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Mongolia To Provide Subsidized Mortgages

|Includes:Mongolia Growth Group Ltd. (MNGGF)

BDSEC:

Mongolia's central bank plans to cut interest rates on mortgages by almost half to 8 percent from around 15 percent this month, following a new policy approved by the government to ease financial burdens on the middle class.

The new mortgages require a down payment of 10 percent to 30 percent and must be paid back in 20 years, the Bank of Mongolia's Chief Economist Sandagdorj Bold said yesterday in a telephone interview. The loans are valid for apartments smaller than 80 square meters (861 square feet), qualified applicants must have a full-time job, and monthly payments cannot exceed 45 percent of the family income, he said. The policy goes into effect on June 17.

Mongolia is experiencing double-digit growth and new job opportunities in the mining industry and its supply chain are building a middle class that is in need of housing. The strongest demand is in Ulaanbaatar, where half the city residents live in unplanned neighborhoods called "ger districts," which lack infrastructure such as running water and central heating.

"The intended purpose is to support the middle class and support the long-term sustainable economic growth by increasing the savings of the middle class," said Bold, adding that the 8 percent figure is meant to track the Bank of Mongolia's target rate for inflation. "It can vary plus or minus one percent depending on performance of the inflation."

I am against this from a political and ethical standpoint but it will benefit the real estate market in Mongolia longer term. Although these are exactly the types of schemes that help create bubbles. Should be helpful to Mongolia Growth Group down the line as the entire real estate market will increase in value as people begin borrowing for homes and apartments.

Disclosure: I am long OTCPK:MNGGF.

Stocks: MNGGF