The big news this month is the newly created government program to issue 8% residential mortgages with 20 year duration. For a point of reference, previously most Mongolian Togrog denominated mortgages were at rates of around 20% annually with amortization schedules of 5-15 years. The reduced interest rates and substantially elongated principal repayment structure of these new 8% mortgages means that most borrowers will see their monthly mortgage payments drop by 50% to 70%.
This reduced monthly payment now allows families that previously could not afford a mortgage to enter the property market. It will also allow families with existing mortgages to be able to pay down their mortgages and build up equity. Of all of the news stories thus far during 2013, this is probably the biggest one for Mongolia—yet it has gotten very little attention from the foreign media. Here at MGG, we are watching this 8% mortgage plan closely as we believe that a liquid and functioning residential mortgage market is a harbinger of the creation of a sizable middle class in Mongolia. In addition, in the shorter term, it has unleashed quite a lot of capital into the consumer economy—which is good for everybody, particularly our retail tenants.
While we’ve seen the consumer economy spring to life, it is worth noting that we are in the very early stages of this re-invention of the consumer with access to affordable credit.