Mongolia Investment - Newsletter April 2013

Dear Clients and Friends,

Ulaanbaatar has just celebrated the official start of spring - which as it happened was heralded in with a snow storm. With the arrival of spring (and eventually summer) we can expect the economy to wake up from its winter slumber and for constructions to start anew. It is a time filled with excitement, gossip and expectations of great things to come.

From a macro perspective, the political instability of the country has dominated headlines throughout the last 6 months, yet there is a feeling of “recovery” currently going through Ulaanbaatar. The Parliament has finally seen the errors of their ways and are now discussing considerable improvements to the controversial SEFIL law as well as a redrafting of the minerals law. It seems that the OT dispute is winding down in anticipation of a start of operations of the mine for June and we might finally see the passing of the much awaited securities law.

The Real Estate market has stagnated for the past few months and we expect 2013 to be crucial with a number of sectors going into “correction” (read: collapse in market value - many distressed properties - bankruptcy of many developers). Notably we have witnessed the withdrawal of nearly every major hotel project, a near collapse of the construction projects of high-end residential outside of the city and a marked slow down in high end retail supply. We also expect to see an oversupply in 2013 of grade A and B office space in the city centre while we expect to witness strong continued demand for mid-priced residential units in the city centre. We also hope to see some real and tangible progress made in the re-development of the ger districtrs of Ulaanbaatar.

The current situation is a clear sign that we need to stick to the basic fundamentals when it comes to property investments, always making sure that the products we invest in are well suited to the growing middle class, are legally secure and are immune (as much as possible) from the heavy cycles Mongolia goes through. This is why we will only reinforce our strategy of investing in solid - already built only - properties in key areas of the city centre, giving small scale residential developments a preferential treatment. Any property we invest in has to be generating a strong yield (8 to 12%) within 3 months and retain strong market liquidity (6 months max).

For a more in-depth overview of our current views of the Real Estate market please visit our news section or click HERE for this quarter’s analysis orHERE for the last quarter’s analysis.

Those eagled eyed readers amongst you might have spotted a few strange news titles on this 1st of April. Namely: “M.A.D. to Launch a Premium Airline” - “Superdome UB” and “Catapults for UB”. Those are of course our traditional 1st of April Fools day news stories and are well worth a read.

M.A.D. itself has been going from strength to strength over the past year. The 1st quarter of 2013 has seen an extremely strong increase in demand for our short-term rental properties. We are running at close to full capacity with a waiting list for our studios and 1 bedroom apartments. We are thus rushing our last few 40k renovations in order to meet the increased levels of demand. We are also hoping to be able to introduce cleaning services for our tenants in the coming months.

We are further extremely excited to announce that this April we are moving to our brand new offices, all 285 square meters of it, right in the heart of the city, between the State Department Store and the Circus. Our new offices, on 2 mezzanine floors, will enable us to keep growing the company by offering better and more comprehensive services. Our new space can accommodate up to 25 large desks and a conference room that can host 16 participants. We will be recruiting soon for a number of new posts and very much look forward to developing the brand from the established company it is today to a market leader in property investment and management services.

As a sign of our growing strength, visibility and reach, we are happy to announce that since the launch of our ground-breaking “Mongolian Real Estate Report 2013” on the 1st of February, it has already been downloaded over 1,500 times from readers all over the world but mostly in Mongolia and Europe. Our website is now visited by over 45,000 unique visitors per month.

A number of other smaller changes will take place in the company over the coming months. Amongst others, we expect to cease all client (third party) renovation services simply because a renovation takes a considerable amount of time from our management and construction teams, time for which it is hard to demand a fair compensation (and retain investment worthy financials) from our clients and keep working on our own apartments. Conflicts of interest were inevitable and by putting client properties first we constantly delayed the renovations of our own properties.

We will instead concentrate on selling a completed and renovated product to those clients interested in purchasing renovated apartments in the city centre of Ulaanbaatar. We believe that this will improve our brand consistency, allow for a faster turn-around and remove anxiety from investors not sure of what the end-product will look like or how much it will cost. This also allows us to better maximise returns on all aspects of our operations and streamline our sales procedures. While on the topic, we are proud to announce that this week marks the completion of our 50th apartment renovation within the 40k’s and 50k’s of Ulaanbaatar.

Last and not least, we are happy to say that we are working on putting our full property report readable online directly on our website and in doing so, we would create the biggest mongolian property resource online for now and for the forceable future. We are also working towards a Mongolian translation of the report but this would take 6 months alone.

With the hope of seeing as many of you as possible in our new offices, we would like to wish you a happy spring and a delightful summer.

The M.A.D. Investment Solutions team in Ulaanbaatar.

SOURCE OF THIS ARTICLE : M.A.D. Newsletter April