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New policy to connect people without apartments to empty flats

Last week, in my article titled “Mongolian Alchemists”, I wrote that the authorities are printing more money to force development, and it resembles a snowball rolling down from the top of a mountain.
I explained that the way they are printing more money, supporting the demand for housing and granting soft loans with an interest rate that is two times lower than the market rate (eight percent), will eventually increase inflation and add to financial burdens for all taxpayers.
This step is basically encouraging people to purchase apartments that have not been built based on demand in the market, and that do not have any public infrastructure in their proximity. In other words, people are being urged to buy these apartments at more expensive rates before the market naturally lowers their prices.
Soft housing loans are now being provided to people who have a steady paying job and are registered in the formal economy. Now, there is a need to think about the people who are in the informal, grey economy, and how to provide them with housing opportunities.
Here are some thoughts on providing people with apartments connected to basic infrastructure, how to better position the supply alongside supporting demand, and what monetary policies can be implemented to support these objectives.

SOLUTIONS FOR SUPPLY

The main reason why the 30,000 readily available  apartments in Ulaanbaatar are not being purchased today is that they are too expensive to buy. Their prices include all bribery that was paid for numerous permits, such as land, construction, and connection to the electricity grid.
Nevertheless, the 200,000 households who are doing everything they can to get into those apartments simply do not have the necessary income.
In order to give these households an opportunity to buy an apartment that fits their purchasing power and needs, the government could enable construction companies to build such apartments by providing a guarantee or agreeing to have Mongol Bank buy bonds from the construction companies after the apartments start getting sold. This way, the government can support housing supply that meets the market’s demands.
This measure to increase monetary supply by acquiring bonds is known as quantitative easing.
Furthermore, with the objective of providing housing opportunities to pensioners and people with low or no income, we could follow Singapore’s example and have our local government purchase studio apartments for rental.
If we manage to reduce bribery and corruption in the government, people who own extra capital can start buying shares of investment funds, or have involvement by establishing an investment fund through crowdfunding, which has recently spread in Mongolia.
When that happens, the capital market will see improvements, and people will have another choice besides putting their money into a savings account.
Let me mention three of the several steps we urgently need to take in order to effectively resolve the housing issue in Mongolia and get rid of the smog problem by transferring ger districts residents to apartments connected to central heating and sewage systems.

THREE NECESSARY STEPS

First, all land, publically or privately owned, needs to be differentiated and registered. Afterwards, land ownership and use have to be registered while setting out the principles for land use in legislation.
We should have already done this, but the central government and local governments have no desire to implement such projects, or simply do not possess the capability to do so. For example, the authorities are scared to death of publically disclosing who sold the publically-owned Yarmag, to which individuals or companies they were sold to, and what prices they were sold for.
Instead of stopping the embezzlement of Zaisan land carried out by their predecessors, the current authorities are continuing it in Yarmag. The two large political parties are still keeping it secret who is behind it all.
Second, a municipal zone development map needs to be produced and disclosed publically, so that it is clear to everyone where plants can or cannot be built and at which locations free trade zones or public infrastructure are going to be set up. The map can be put online.
Such plans to develop infrastructure should be announced two to three years before the commencement of a project’s construction, and any organization that is operating in a zone that is not designated for a particular activity should be imposed with fines.
If we do not have this map and continue to auction land, corruption related to land ownership and use will never go away. This work has not been done because the central government and local dignitaries do not see any advantage for themselves in the process.
A clear example: even though the government has talked for almost 20 years about moving factories that process animal skin out of the capital, nothing has been done.
Third, we need to reduce the size of the informal economy and register all businesses. Mongolia’s informal economy is quite big large compared to those of developed countries. It explains why the tax policy we’ve copied from developed countries is too tough and limits the desire and opportunity of people to do business.
In order to shrink the informal economy, our tax policy needs to be softened while improving the process of registering businesses. For example, we have seen that setting the value-added tax (VAT) at 10 percent and having a smaller population pay it does not resolve the problem.
Most businesses do not pay VAT, and those who pay it are under enormous pressure. Therefore, if we reduce VAT to five percent and have everyone pay for it, the state’s tax revenue will see a significant increase.
Although allowing people to receive two percent refunds for their VAT payments is a good step, the informal economy can be shrunk by reducing VAT and having everyone pay it. The work around housing will become more effective if the formal economy has more people and businesses registered as part of it.
If the housing supply truly meets the market’s demand, many households will get an apartment. It will also help the construction industry to develop and become more resistant to the crises we are seeing today.

Trans. by B.AMAR

Short URL: http://ubpost.mongolnews.mn/?p=18033

Posted by on Jan 25 2016. Filed under Opinion. You can follow any responses to this entry through the RSS 2.0. You can skip to the end and leave a response. Pinging is currently not allowed.

1 Comment for “New policy to connect people without apartments to empty flats”

  1. I have heard many times providing example of Singapore. In Singapore, corruption level is very low about nil. Singapore government agencies, legal & financial policies very structured, well maintained & efficient implemented so country become very successful. In Mongolia to get success, we all need to strive for such structure in every sector to work efficiently. We all need to remember that, there is no short cut!! To change anything it surely take time but positive mind set & every sector team work required with dedication to get success!!

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