a City
Ger Felt Tent
Khashaa Parcel Hedged with a Wooden Fence
Kheseg Subdivision of a Microdistrict
Khoroo Microdistrict
Sum Subdivision of a Province

7
 Preface

Preface
This report gives an overview of the real estate and mortgage market, as well as the cadastre
system 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, the
second, written by Bodo Richter, with development of land use, real estate market and cadastre
in 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 Project
financed 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 Administration
and 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 and
institutions in Ulaanbaatar and Darkhan-City. For information about the price structure of real
estate 21 households were interviewed in Darkhan-City.

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

8
 Introduction

1 Introduction
1.1 Background

Real estate markets perform three important functions. They bring together buyers and sellers
to facilitate their transactions, they set prices for land and buildings, thus ensuring that land is
effectively used, and they allocate land by setting prices so that the land market clears. Real
estate 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 movable
assets brings many benefits. It can be a means of holding savings and wealth, a basis of earning
income (as a site for service, or as rental property) and finally a means of undertaking other
economic activity through providing security for a credit.
During the socialistic era none of the conditions were given and no real estate market existed in
Mongolia. This changed with the turning towards a market economy. The first step was the
recognition of private property, including both immovable and movable property in 1990. In
1992, after years of state ownership of all land and buildings, Mongolia started with privatising
the 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 and
business space and the rapid privatisation of state owned apartments through the Privatisation
Department. 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 existing
tradition of individual land ownership due to the pastoralist culture. That is why the Mongolian
understanding of private ownership, especially of land is underdeveloped, because they have
been using land on a community and public basis for hundreds of years. During the socialist
period, which lasted from 1921 till 1990, the land was consolidated around the basic principle
of state ownership of land and a complex system of allocation of (land) use rights. Unlike land
itself, 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 common
tenure 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 the
company 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 rental
tenants had a hereditary, indefinite rights of occupancy, paid small rents and were more or less
immune against eviction. The buying and selling of apartments or land was strictly forbidden,
whereas the exchange of apartments was allowed. However, one exception existed. Housing
cooperative members, who supplied the money could build or buy an apartment and received
“cooperative tenure” as a joint title to the building. Through the cooperative association they
could lease or sell their apartments.

9
 Introduction

1.2 Law in Mongolia and Privatisation Process

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

1.2.1 The law of Mongolia on land

The first of the land laws implemented in 2002, the ”Law of Mongolia on Land” deals with the
system 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” with
the 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 by
Mongolian 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 concerning
the 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 proportional
ownership for the communal space.
2) Possession of land: Only Mongolian “citizens, companies, organizations and companies
with foreign investment are allowed to possess land”. The possession of land is given by a
license for the duration of 15 up to 60 years. After expiration it may be extended for
another 40 years.
3) Leasing of land: A license for land use can be obtained by foreign countries, international
organizations, foreign legal entities and foreign citizens. The duration of a land use license
is 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 concrete
activity to make use of some of the land’s characteristics in accordance with contracts made with
the owners and possessors of land”.

10
 Introduction

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” came
into force in May 2003 and establishes land ownership. The ownership purposes are: 1. family
needs, 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 ownership
is 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 separate
family prior to May 21, 2003. Upon registration of this allocated land, a family has to identify
all 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 the
“Law on Real Property Tax”.

1.2.3 Privatisation process

The size of the land which is to be privatised depends on the location in Mongolia and therefore
increases 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, sum
centres 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 be
applied 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 extension
may be justified, as probably not all citizens are familiar with the terms of ownership and for
this reason have difficulties in understanding the requirements of the Law and may fail to apply
within the prescribed period.
Prior to the allocation of land, 61.753 families living in ger areas were identified whose kheseg
was apt to privatise. For another 11.484 families, whose khashaa is located in a disfavourable
location (e.g. under a power line or in a flood plain) new settlement areas have been provided
which they are allowed to privatise instead of their present location. This number is probably
estimated to low, as the informal land occupation and existing pressure on settlement1 in ger
areas is constantly increasing.
The ongoing privatisation on land is only slowly progressing, because the carrying out in
Ulaanbaatar is long-winded, extremely bureaucratic, time- consuming and confronted with a
lot of problems indicated by:
A high amount of boundary conflicts.
A high amount of land conflicts concerning the entitled owner, as often more than one
family is living on a hashaa and different claims exist
In 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 probably
be dealt with through public auctions during the following years 2005/2006, as Ulaanbaatar
City Land Administration officials said.

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.

11
 Ulaanbaatar

2 Ulaanbaatar

For a better understanding a short overview about Ulaanbaatar shall be given at first:
Ulaanbaatar has an administrative expanse of 4700 km2 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 km2. Each district consists of several
microdistricts (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 buildings
consist out of sturdy material, like concrete, bricks or prefabricated slabs and the surrounding
ger areas, which enclose the city like a semicircle in its northern part. In ger areas the predominant
buildings 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 due
to permanent migration to Ulaanbaatar. From 1990 to 2003 the population growth arises to
4,9% p.a. The official number of households in Ulaanbaatar amounts to 192.900, which indicates
an 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 in
Mongolia 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 which
are the pillar of an efficient real estate market.

2.1.1 The privatisation of apartements

From 19974 up to 2004 nearly the entire housing stock was privatised leaving only a small
amount of residential apartments in the public sector5, thus leading to the emergence of a
private housing sector. According to the Immovable Property Registration Office an amount of
70.0106 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 the
last years. The progress of the apartment of the apartment privatisation broken down by years is
depicted in table 1. Within the first three years, a concentrated action of privatisation has
taken place.

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 or
state 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.

12
 Ulaanbaatar

Table 1: Privatised apartments during 1997 to 2004.

Year Privatised Privatised cooperative Total

apartments apartments amount

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

Source: Immovable Property Registration Office, slightly modified.

The ownership of the apartments was passed without charge to their longtime residents. Not
privatised was the common area around and within the apartment buildings, this ownership
still remains with the state. The former state owned organisations which were in charge of the
residual 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 has
been a huge inequity. Especially with regard to the ger dwellers considering the initial capital
which was adjuncted with the privatisation at no cost. The possibility to use privatised apartments
to 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 Ulaanbaatar

In Ulaanbaatar, structurally different types of property can be encountered, varying from the
traditional 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 living
conditions differ greatly depending on the type of housing and the location. Ger areas, where
nearly 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 and
getting worse through the constant migration to Ulaanbaatar from the countryside. According
to the NSO (2001; 4), 21,8 % (= 35.158 households) of all households in Ulaanbaatar have
been living in a ger in 2000. This number has probably increased due to the continuous migration
to the capital city and the rising poverty level.
In the following table, the distribution of households is depicted by type of ownership, by type
of conventional housing, by the size of the living area and the number of rooms.

13
 Ulaanbaatar

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

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
House1 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 m2 in 2000
Less than 21 m2 21 – 40 m2 41 m2 and more
27.8% 58.1% 14.1%

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 that
they 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, but
as far as the number of respondents allow to draw a conclusion, it is a clear indication for an
emerging housing market.
In Ulaanbaatar different types of property could be encountered. For a better overview they have
been divided into different categories:

A parcel or khashaa with a single structure: In the ger areas the single structure might
be a simple wooden house or a ger. A new complete ger with room for four to six people costs
between 450.000 – 500.000 MNT7.
In peripheral zones like in Khandgait, Gachuurt, Khurkhree, Selbe, to name only the biggest
ones, 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 planning
and land use regulations are weak, especially for those who have power, money and the necessary
connections, 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 they
are rented to foreigners.

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

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

14
 Ulaanbaatar

A parcel with a structure divided into multiple property units, such as an apartment
building: 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. The
existing apartment buildings can be distinguished by their year of construction. During the
socialist 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 (Mongolian
or foreigners), differ in design and materials. The range now lasts from simple to exclusive
equipped apartments. Generally first floor apartments have become increasingly desirable, as
families convert them into commercial space.

Table 3: Year of construction of apartment buildings

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

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 use
or 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 unplanned
construction activity taking place in Ulaanbaatar. Apart from office and commercial buildings
the emphasis in the city lies on apartment buildings for the upper middle and upper class. In
particular, the apartment buildings for the upper class are constructed as gated communities
with 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, whereas
the demand for the latter is insignificant.
Different construction locations can clearly be identified for the new apartment buildings and
gated communities. In the Sukhbaatar district, which traditionally has been the residential area
of the wealthy and upper class, only a few new apartment buildings are being built. For the
upper class, the majority of the planned and currently happening construction activity takes
place in the southern part of the city, the Khan- Uul district. It is located between the southern
side of the Peace Bridge as one boundary and the Tuul River as the other boundary. During the
socialist period, this area has only marginally been used for residential purposes, due to the
nearness of industries and the brown coal power stations, which were responsible for an extreme
air pollution. Since the air pollution of the power stations has decreased immensely, leaving the
ger areas as the pollution cause no 1, the Khan – Uul district has however become the favourite
construction 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 major
part of construction for the middle class is taking place.

15
 Ulaanbaatar

In the future, most construction work will be carried out in the Songhinokhairan district, as it has
been 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 inappropriate
for building: this includes both public land and land left unused by private individuals or
businesses 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 the
plans of a socialist city. Today, these properties are in crisis due to uncontrolled construction
in Ulaanbaatar, which have often spread onto public right of way.

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

2.1.3 The social structure of Ulaanbaatar

Social quarters divided by status, as they are common in European cities, do not exist in
Ulaanbaatar, excluding the ger areas which are dominantly inhabited by the lower class. The
social structure in the city is still thoroughly mixed. This dates back to the socialist time where
apartments 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 Sukhbaatar
square 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 were
mostly allocated to the surrounding districts. The thereby originated social structure will prevail
for the next 15 to 20 years. Reasons are: most citizens can not afford to buy a new apartment as
prices 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, because
this is cheaper than moving into a new one, or mainly use their apartment to serve as collaterals
for loans or other economic purposes.
Nevertheless, a hardly perceivable social “demixing” process8 has started, in which social quarters
will gradually evolve during the next decades. This process will be accelerated by constraint –
migration9 and segregation processes. A reason for constraint migration is the increase in basic
service 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 the
development of social quarters even further.
Gated communities are physically a symbol for the fragmentation of the urban fabric, politically
they are the expression for weak or not existing public control of the urban development and socially
they 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 a
number of 9940 offences committed in 2003 (NSO, 2004, 274), this is definitely not the case. The
reason why people choose to live in gated communities is rather the exclusiveness which represent
a gated community and the demonstrative separation to those who can not afford living there.

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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 Ulaanbaatar

2.1.4 Institutional foundations concerning the real estate market in Ulaanbaatar

Cadastre: A cadastre consists of maps depicting the property boundaries, thus enabling a clear
identification of land parcels. A public, accessible cadastre serves several purposes: providing
information about the function of the land market, facilitating collection of land use tax, providing
information for land use planning and it is used as a support document to register legal ownership
rights. The content of the maps include information about permanent buildings, roads, power
lines and rivers etc..
Mongolia has no history of land ownership and property based taxes. For this reason no cadastral
mapping has existed until recently. During the last two years, the development of a digital
cadastre 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 the
cadastre for Ulaanbaatar up to now. The necessary updating of the cadastre has not started yet
either. But in order to establish confidence in public institutions, to depict the actual realities
and finally to avoid a complete new recording during the next two years, the cadastre should be
adapted 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 1997
parallel to the privatisation of the apartments. In August 2002, it has been united with two
other state institutions – the Land Administration Authority (established in 1954) and the
State 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 Registration
Office 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 to
others, land use, and land possession. The issue of a certificate confirms registered ownership. But
registration is voluntarily unless or until the Immovable Property Registration Office receives
an 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 registration
number and gives information regarding the location, size and purpose of the land. Not indicated
on 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 legal
interests 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 including
a parcel and the attached buildings and other immovable property to it, are registered in two
separately certificates, thus treated separately. Thus, a person who owns land which contains a
building and registers both receives two certificates from the Immovable Property Registration
Office.
The registration of the property is prudent and sensible, although it is not compulsory. The failure
of registration might occur out of several reasons: ignorance of the law, unwillingness to register
and most often inability of paying the registration fee. In table 4 the amount of all registered
owners till 2004 is given. Measured by the number of 192.900 households for 2004, it can be
pointed out that the registration of ownership is still underdeveloped.

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

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 Ulaanbaatar

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

Privatised apartments Khashaa with house Bought apartments

Total amount 70.010 12.351 1783

Source: Immovable Property Registration Office, modified.

Notaries: Currently, Mongolia has about 186 licensed notaries. 121 of them are having their
office 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 Property
Registration Office in order to gain ownership. Concerning real estate transactions they seldom
certify a contract or shorter they draw up a contract.

Realtors: Another sign for the progressing development of a real estate market are real estate
agencies. 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 a
telephone. The first one was founded by a Mongolian – American Joint Venture and is by far
the most professional working one. It has a very good internet appearance, distributes its own
small newspaper with the latest offers and is collaborating with an appraiser. Two others just
started 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 which
could 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 is
possible. Surprisingly, since 2002 no further exam was held. Unfortunately, this license is neither
a guarantee for a good qualification nor for a good quality of work. Therefore, the current public
reputation of appraisers is bad.
At present, all banks conduct their own appraisal, some of them without profound knowledge
of the topic. In connection with the ADB “Housing Finance Project” all participating commercial
banks12 developed guidelines in a workshop for the appraisal of land, houses and apartments
which should be implemented at the beginning of 2005. To sum up, a transparent and objective
mode of operation and standards do not exist.
Till this day, neither the appraisers nor the realtors have developed regulations in terms of both
ethics and expertise or a professional association.

Other related professionals services and activities are architects, lawyers, construction companies
and urban planners. From the lawyers` perspective difficulties in determining land use and
ownership are of great concern. One of the greatest challenges facing the architectural profession is
the non-enforcement of land use, site plan and building code regulations, which has resulted in
a widespread market for self built, unauthorized constructions using inferior building materials
and methods.
National and international13 construction companies, although they are overwhelmed with
permit applications and approval procedures are numerous and busy.

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.

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 Ulaanbaatar

In general, the construction companies do not act as developers per se, choosing to operate only
with 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, preselling
units of a residential development, paying the land fees out of the proceeds from sales and retaining
the 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. Complexities
in the regulatory environment in general and the lack of enforceability of existing urban planning
rules in particular, have severely limited the role of urban planning. Additionally, neither a useful
integrated14 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 different
areas concerning their usage, function and ownership are determined each year – covers to no
extent the matters and most pressing problems of urban development Ulaanbaatar is confronted
with. In addition, no collaboration, communication or exchange of information is taking place
between the various urban planning institutions on local level and the corresponding ministries
on national level. Responsible persons act mainly independent without any arrangements among
each other. Often the existing responsibilities are mixed, too, and therefore many actions are
carried out twice. in how far the newly established Ministry of Construction and Urban
Development will affect and change the present situation can not be told yet.

2.1.5 Activity and price characteristics of the urban real estate market
The 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 taking
place with numerous new residential units completed each year.
Information about the housing and rental market in Ulaanbaatar can be obtained by several
means: 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 two
newspapers regarding the real estate market. The total amount of announcement was about
10.000, 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 estate
objects 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.

Apartments 990 57%

Houses 75 4%
Commercial Sites 310 18%
Khashaas (including Khashaas with houses) 358 21%
Total 1.733

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

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 Ulaanbaatar

The amount of apartments for rent and sale on district level, depicted in table 6, show a clear
hierarchy. 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 rental
market, no distinction can be made between these districts. In contrast, an obvious subdivision
exists for apartments for sale. In particular the 3rd, 4th and 10 th khoroo of Bayangol district as
well the 12th and 13th khoroo of Bayanzurkh district are popular living areas. Surprisingly, the
criteria for fresh air (as far as this is possible in Ulaanbaatar) only plays an inferior role. The main
criteria for the living conditions identified in the questionnaire were: nearness to the centre and
existing infrastructure.

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

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%)

Housing and rental prices in Ulaanbaatar are the highest in Mongolia. Unlike the prices for the
newly built apartments, prices for apartments in apartment buildings built before and short
after 199016, 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 rather
than a market really determined price, because an appraisal is seldom conducted and as already
mentioned mostly of inferior quality.

As shown in table 7, only slight differences in apartment prices can be encountered for the
different 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 more
expensive apartments are located in gated communities, the most expensive apartment building
has a price of 1000 USD per m2 and an average size of 200 m2 per apartment. Some people say that
the 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.

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

16 Referring to buildings made from prefabricated slabs.

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 Ulaanbaatar

Table 8 displays information concerning new apartment buildings, which are being constructed
currently 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, a
certain demand for such high priced new apartments was given. But according to the sales
manager of Royal Castle, the demand for this type of buildings is already satisfied because the
group of people being able to afford apartments like these is very small. That’s why the exclusive
apartments are already facing a lack of demand. For the other new apartment buildings, whose
target group is the middle income class, a lack of demand seems probable as the monthly average
middle class income in Ulaanbaatar is 210.400 MNT (UNDP, 2004b, 30). Thus, within the
real estate market, there appears to be a bad match between what buyers are looking for and can
afford and what the construction companies are supplying. Due to that, it is very likely that
Ulaanbaatar will face a high amount of vacant newly built apartment buildings during the
next two years.

Table 8: Newly built apartment buildings, by location, number of rooms, price/m2, price.

Location families Rooms m2 Price/m2 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 Town1 ) 3273 3 92,6 800 USD 74.080 USDT

Bayanzurkh (Royal Castle1) 78 – 200 1000 USD 200.000 USD

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 million
to 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 cost
15 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 room
apartment. Apartments let to the expatriate community are concentrated in the city centre and
attract higher rents than those rented to Mongolians.
Sellers tend to be owners of older apartments requiring investment or whishing to buy a new
apartment and therefore sell their old one. Landlords are often owners who have more than one
apartment 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 point
is, that these prices do not embody the general land market concept of the “highest and best
use” of a site and therefore lack the opportunity cost of a site.

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 Ulaanbaatar

2.1.6 Real property taxation system

More 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 Citizens
for Ownership, owners have to pay immovable property tax on land in accordance with the Law
on 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. For
land, in contrast, a fixed base value is given. For an urban site in Ulaanbaatar, the base value is
appointed with 440 million MNT for one ha land.17 A 100% of the base value is the basis for
the 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 are
tax free. That’s why the tax revenues are still inadequate.

2.1.7 Constraints to the real estate market

Although a real estate market has emerged, several constraints are impeding the growth and
development of a well functioning formal real estate market.
The most obvious impression of the real estate market in Ulaanbaatar is its intransparency
indicated by limited available information.
During the last ten years the most necessary institutions concerning the real estate market have
developed. Some of them however, just inchoate like realtors or appraisers. Therefore, their mode
of 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 and
urban planning. For this reason and for the existing personal difficulties among each others, the
exchange 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 meant
that only those with sufficient income, cash saving or those who can use a privatised apartment
to serve as collateral, can enter the real estate market (see chapter 3).
The general macroeconomic constraint facing real property and mortgage market is the limited
opportunity for the working population. Wage income remains low compared to real estate
prices, 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 market
remains restricted. Due to that, the majority of all real estate activities take place among
apartment dwellers.
Most apartments, houses and small enterprises are now clear of privatisation programs, but
some, together with parcels of land and in particular those used for commercial purposes,
continue to be affected by privatisation.

17 Government Regulation Nr. 152.

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 Ulaanbaatar

The privatisation process itself has created some constraints for real estate transactions. These
constraints include boundary conflicts of neighbouring khashaa and unclear entitlement to
ownership. Errors and lack of clarity in many privatisation actions threaten to produce future
insecurities about who owns what.
Privatisation has also motivated illegal construction on the periphery of Ulaanbaatar, within
and outside the city limits and illegal construction on land that has been newly privatised. The
lack of land use control, zoning and planning led to negative externalities. The amount of so
many gated communities, the unadjusted supply of newly built apartments to the realities in
Ulaanbaatar and the existing unfinished and abandoned construction sites are the most obvious
indications 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 are
Commercial 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 is
indicated with 112. NBFIs can provide loans and other various financial services, but can not
accept deposits. SCUs are membership organisations characterised by a one-member vote decision
making and provide savings and credit services to their members. The pre-condition for founding
a 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 the
occurring irregularities in their business practices, the Bank of Mongolia has filed a petition to
supervise the SCUs as well.
All three, Commercial Banks, NBFIs, SCUs, deal in credits, whereas they differ in the conditions
for granting a loan, the amount of payable interests and in the acceptance of collaterals. As
collaterals, theoretically both movable and immovable assets are accepted, including livestock,
licenses, company equipment, jewellery, cars, TV, radios, mobile phones and real estate, whereas
the latter is only widely accepted by banks yet. Conditions to be eligible obtaining a loan vary
from an extensive proof of credit-worthiness and the fulfilling of specific criteria for certain
loans by banks to none at all by SCUs. The conditions required by banks can sufficiently only
be 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 SCUs18. As collaterals serve mainly movable
assets. Loans from SCUs are similar to those of banks, but are limited to members only. Typical
types of loan products are for business, consumption, salaries and emergencies, but the average
size 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.

18 According to an interview with a KfW representative.

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 Ulaanbaatar

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

Max. loan Loan term Interest rate

Loan type Collateral
size in MNT (month) (month)
120 mill. SME 24 2.5 – 4% Movable & immovable Property
NBFI1
12. mill Private 1 – 12 2.8 – 4% No real estate
1 billion Business 1 – 36 2.2 – 3% Movable & immovable Property
Commercial
Bank1 Over 20 mill. Private 1 – 36 2.2 – 4.5% Apartments only
20 mill. Private 1 – 24 2.8. – 4.5% Movable property
Business and
SCU2 2.5 mill. 1 – 12 4 – 10% Movable & immovable Property
Private
Pawn house 100.000 Private – 8 – 10% Movable property

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-term
loans do not last longer than a maximum of 36 months, interests are very high and spread
depending on the loan provider. The relatively short duration of loans is based on the short term
investment behaviour of the clients.
For a second or third credit some banks and NBFIs reduce the interest rate for borrowers with
good 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 as
a 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 property19 is no real hindrance for
banks accepting real estate objects as collaterals.
A problem within the mortgage market is the absence of public approved appraisers. In most
cases, banks conduct the appraisement by themselves. Very often the assessed values turn out to
be disadvantageous for the borrower, because assessed values are undervalued. And in general
only a maximum of 60% of the assessed value is granted as a loan, therefore the borrower becomes
really 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 apartment
buildings 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 means
which 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 the
usage of real estate property, it is still small. An expansion is very likely if land can be used as a
collateral as well.

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

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2.3 Conclusion and Suggestions

A real estate market has clearly emerged out of the privatisation of property the state formerly
owned. Legal reform, the creation of Immovable Property Registration Office and notaries,
lawyers, realtors and appraisers starting to organize themselves better than before favour this
process. 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 apparent
upward trend in prices. This development appears positive in the sense that it seems to involve
long 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 and
unenforced regulations. The lack of regulation and the presence of corruption in the real estate
market and in the building industry are leading towards a set of negative externalities: e.g. the
loss of public space, complications of public infrastructure and utility provision. These negative
elements may ultimately reduce property values, ward off investment and create major problems
for 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, possibly
leading to further wealth and power concentration that is inimical to broad based growth.

Recommendations or challenges for the future are:

Valuation
The necessity for independent appraisers is clearly given. The implementation of objective,
transparent and uniform valuation procedures and standards are essential for a functioning
real estate and mortgage market. The valuation in Mongolia, respective Ulaanbaatar is just
evolving. Therefore, the opportunity should be used to establish clear, transparent and
simple structures in form of an independent institution, which is then responsible for valuation
of both land and buildings. Furthermore emphasis should be given to the education of
public approved appraisers.

Transparency of the real estate market

To establish a transparent real estate market, several measures should be undertaken:
The implementation of a committee of experts20, consisting of architects, surveyors,
appraisers etc., which is responsible for the annual publishing of market reports including
vacancy, rental and sales prices, construction volume, publicly registered land value and a
sales price collection as well. And finally, as already mentioned, the establishment of an
independent valuation institution.

Access to real estate market

To enlarge the existing real estate market, the most important measure is to enable all
citizens accessibility. This means the offering of affordable housing loans for the middle and
lower class which will then lead to an increase in real estate demand. Another long term
possibility for the extension is the establishment of building and loan associations.

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

20 Referring to the German “Gutachterausschüsse“.

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 Ulaanbaatar

Registration of ownership
To 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 the
lower class should be initialised.

Collaboration of the different institutions

To achieve an efficient and effective cooperation within and among the institutions the
information exchange as well as the collaboration must be improved. Furthermore the tasks
of each institution should be reconsidered and rearranged to reduce existing and avoid
overlapping structures and responsibilities.

Urban Planning
To 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 “planning
model”, furthermore enforceable planning rules and a zoning plan adapted to the realities
are the fundamental conditions.

26
 Darkhan-uul aimag

3 Darkhan-uul aimag

3.1 Development of Land Use in Darkhan-uul aimag

3.1.1 Development of agriculture in Darkhan–uul aimag

During the socialistic period in Mongolia and with the pass of the “New Land Program” in
1959 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 and
Bulgan 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 plenty
number of kolkhoz (Soviet collective farms) were established to cultivate the areas of arable
land. These kolkhoz were strongly subsidized by the “Council for Mutual Economic Assistance”
(COMECON). But yields of one hectare remained relatively low because of increasing deflation
and erosion. Additionally, the use of mineral fertilizer caused huge environmental problems the
economy 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 wasn’t able to solve by importing
all needed goods. Furthermore, the entirely failed privatisation process, characterized by a mass
of dismissals and an increasing unemployment rate, hit the agricultural sector as well. This was
the situation at the beginning of the transformation phase in the early 1990´s.

Since the mid 1990´s 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 it
very 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 the
year 2003 to 2004 the value added of the agricultural sector decreased from 20.0% (2003) to
19.2% (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 declared
cropland not in use.

12000
cereals potatoes vegetables

10000

8000
tons

6000

4000

2000

0
2000 2001 2002 2003 2004
years

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

27
 Darkhan-uul aimag

The main reason for that was a 14,000 tons shortfall in seed. Although the state maintains a
reserve 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 even
though 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 2004
are 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 declared
cropland only a third of it was still under use (9948.4 ha). Mainly, the cropland was cultivated
with cereals (8,638 ha), 516 ha with potatoes and 794.4 ha with vegetables. The average yield
per 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 vegetables
it is a little higher. The main problems and weaknesses for the farmers are the old – mostly
Russian – techniques, the ramshackle irrigation system, the destruction by livestock and the
increase of degradation effected by immigrants and their livestock, coming especially from
western aimags of Mongolia. Nowadays the loss of cropland by degradation in Darkhan-uul
aimag is about 2,000 ha since the early 1990´s. Today the most important aimag for agriculture
is Selenge, the surrounding aimag of Darkhan-uul with nearly the half rate of arable land in
Mongolia, it is followed by the aimags Bulgan, Tov, Darkhan-uul and Khovsgol (just mentioned
the 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 a
part of the surrounding aimag Selenge. Since 1961 Darkhan-uul aimag is divided in the following
sums: Darkhan-City sum, Orkhon sum, Hongor sum and Shariin gol sum. 86,500 people live in the
aimag, 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 urban
areas, 18.4% in rural ones. Each sum has its own hospital. In Darkhan there are 20 secondary
schools, four residential schools and two vocational schools, furthermore, the Agriculture- and
Technical 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 nearly
the whole area of farmland which is under crops, Orkhon sum has mainly cropland for vegetables
and 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 and
long arable land stripes from former kolkhoz characterise the landscape here. As the governor of this
sum explained, 29 crop production companies are registered but just 23 of them are still working
in this business. They cultivate agricultural land from size 500 ha up to 3,000 ha whereas 3,000 ha
are also the largest size, which the “Law of Mongolia on Land” allows to have for one crop
production 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 farmers
cultivate 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 farmland
with wheat and a few of them also with rape. In Hongor sum the harvest per hectare for the last
three years was about 0,7 tons up to 1 ton. Today as well as in the socialistic period There is
no irrigation system in oder There is not one irrigation system in Hongor sum.

28
 Darkhan-uul aimag

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 amount
of 120 ha is located nearby the river Kharaa. At the administration of Orchon sum 10 companies
are registered, which cultivate areas around 10 ha and 707 private vegetable gardeners who
cultivate areas between 0.3 ha and 4 ha. The main products are potatoes, carrots, cucumbers
and cabbage. As mentioned above, the harvest for the last three years in this sum was higher
compared to the average of Mongolia. The yields per hectare were twice as much due to the
irrigation systems. Another advantage is the connection of the sum centre to the Mongolian
Railway. For that reason, it is possible for the farmers to use the direct connection to Ulaanbaatar
and 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 their
main income with coal mining (employment for 1,200 people). A few vegetable gardeners and
small 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 but
with one major difference. Around the city of Darkhan are some areas of arable farmland, but
mostly farmers living in Hongor sum cultivate these areas. Because of that these areas are not
registered at the administration of Darkhan.

3.1.3 Property rights

Only citizens of Mongolia are allowed to “own” land, excluding pasture land and hayfields, land
for common tenure and land for special government use. In contrast “land possessing” and
“land 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 land
with 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 specific
time period (GOVERNMENT OF MONGOLIA 2002a).

3.1.3.1 Owning land

In 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 climatic
zones in Mongolia as well. Every territorial unit in Mongolia belongs to one specific zone. With the
“Law of Mongolia on Land fees”, the “Resolution No. 152” in 1997 and the “Law on Real Property
Tax” (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). To
get the sales price for one territorial unit, five pedological indicators21 respectively factors between
0 and 1 must be multiplied with the determinate price. For example Darkhan-uul aimag belongs
to the Changai Mountain zone and the calculated sales price per hectare for a territorial unit in
Hongor sum is finally 1,600,400 MNT. So the land tax for owning one hectare in this area would
be about 9,602 MNT per year. But in that case the “Law on Real Property Tax” rules differes. The
tax is regulated down to 5% of its real price because most of the people in Mongolia are not able to
pay the real tax for owning a piece of land. Therefore, the land tax for one hectare in Hongor sum is
about 480 MNT per year (GOVERNMENT OF MONGOLIA 1997a; 1997b; 2000).

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

29
 Darkhan-uul aimag

There are only two ways to privatise agricultural land respectively cropland. Firstly cropland
may 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 does
not possess agricultural land wishes to own land, the land shall be sold and transferred to
ownership at an auction, which is also organised by the local authorities (GOVERNMENT
OF MONGOLIA 2002b). Therefore, the privatisation of agricultural land is not comparable
to the free privatisation of apartments taking place in the end of the 1990´s and to the free
privatisation 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:

Pastureland Hayfields
Cropland (ownership is possible)
(no ownership) (no ownership)
Min. land Max. land
Zone Price in Land tax fee fee Price in MNT Price in
MNT per (0,6%) per (0,01%) (0,03%) Zone
MNT per ha
ha in MNT per ha in per ha in per ha
ha
MNT MNT
23,154
Changai 3,859,000 (official) 386 1,158 548,200 Mountain 2,478,300
Mountain 1,158 grassland
(5% of it)
13,518
Altai 2,253,000 (official) 225 676 202,900 Mountain 2,027,600
Mountain 676 steppe
(5% of it)
10,428
Gobi desert 1,738,000 (official) 174 521 208,600 Flat 912,200
521 country
(5% of it)
23,060 Flood 2,090,900
Steppe 3,843,400 (official) 384 1,153 381,700 plain
1,153
(5% of it) Lowland 2,675,300

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

3.1.3.2 Possessing land

Agricultural land may be given for possession only by a license through governors of sums and
districts to Mongolian citizens, companies and organisations as well as entities with foreign
investment. With the intention of cultivating vegetables, fruits, berries and fodder plants the
piece of land may not exceed 0.1 ha and should be located next to the residential plots or in a
location specifically designated for this purpose. The possession licenses to cultivate agricultural
land with a bigger size (max. 3,000 ha) or with cereals and should be sold through a land auction
process, which is organised by the local authorities. The highest bidder in the auction shall be
given 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 no
longer than 40 years at a time (GOVERNMENT OF MONGOLIA 2002a). The yearly land fee
range (lease) for one hectare is 0.01 – 0.03% of the base value of one hectare land. Therefore the
leasing rate for Darkhan-uul aimag is min. 386 MNT and max. 1,158 MNT. Different land fees
depend 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 (GOVERNMENT
OF MONGOLIA 1997a).

30
 Darkhan-uul aimag

3.1.3.3 Using land

Citizens 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 conditions
in each case are negotiable.

To use land is also allowed for foreign citizens, foreign countries, international organisations and
foreign 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 specific
piece of land is the same like if it is possessed. In some particular cases, it is possible to negotiate
the price, for example if the land is given to the embassy of another country (GOVERNMENT
OF MONGOLIA 2002a).

3.1.4 The current situation of land property and the role of lease in Darkhan–uul aimag
Property of agricultural land, respectively cropland, does not exist in Darkhan-uul aimag. Every
territorial unit under cultivation whether it is located in Hongor-, Orchon- or Darkhan-City
sum is on lease (possession or use). The opinions among the local authorities and the farmers
about 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 haven’t got any knowledge about land rights and land use and how
property rights on land could be a benefit to them. Also the governor of the whole aimag reported
that cultivating agricultural land is a high seasonable business in Mongolia and that is the main
reason why farmers are not really interested in privatisation of possessed land. In his opinion the
farmers 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 a
potential way to receive credits or mortgages for investments in better techniques or highyielding
seeds. This particular case shows that either the exchange of information between farmers and
governors is poorly or the local authorities don’t give the right information for political reasons
or 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 cases
up to 100 years. Thus these contracts are definitely for a longer period than a lifetime period
therefore 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 they
are 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 specified
time 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 MNT
per hectare. The price depends on some indicators like soil quality and if there is an irrigation
system 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 wheat
farmers in Hongor sum have averagely 1,100 ha cropland under possession. So they pay about
425,000 MNT during a year. Most of the vegetable farmers in Orchon sum cultivate in average
3 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.

31
 Darkhan-uul aimag

In 2004, the governor of Hongor sum cut the leasehold down to the half of the normal
amount (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 weren’t any mentionable variances in
the 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“, was
adapted to the maximum land fee rate of 0.03% of base value. That means, the charges to possess
or to own a specific piece of land are similar after that adaptation. The disparities between land
tax and land fee are more balanced now, but in this case it doesn’t matter because presently the
land 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 total
opposite 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 less
illiquid companies behind it are more vulnerable than smaller ones. But the main reason for not
extending 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 aimag
of Darkhan-uul, the Selenge aimag. But for many citizens these areas are too far away and these
aspects create disparities and incur people’s 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 throughout
the whole year the citizens are able to buy cereals, potatoes and fresh vegetables. Although
Darkhan-uul aimag is the second smallest in Mongolia, it is fourth in a ranking by sown areas
of all aimags. But many constraints and irregularities are obvious. As mentioned before, these
constraints 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 could
it be arranged that everybody, the farmers as well as the local authorities respectively their
yearly 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 irrigation
system to increase the hectare harvests. The average monthly income of farmers in Darkhan-uul
aimag is 150,000 MNT. Privatisation of arable land and appropriate credits and mortgages
of banks could be one way for the farmers to solve some problems. But with the pass of the
“Law of Mongolia on Land fees” and the “Resolution of Mongolian Government, No. 152” in
1997, the politicians fixed a price for one hectare of cropland that is totally illusive.

32
 Darkhan-uul aimag

And with a yearly property tax of 0.6% of this price for one hectare, privatisation in contrast to
possession 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 valuation
to make privatisation of cropland more attractive. With the aim to increase local revenue the
base value price, land tax and land fees should come closer together, but not such as low like
it is today (5% regulation on the land tax). On the other hand there is the suggestion to privatise
cropland for free like the privatisation of apartments in the end of the 1990´s and the also free
privatisation 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 be
developed as well. Farmers should know about their rights and duties. It is not only the exchange
or 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 this
situation, the reduction of recently 330 sums down to a third of it is a good approach. With
this intention the mass of bureaucracy could be reduced, costs could be better allocated and
established capacities could be more bundled.

Within the mentioned points the establishment or renewal of a provincial cadastre system is
of main interest. The current cadastral maps for rural areas are from 1978. Thus, no topical
digitalised maps or entries like clarified course of the borders exist at the moment and conflicts
on 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 capacities
to 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 Introduction
During socialism no real estate market existed in Mongolia. After the breakdown of socialism
and the overcome of a regression phase the government of Mongolia started with privatising
state property. Since the mid 1990´s 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 be
terminated till May 2005.

For a transparent and effective real estate market in Mongolia a land management system is
necessary. Secured property rights, clearly defined prices for residential buildings and residential
land as well as the opportunity and right of usability are relevant facts for a real estate market.
Also a modern and continually updated cadastre system, which is capacious, admitted and secured,
is a requirement. These facts are not established right now but important basic requirements for
sustainable development in Mongolia.

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 Darkhan-uul aimag

Foremost this part of the report gives an overview of the development and current structure of
the provincial cadastre in Darkhan-City. Afterwards the structure of residential space, housing
and ownership is explained to get a better overview how it is like in Darkhan-City. Thirdly the
price structure of real estate is shortly listed and at the end a conclusion and suggestions are
clarified. To get all the required data interviews with local authorities, ministries and institutions
were held in Ulaanbaatar as well as in Darkhan-City. Additionally, in total 21 households were
questioned in Darkhan-City; this was by far – apart from a three years old list about real estate
prices from “Xac-Bank” – the only way to get some information about the price structure of
real estate. Due to that, this information is to be handled with caution because 21 households
are not statistically representative.

Furthermore, it has to be mentioned that Darkhan-City is not comparable with Ulaanbaatar in

any way. That begins with the dimensions of space as well as the twentyfold amount of citizens.
In Ulaanbaatar administrative levels are more subdivided and many organisations and institutions
deal obviously with the same topics. That fact creates a huge bureaucracy and the citizens are
the mourners. In Darkhan-City all related topics of land management, e.g. privatisation, registry
of ownership and changes of ownership, work out better than in Ulaanbaatar. That means the
structure and process of privatisation and all concerned topics are much more obvious for citizens
of Darkhan-City than of Ulaanbaatar.

3.3.2 Development and current structure of the Cadastre

Due to the fact that former organisations of the “Administration of Land Affairs, Geodesy and
Cartography” (ALAGaC) (“Land Administration Authority” and “State Administration of Geo-
desy and Cartography”) performed a good system of land management in socialistic times, it was
not complicated for the new organisation to develop a more adapted cadastre system. In the area
of Darkhan-City every plot with all boundaries and registered owners is scheduled in cadastre
maps, digital as well as printed. Additionally, the ALAGaC province office provides hand drawn
maps in particular for citizens of ger areas to make it easier to locate their khashaa. For rural areas
in Darkhan-uul aimag only detailed cadastre maps from 1978 are available, but general maps
for rural areas exist of recent date, too. In the sum-capitals Hongor, Orchon and Shariin gol it
is again the other way round. Detailed plans like in Darkhan-City exist, but only printed and
not digitalised.
Concerning the privatisation of apartments in Darkhan-City nearly 100% were privatised between
1996 and 2001 to the tenants in this period. Registration happened in ALAGaC province
office where the functions of land registry and cadastre department are pooled. With common
areas around and within the buildings it was the same like in Ulaanbaatar (not privatised “Asso-
ciations of Apartment Owners” maintain these areas now).

The ongoing process of privatisation of land for residential needs and the referring laws are
almost the same like in Ulaanbaatar. 0.07 ha land for residential use every family could privatise
for free. Only the yearly charge for property tax, dependent on a lower base value for one hectare
land (300,000,000 MNT), is lower in Ulaanbaatar (min. 300,000 MNT; max. 900,000 MNT)
(GOVERNMENT OF MONGOLIA 1997b). But tax relief on this amount is again the same
like in Ulaanbaatar. Citizens just have to pay 5% of the minimum respectively maximum rate
of the property tax (GOVERNMENT OF MONGOLIA 2000: 2).

34
 Darkhan-uul aimag

3.3.3 Structure of residential space, housing and ownership in Darkhan-City

In Darkhan-City different types of residential areas exist. The citizens live in apartments, houses
and traditional gers. All different types of housing are located strictly separated in different
areas of Darkhan-City. First of all the structure of space in Darkhan-City needs an explanation.
Darkhan-City is divided in two main districts; the northern district named Old-Darkhan and
the southern district named New-Darkhan. Both districts are subdivided into bags. Old-Darkhan
comprised the bags from number one to eight and new Darkhan from nine to fifteen. In both
parts of the city there are bags with mainly gers, apartments or houses. Houses have to be
distinguished between houses in ger areas (mainly houses of wooden structure with one or two
floors) and houses in other residential areas (mainly houses build of bricks or other stones with
two or more floors). All apartment buildings are made with precast concrete slabs up to five
floors high without elevators. Just one apartment building in New Darkhan (twelfth bag), built
up by the local power station in the 1980´s, is 16 floors high, but elevators don’t work. The
following map gives a better impression of the distribution of ger, apartment and house areas in
Darkhan-City.

Box 1: Map of Darkhan-City.

Source: Own version, data from ALAGaC province office in Darkhan-City.

35
 Darkhan-uul aimag

According to the “Population and Housing Census 2000” 15,305 households (78.5% of
all households in Darkhan-uul aimag) have been living in Darkhan-City. 89.9% of them
(or 13,760 households) have been living in conventional houses, 10.1% (or 1,545 households)
in traditional gers (NSOM 2001: 4). So the rate of living in traditional ger is not as much high
as in Ulaanbaatar (21.8%). The rate of immigrants from the countryside is not very dramatic
either, but the problems caused by disconnection to public infrastructure (no water supply, no
sewerage and bad heating systems) are the same. The conventional house category includes
houses, apartments, public apartments, non-living quarters and others. The following short
table gives an impression of the distribution of households living in that category:

Table 11:Percentage distribution of households living in conventional housing in Darkhan-City,

by type of living quarter.

House Apartment Public apartment Non living quarters Others

21.8% 75.8% 1.2% 0.9% 0.3%

Source: NSOM 2001: 26.

To get a more visual impression of it, please notice again the map above. The areas with apartment
buildings are also the biggest areas in town, except the ger areas. But this is due to the density
of buildings in the ger areas.

58.9% of households living in conventional housing have been living in apartments or houses
between 21 and 40 square meters. 26.9% of them in less than 21 square meters and just 14.2%
in more than 41 square meters. Concerning the number of rooms it is more balanced: in the
year 2000, 34.6% lived in one room, 38.1% in two rooms and 27.2% in three rooms or more
than that (NSOM 2000: 25 ff.)

In the following figure the distribution of households is depicted by type of ownership and by
type of housing.
120
government private mixed

99
100

85

80

60

40

20
13,9

1,1 0,5 0,6

0
conventional housing traditional ger

type of housing

Figure 2: Ownership by type of housing. Source: NSOM 2001: 7.

36
 Darkhan-uul aimag

Obviously, most of residential buildings, conventional or traditional, are privately owned. The
results of the questioning underline this as well. 18 residential buildings or apartments were
privately owned (in total 21 households were questioned). Additionally, Mrs. Narangasch from
the ALAGaC province office in Darkhan has reported that the privatisation of residential buildings
is nearly completed and that land privatisation for family needs is completed for 70%. To privatise
the remaining 30% until the phase of free privatisation ends at the first of may in 2005 no
problem is obvious.

Regarding the construction activity in Darkhan-City it is evident that construction mainly

takes place in the ger areas. Citizens in these areas try to upgrade their existing wooden houses
or to replace gers with wooden houses, everything financed with saved money and respectively
with money received as a credit. Newly built residential houses are hard to find in urban areas
and newly built apartment houses or construction sites don’t exist in Darkhan-City.

3.3.4 The price structure of real estate

As mentioned above it was very difficult to find out prices about real estate in Darkhan-City.
No real estate agencies exist in Darkhan-City and announcements in local newspaper are hard
to find. Therefore, the whole real estate market is not transparent and the asumption arises that
word-of-mouth recommendation is the only way for citizens to receive proper information about
the real estate market. The only way to get information for this report about prices of real estate
in Darkhan-City was the questioning and some information from “Has Bank” in Ulaanbaatar.
The following table reflects prices of apartments, arranged in one, two or three room apartments
with different kind of current condition:

Table 12: Prices for apartments in Darkhan-City, 2002.

Cash value for one room Cash value for two room Cash value for three room
apartment (in thous. MNT) apartment (in thous. MNT) apartment (in thous. MNT)
Good Middle Bad Good Middle Bad Good Middle Bad
4,500 3,000 2,000 5,500 3,500 2,500 6,000 4,500 3,000

Source: “Has Bank”, modified by the author.

Condition “good” means that the apartment is completly renovated, located in a nice surrounding
and nearby service-opportunities for the tenants. Condition “middle” means that the apartment
is not renovated or just partly, located in middle floors of the apartment building and the
surrounding is not as nice as in the category “good”. The last category “bad” implicates that
the apartment is not renovated, located in bad surrounding, on top floors or without service-
opportunities for the tenants. The same results have been encountered during the fieldwork as
well. In general, today the prices for apartments in Darkhan-City are a bit higher than in 2002,
but this difference is marginal. That is – concerning the cash value for apartments – an argument
for a relatively constant real estate market in Darkhan-City.

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 Darkhan-uul aimag

3.4 Conclusion and Suggestions

In general the cadastre system of Darkhan-City is more developed than in Ulaanbaatar. Reasons
for that are the good organised ALAGaC province office equipped with capable staff and of
course the smaller amount of plots, which they have to register. But in rural areas of Darkhan-uul
aimag there is still an important lack of detailed cadastre maps and in sum-capitals digitalisation
of available maps should be done. Updating the cadastre system is the most important issue,
because without it, all endeavours to build up a cadastre system are of no earthly use. For that
reason, a continual updating is needed, but to collect all essential data, training is necessary to
qualify more competent staff.

The real estate market in Darkhan-City seems to be relatively closed. In other words there is no
existing need for new residential buildings. Cash value for apartments or houses hold a steady
level and mostly just citizens of Darkhan-city create demand for apartments or houses in Darkhan-
City. To overcome the non-transparency of the real estate market, caused by bad information
about prices, the ALAGaC province office thinks about the establishment of a “stock exchange”
for all kinds of property especially for apartments and houses. The dissemination of information
about rights and duties of being an owner of an apartment or house needs to be improved.
An institutionalised place like the “stock exchange” for property is an appropriate way to do
that. Furthermore, like mentioned in chapter 1.5, an improvement of the information structure
between the different administrative levels is indispensable.

A result of the fieldwork was the existing high demand for appropriate credits and mortgages in
Darkhan-City. Citizens and especially owners of apartments, khashaa or houses want to improve
their actual life situation. For instance: Citizens living in ger areas want to build up wooden
houses or want to extend their existing ones; citizens living in apartments too small for their
families want to buy bigger apartments with enough space for all. But the banks don’t offer
long-term credits or mortgages with lower and proper interest rates. Only one project called
“Eviin Khuch”, financed by “Asian Development Bank” (ADB), supports habitants in one ger
area with appropriate long-term credits. For this reason the most important recommendation
for sustainable development in Darkhan-City is to offer appropriate credits and mortgages to
citizens. Preconditions are a good registration system and a good land registry and cadastre
system that also includes the real value of immovable properties (establishment of price valuation
system). With these preconditions, ensuring institutes better against illiquid debtors, banks or
other credit institutes would be more open to offer appropriate credits and mortgages to citizens.
This is a promising starting point for the new GTZ-Project “Land Management in Mongolia”
to receive these requirements.

38
 Bibliography

Bibliography

ADB (2004):
Country Gender Assessment, Mongolia. Draft Version.

Dowall, D. (1993):
The Role and Function of Urban Land Markets in Market Economies

Government of Mongolia (1997a):

Law of Mongolia on Land fees; Ulaanbaatar

Government of Mongolia (1997b):

Resolution of Mongolian Government, No. 152; Ulaanbaatar

Government of Mongolia (2000):

Law on Real Property Tax; Ulaanbaatar

Government of Mongolia (2002a):

Law of Mongolia on Land; Ulaanbaatar

Government of Mongolia (2002b):

Law on Allocation of Land to Mongolian Citizens for Ownership; Ulaanbaatar

Government of Mongolia (2003):

Resolution of Mongolian Government, No. 103; Ulaanbaatar

Japan Bank for International Cooperation (2003):

Pilot Study on Microfinance and its related industries in Mongolia; Draft Final Report

National Statistical Office of Mongolia (NSOM) (2001):

Population and Housing Census 2000; Ulaanbaatar

National Statistical Office of Mongolia (NSOM) (2003):

Mongolian Statistical Yearbook 2003; Ulaanbaatar

National Statistical Office of Mongolia (2000):

Population and Housing Census 2000

National Statistical Office of Mongolia (2004):

Mongolian Statistical Yearbook 2003

Taraschewski, T. (2004):
Integrierte Stadtentwicklungsplanung in Ulaanbaatar?

UNDP (2004a):
Privatisation, Income Distribution and Poverty. The Mongolian Experience.

UNDP (2004b):
Examine the Livelihoods of Middle Income Groups, Proposals for Reducing Their Vulnerability,
the Risk of Falling into Poverty

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