As the Mongolian mortgage market growsrapidly, and the Government of Mongolia (GoM) pursues anambitious social housing agenda, there is an urgent need fora holistic sector approach. The following three key areasrequire attention from policymakers: first, there is a needto better balance housing supply and demand, which requiresthe authorities to focus on prudent mortgage lendingstandards and supervision, as well as on provision ofhousing infrastructure and zoned land.Second, it will beimportant to ensure effective implementation of ongoing andplanned public housing finance programs, with a focus onpreventing mortgage market distortions in pricing,emphasizing robust planning and rigorous transparency andgovernance. Third, authorities should aim for better balancein the composition of mortgage funding, with a focus onimprovement in the legal and regulatory framework forcapital markets, as well as Mongolian Mortgage Corporation(MIK) governance, products and operations. The Mongolianmortgage market is exhibiting strong growth, with portfoliooutstanding increasing by 190 percent to Mongolian Tughrik(MNT) 656 billion (US$482 million) between 2009 andend-2011. This represents 8 percent of 2010 gross domesticproduct (GDP) and 12 percent of the 2011 banking loan book.The sector is highly concentrated, with top 4 lendersaccounting for 89 percent of the market, as well asspatially in and around Ulaanbaatar. Housing prices haverisen sharply in the last two years, particularly in 2011,when the increase for the predominantly mortgaged marketsegment was over 36 percent. While mortgage lending growthrates are consistent with the overall growth of householdcredit, real estate prices significantly outpaced ConsumerPrice Index (CPI) and GDP growth in 2011. Currentlynon-performing loans (NPL) are very low due to theunseasoned mortgage portfolio; however, high debt-to-income(DTI) ratio levels may exacerbate future loan age-relatedand cyclical delinquency increases. Due in part to extremeclimatic constraints, shortage of zoned and serviced land,and infrastructure bottlenecks, housing supply is severelyconstrained. Large-scale, publicly-funded, subsidizedhousing initiatives, such as the '100,000Apartments' Program, need to be carefully planned, sothat they cause minimal distortion to the broader housingfinance market.
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