Khaltmaa Battulga plans to take on China and the sluggish economy
By Al Gerard de la Cruz
Three years ago, the Mongolian economy hit a soaring high. The vast landlocked nation was enjoying gross domestic product (GDP) growth of around 8 percent, propelled by a boom in commodities, a prolific mining sector, and a bustling real estate scene. It was as if the country, previously more famous for its endless steppes and nomadic culture than its potential for investment, was channelling the spirit of ancient conquistador Genghis Khan as it reasserted itself on the global stage.
The economic situation, however, has since deteriorated considerably. Having had its credit rating downgraded multiple times, the country obtained salvation courtesy of a USD5.5 billion bailout package, approved by the International Monetary Fund in May 2017.
Desperate times call for desperate measures. And with the election of new president Khaltmaa Battulga – who was sworn into office in July – Mongolian voters have turned to a man who isn’t one to shirk a fight. In fact, Battulga, a former martial arts star, gave notice of his pugilistic style in a bitterly fought campaign against his political opponents in the run up to his election and in vows to wean the country off reliance on trade deals with China.
Battulga will need every ounce of his battling energy to fix Mongolia’s problems. The global downturn in commodity prices came as a hammer-blow to the mineral-rich country’s undiversified, mining-reliant economy. The country’s sovereign debt soared from USD11.7 billion in 2012 to USD23 billion in 2015, twice the GDP. Foreign investments sank to USD195 million in 2016, down from USD4.7 billion in 2011, World Bank data shows.
As a housing market, Mongolia is now East Asia’s weakest, with the Ulaanbaatar housing price index plunging by 3.34 percent year-on-year in March 2017. Abandoned construction sites dot the Mongolian capital.
Such is the desolate legacy inherited by Battulga. But many feel that the president, who as a serial entrepreneur has invested in everything from real estate, hotels and breweries to meat factories, has the business chops and savvy to breathe life into the economy.
“Battulga is a successful property man, but more than that, he’s a successful businessman,” says Lee Cashell, chief executive of Asia Pacific Investment Partners (APIP), the firm behind some of Ulaanbaatar’s most luxurious residential properties. “I would be surprised if he didn’t appreciate the integral role real estate plays in developing this city and this country. I’m encouraged by his obvious understanding of the sector, and his acquaintance with some of the issues and challenges we face as we try to improve the urban environment.”
Experts, including Cashell, believe Battulga could begin by advocating for additional funding for the low-income mortgage program. Saddled with debt, the previous government led by the Mongolian People’s Party (MPP), had been forced to hike interest rates and roll out austerity measures.
“Mongolian banks impose tremendously high-interest rates of up to 24 percent,” explains Bayar Budragchaa, managing partner at Mongolian law firm ELC LLC. “Eight to 10 percent is considered the lowest rate currently available for mortgages.”
Battulga is known for his frequently voiced antipathy towards Mongolia’s chief trading partner China. The new president, who once sold electronics and jeans in eastern Europe during the era of the Soviet Union, mulls more trading opportunities with Russia.
“He wants Mongolia to be less dependent on one trading partner and that’s good news,” adds Cashell. “He wants the country to develop and for economic gains to be more widely distributed.”
Many, however, are more cynical about Battulga’s prospects of turning things around for his country. Mongolia conflates a western-style presidential democracy with a parliamentary system, which almost always results in cohabitation. The MPP is likely to retain control of parliament and constitutionally keep Battulga’s power in check.
“The president has a limited role in government,” Budragchaa says. “In Mongolia, the parliament has the most power and all the right to make a decision. The president is just symbolic. What he’s doing does not really impact the economic prospects of Mongolia.”
Also problematic is Battulga’s reputation for being not exactly squeaky clean. As minister of industry and agriculture between 2012 and 2014, Battulga was associated with an aborted industrial park and railroad project largely financed by government borrowings.
“Politicians in Mongolia are famously corrupt. So that’s nothing new,” says real estate agent Tuvshinzaya Bayarmandakh of Mongolia-Properties.com.
“The most important thing is to completely eliminate corruption,” adds Budragchaa. “We should do everything to reduce this behaviour by government officials as it’s another factor that is hampering the economy.”
Analysts say that a brighter future for the country – and its real estate investment climate – lies in the diversification of its economy. Such advances, however, are no simple thing for a country reliant on its mineral resources for so long. Possible money-spinners include solar power production (the country enjoys more sunny days per year than anywhere else on the planet) and luxury fabric exports (Tengri is selling Mongolian yak fibres in Harrods and Selfridges in London). “All of this business activity, benefits the real estate, and we are closely monitoring the potential to move into infrastructure investment,” says Cashell.
Promising for Battulgla are certain indications of life returning to the economy. In January and February 2017, the country saw a 689 percent year-on-year boom in the value of coal and gold exports, with industrial output increasing over 40 percent in H1 2017.
“The effect of this, in terms of real estate, is multi-faceted and important,” Cashell says, adding that brand new, prime buildings could likely offer yields of 9 percent to 12 percent.
“The top end of the residential market will be the real winner if the economy is turned around,” he adds. “Investors will be keen to purchase completed, high-quality units as they recognise they will be in short supply taken by expats with large housing allowances.”
The legend of Genghis Khan still looms large over Mongolia. Indeed, Battulga’s real estate company funded a USD4.1million, 40-metre statue of the ancient hero in the capital. And, just as in days of old when the Mongol Empire was the largest contiguous empire in history, the country is likely to obtain its gains by expanding into unfamiliar new territories.
This article was originally published on Property-Report.com. For more stories from Asia’s most trusted and enduring luxury real estate, architecture and design publication, visit Property-Report.com