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Ideologies of mortgage financing in Mongolia

By Rebekah Plueckhahn, on 16 March 2018

Rebekah Plueckhahn is a Research Associate on the Emerging Subjects Team at UCL – Anthropology. This post draws from research that forms part of her book Shaping Urban Futures in Ulaanbaatar forthcoming with UCL Press.

Visiting Mongolia in November-December 2017, many people I spoke to were preoccupied with the topic of the current influence of the recently implemented oversight by the International Monetary Fund (IMF) and their influence in numerous sectors of Mongolian economic governance as they prepared to make sizable loans to the country. The influence of the IMF is currently extending into a vast number of areas, including macroeconomics, national ministries, as well as Ulaanbaatar municipal budgets. One area that had implications across these areas was the IMF’s current recommendations for the systems of financialisation that have made Mongolia’s 8% mortgage (ipotek) program possible through Mongolia’s secondary mortgage market.

As part of their recommendations, the management of Mongolia’s secondary mortgage market is being transferred away from Mongol Bank (the Central Bank of Mongolia), to the government, in particular, the Ministry of Finance (IMF 2017, 15 and 67). This has come as part of redefinitions and restructurings of the role of Mongol Bank vis a vis the Mongolian government, that has been cemented through the recently passed amendments to the töv bankny tuhai huul’ or the Law on the Central Bank of Mongolia. Part of these restructurings has been attempts to increase the central bank’s independence from government, including limiting its influence in state budgets, and putting measures in place so that it can better act as an agent of government, more involved in price stability rather than inflation and exchange rates (IMF 2017, 44). Talking with people and reading about these types of restructurings brought into view different anticipatory conceptual ideals of what an economy or financial arrangements should look like or become. The IMF recommendations followed their Safeguards Assessment of 2017, an initiative that encourages standardisation of central banks internationally. This forms part of a much longer history of central banks worldwide becoming institutions that adhere to the ‘rules and rhythms of the market’ rather than political influence (Bear 2015, 190-193). Mongolian parliament member D. Damba-Ochir, quoted in news outlet montsame.mn, stated that the amendments to the law on the central bank will encourage togtvortoi baidal or stability in times of financial crisis (ediin zasgiin hyamral). Another person I spoke to said the move to transfer the ipotek program to the Ministry of Finance was done to encourage sustainability.

Expanding monetary circulations

Hearing these updates at the end of 2017 gave me an opportunity to reflect upon other perceptions on the roles and make-up of Mongolia’s secondary mortgage market and the ethics of mortgage provision. It also gave me a chance to reconsider the links between these factors and the ways this scheme has unfolded and manifested throughout areas of Mongolia’s systems of financialisation, built environments and personal spheres. During the course of my research from 2015-2017, different manifestations of economic ideologies have proliferated throughout the entangled assemblage of actors that comprise Mongolia’s banking and construction sectors. Through following different, interlinked forms of monetary circulation (möngönii ergelt) that allow people to access apartment mortgage financing, what I was alerted to were the different and sometimes (but not always) competing perceptions of how things should be and how the housing ‘market’ should be formed.

Out of the multiple influences of a slowly emerging housing finance program during the 2000s, initiated partly through assistance from the Asian Development Bank and USAID, as well as a hugely increased housing stock brought on by Mongolia’s speculative boom in foreign direct investment from 2009-2012, Mongolia’s mortgage ipotek system was launched in 2013 as an attempt to reconcile the huge demand for housing and the lack of affordable mortgage financing then available. This mortgage system, run by the Mongolian Mortgage Corporation (Mongolyn Ipotekiin Korporatsi) (MIK), provided an interlinked secondary mortgage market through funds issued by the Central Bank of Mongolia to participating commercial banks, allowing them to issue 8% interest ipotek (mortgages).

The 8% interest ipotek is the only kind of more affordable form of housing finance available on the market in Mongolia. It is also quite new. The alternative, for apartments bigger than 80sqm, is to take out a oron suutsnii bankny zeel (apartment bank loan), a loan drawn from savings within commercial banks themselves (savings-based loan), which is often offered at 17-20% interest and a shorter time frame in which to pay it back. For the 8% interest ipotek mortgage, the 30% deposit and the considerable employment history required in order to qualify for it means that this option often does not meet the intended market of low-middle income buyers, nor has it allowed a great deal of people from the peri-urban ger areas of Ulaanbaatar to access apartments. However, among people who can afford it, the demand has been, and remains, extremely high. However, due to a depreciation of the Mongolian tögrög and a lack of funds to inject in the system, the issuance of the 8% ipotek loan from the central system has been varying, including it being paused at the end of 2015, and resumed in varying ways at different points since.

Discussing 8% ipotek mortgage issuance with loan officers at different banks in November 2017, I was informed about the high demand for these mortgages and the fact that some customers are still waiting for money to appear even though their mortgages had been approved a year ago. Attempts to meet this high demand have given rise to different kinds of monetary circulation in order to make this possible. Expanding beyond the secondary mortgage market, within Mongolia the systems of financialisation and monetary links comprise of an ever-expanding set of circulations, arrangements, exchanges and connections. While the economy has stalled, the 8% interest mortgage has remained a kind of idealised form of housing finance regardless of the changing nature of the systems that support it or the fluctuating levels of funding different economic institutions receive.

One such way to meet this demand has been the cooperation between banks and construction companies in an attempt to maintain the 8% ipotek mortgage as an option. Speaking with a loan officer in a bank in Ulaanbaatar, they told me how customers can qualify for 8% interest house loan through their bank if they buy an apartment in buildings built by particular construction companies. This circulation of money between a bank, an individual and a construction company allows construction companies a better chance of attracting customers in order to recoup construction costs through attempting to meet the high demand that the system will no longer support. These ‘circulations’ sometimes consist of the conversion of other forms of capital into an expanded type of circulatory network. As seen in the following advertisement posted in January 2017, this construction company at that time received land (including compensating for self-built buildings or baishin) and cars in lieu of a 30% down payment (urd’chilgaa tölbör):

Figure 1: In January 2017, a construction company advertises a variety of different and flexible conditions on acquiring an 8% interest mortgage through their partner bank, including items that can be accepted in lieu of a deposit. They promise a ‘quick decision’ on apartment loan applications.

Considering the construction company’s role in promoting arrangements like this expands our understandings of how Mongolia’s secondary mortgage market can be conceptualised and redefined. During fieldwork in 2015 and 2016, construction companies were often engaging in forms of bartering of cars and building materials in order to complete projects and sell apartments. Collaborating with banks forms another aspect of doing business.

Expanding ideologies

Such a collaboration between a bank and construction company that provides a different way of financing of a singular (relatively) affordable option allows banks to continue to participate in a form of mortgage financing in the hope that the secondary mortgage market will become increasingly reliable. The idealisation of 8% interest ipotek mortgage extends not only for its ability for a wider group of non-elite people to buy apartments, but also an idealisation of the system itself and what it can bring to the Mongolian economy. Echoing in a different way the IMF stance outlined above, one loan officer told me the secondary mortgage market could ‘ediin zasagiin zöv goldrild oruulah,’ or ‘turn the economy onto the proper course.’ While people are also skeptical of the different arrangements making mortgage financing possible, in the minds of many people the system initiated by the Central Bank exists in its potentiality as much as its practice. Mongolia’s secondary mortgage system is quite new, and like other arrangements and entanglements that make up the mortgage market, it is still in the making. In the meantime, people rely on other connections (Narantuya and Empson, forthcoming), that support this system from within (Maurer 2012, 414). Its proposed transfer to the Ministry of Finance in September 2018 (IMF 2017, 47), will form another substantiation of this network’s financialisation that will undoubtedly give rise to new political and economic relationships, connections and circulations. These, like other forms of financialisation, will further shape this nascent but important network and continue to expand and give rise to different economic ideologies within Mongolia.

I’d like to sincerely thank Batbayaryn Erdenezayaa for her assistance with this research.

References:

Bear, Laura. 2015. Navigating Austerity: Currents of Debt Along a South Asian River. Stanford, California: Stanford University Press.

Bumochir Dulam. 2016. “The Politics of the Mortgage Market in Mongolia.” Emerging Subjects Blog, 29th January 2016. https://blogs.ucl.ac.uk/mongolian-economy/2016/01/29/the-politics-of-the-mortgage-market-in-mongolia/. Accessed 5th February 2018.

International Monetary Fund. 2017. “Mongolia – First and Second Reviews under the Extended Fund Facility – Press Release; Staff Report; and Statement by the Executive Director for Mongolia.” Washington DC. December 2017. https://www.imf.org/en/Publications/CR/Issues/2017/12/21/Mongolia-First-and-Second-Reviews-Under-the-Extended-Fund-Facility-Press-Release-Staff-45505

Maurer, Bill. 2012. “The Disunity of Finance: Alternative Practices to Western Finance.” In The Oxford Handbook of the Sociology of Finance, 413–30. Oxford: Oxford University Press.

Narantuya, C. and Empson, R. (Forthcoming) ‘Networks and the Negotiation of Risk: Making Business Deals and People among Mongolian Small and Medium Businesses’ Central Asian Survey.

Post-election stalling in Ulaanbaatar: The case of Building No. 3

By Rebekah Plueckhahn, on 16 September 2016

This blog is the fifth in a series of posts about Mongolia’s 2016 parliamentary elections that were held on June 29th.

Mongolia’s June 29th national parliamentary elections and Ulaanbaatar city elections acted as a multifaceted anticipatory device. The elections could be said to form a symbolically cumulative conclusion to a troubled political and economic period. The result was a vast overhaul of the state hural and the winning of an 85.5% majority for the Mongolian People’s Party (MPP). However, looking deeper into the temporal flow of the pre-election and post-election period reveals not so much a culminating electoral event and political regime change at the national and city levels. Instead, for many people living in Ulaanbaatar, this year has proven to be one of ongoing waiting and uncertainty. This period has been punctuated by waves of speculation and markers in time that produce stalling caused by changing groups of the political class.

The materiality of stalling

For many people living in Ulaanbaatar, this stalling has had considerable material repercussions that began well before the elections. One local official told me that the providing of certificates of temporary possession (ezemshih gerchilgee) of newly acquired pieces of land was stalled on the 25th of May 2016 in the lead-up to the election. People claiming new land in the north of the city were attempting several times a week to try and process the right paperwork, but were consistently sent away to return ‘after the election.’ However, now almost three months afterwards, the processing of new land has not yet recommenced. In this period of bureaucratic stalling, people attempt to chase the right land official who visits on particular days, but are told that the land official is only currently dealing with ‘problem land’ and not new applications. However, to the average person, what counts bureaucratically as ‘problem land’ is opaque and not fully knowable. The fact is that many people in new plots of land are in varying forms of conflict with their neighbours as to the limits of boundary fences. Instead of waiting for bureaucratic decisions to be made in the meantime, people go ahead and secure their land in other ways.  For instance, they may stay on the land in an effort to hold it, and attempt to secure it with a fence before it can be officially recognised.[i]

Image 1: A new fence has been set up on a plot of land in the northern areas of the city.

Image 1: A new fence has been set up on a plot of land.

 

Waiting amongst disrepair

One group of people in Ulaanbaatar have been particularly hit by post-election stalling. Again, their story began a long time before this year’s elections. They are a people who have been left behind after the last economic peak of 2011 and have borne the brunt of the subsequent departure of major investment from Ulaanbaatar’s construction sector. In the heart of Zuun Ail, an area close to the city core and a prime area for redevelopment projects, lies a collection of old niitiin bair – former construction worker dormitories built during the 1950s. Building No. 3, like the other niitiin bair, stands as a two story building that consists of one room apartments. These buildings have never had running water, and residents obtain their water from nearby wells. The one advantage these buildings had was heating. In the earlier days of the rise in construction development a construction company sought to redevelop these buildings into apartments. Excited at the prospects of gaining access to better infrastructure including running water, and increasing the value of their property, many owners in Building No. 3 signed contracts with the company to exchange their apartments for new ones to be built in their place.

Unfortunately, funding dried up, the redevelopment of Building No. 3 did not go ahead and the construction company is rumoured to have gone bankrupt.[ii] Before this was known however, the internal infrastructure of several of the rooms were removed, including the heating pipes, windows, doors and floor boards which were sold for scrap. Several different parties are blamed for this, including some residents claiming that owners were told to remove the infrastructure to display intent to leave and compliance with the upcoming redevelopment. Since then, the rooms have been further vandalised. The end result has been that multiple apartments on the bottom floor of the building have been slowly filled with refuse, as rubbish has been routinely disposed of through the gaping holes of former windows over the course of some time. The building’s heating has been switched off, the building itself is in a crumbling state of disrepair and is unsafe to live in.

Image 2: Many of the building’s lower floor windows have been removed and rubbish thrown in anonymously over time under the cover of darkness.

Image 2: Many of the building’s lower floor windows have been removed and rubbish thrown in anonymously over time under the cover of darkness.

Image 3: An abandoned room in which the radiator and window have been removed.

Image 3: An abandoned room in which the radiator and window have been removed.

Several people still live in this building and are unable to leave. Many owners, both living in the building and elsewhere, are desperate to find a solution to their problem – to find a different construction company deal, to receive compensation from the original construction company, or to simply find alternative housing. However, since the election period, simply being provided emergency alternative housing has become a main and urgent aim. Those still living in the apartment are working to a strict and unforgiving deadline: the looming onset of winter in an unsafe apartment building without heating. The situation is dire and resulted in Amnesty International Mongolia putting a call out to campaign for the former Ulaanbaatar mayor Bat-Üül to provide these people with alternative housing. This Amnesty International call-out has since been renewed and rebroadcasted since the elections. During the elections, election promises were made offering some solutions. This has meant that for these people, the elections acted as an important anticipatory device. However, as yet, the residents have not yet been provided alternative housing and cold weather is fast approaching.

Cleaning in defiance      

For the resident owners, this prolonged period of waiting has been a time of strategy, observation and flows of different types of actions. Just as the political stalling is prolonged and ongoing, so too are their different types of strategies. Here attempted ‘resolution’ of their situation, rather than an end point, is a maintaining device and important way to be heard. Residents have been involved in different court cases related to their situation. Much time is spent commenting on the ongoing situation while sitting in doorways of buildings and on the street, where updates are shared, compared and critiqued. They display an ‘active interaction’ between resistance and attempts to bring about change, while staving off the material flow-on effects of forced disrepair (Ortner 2016).

This was clearly seen on May 22nd 2016, when several residents spent a full day clearing all the rubbish out of the empty apartment rooms on the ground floor. This was a huge undertaking. The rubbish was putrid and some of it had even decayed to earth. This rubbish had been an invasion of their building, encroaching closely on their own small apartment rooms. Who had deposited this rubbish and what it actually consisted of was essentially unknowable. By cleaning it up, they were moving against the anonymity of an accumulation of urban waste disposal over a long period of time. They were rejecting the slow deterioration and destruction of their living space that had occurred through quests for bountiful profit for some, and a better quality of life for others:

Image 4: An apartment owner cleans out the accumulated and decayed rubbish of an empty apartment in the lower floor of his building.

Image 4: An apartment owner cleans out the accumulated and decayed rubbish of an empty apartment in the lower floor of the building.

Image 5: On May 22nd 2016, residents remove the accumulated rubbish from Building No. 3.

Image 5: On May 22nd 2016 residents removed the rubbish from Building No. 3.

Thanks to their amazing efforts, the rooms are now cleared. But the building’s current residents continue to wait. They plan to have everyone move upstairs, then seal off the corridors and the windows of the ground floor to stop further rubbish polluting their building. In this period of waiting, their only option is to carve out a better space and modify this building to their needs. However, in the last few weeks, residents have informed me that people are beginning again to throw rubbish into the building during the night.

Stalling in a far-from-normal election year

The promise of varying forms of assistance for residents of Building No. 3 is an election promise of severe personal, emotional weight. Providing emergency alternative housing can determine the health and well-being of a large group of people this coming winter. While some steps by new politicians have been taken since the election, alternative housing has yet to be confirmed. The failure to provide such housing puts these people into a dire and unknowable situation and has considerable material and felt ramifications.

Bureaucratic stalling in Ulaanbaatar at the height of summer was always going to have significant effects reverberating throughout the city. A land official told me, “it is normal for this [kind of stalling] to happen during an election year.” It is common for a new term of Mongolian national parliament to not be confirmed until September of that year. However, as Mongolia’s new politicians are aware, Mongolia’s recent economic oscillations mean that this year is no ‘normal’ election year. To address the looming decisions, the new state parliament was formed much quicker than usual.

What was described as a crisis in the lead up to the election has transformed to ever deepening gradations of ‘crisis levels’ without a clear end in sight. The course that Mongolia now needs to take given the government’s own economic assessment is by no means clear. Mongolia faces major economic decisions that, no matter which way they turn, will have significant geopolitical consequences. Mongolia is currently considering accepting IMF bailouts, while the Bank of China has set up an office in Ulaanbaatar, and waits to see whether Mongolia will open its economic borders to allow it to set up branches and commence operations in Mongolia.

While bureaucratic stalling is common during an election year, acts of stalling this year are especially critical given the far-reaching economic fallout that has affected so many groups of people. However, where there is stalling, there are also new possibilities. While people wait to see whether this ‘crisis ordinary’ (Berlant 2011:10 c.f. Rebecca Empson this blog series) will deepen into a chasm of economic disrepair that the country as yet cannot see an end to, some people see this interlude as the opportunity to divert their current course. Let’s just hope that the new political representatives of Zuun Ail at the city and national level will find ways to manoeuvre their newly acquired power to allow the residents of Building No. 3 to access alternative housing this winter. These are one group of people who simply cannot afford to wait.

 

For more information on Amnesty International’s campaign for this case, please see: https://www.amnesty.org/en/documents/asa30/4793/2016/en/

 

© All photos by Rebekah Plueckhahn

A sincere thank you to Doljinsuren and Erdenezayar for assistance with this research.

[i] Living on land as a way to ‘hold’ and prevent others from claiming it has long been a part of land access in Ulaanbaatar since 1990.

[ii] While conducting research on property in Ulaanbaatar, more stories emerged of other similar failed redevelopments of other buildings in different areas of the city.