Ts.Bayarsaikhan: Becoming independent from imports could stabilize housing prices
One of the sectors allotted with a relatively big budget from the state revenue is the construction sector, although the price of apartments and houses are still increasing, and far more than half of the population is still living in ger districts using coal and carrying water from wells. Ts.Bayarsaikhan was appointed the minister of the sector one year ago, enjoying the confidence of citizens to improve the construction sector and provide people with affordable housing in the near future. Below is an interview with Ts.Bayarsaikhan on what is currently being done for the development of the sector.
- Let’s start the interview with what you have accomplished after taking over Construction and Urban Development (CUD)?
It’s already been a year since I was appointed as the minister of CUD, and during this time I’ve become quite familiar with the construction sector by meeting the related officials, professionals, workers and visiting design companies that are currently building apartment complexes in both Ulaanbaatar and other areas of the country, as well as operational building material companies. Construction work is thriving in every province. Through this, I managed to identify the obstacles in the construction sector and what should be done to solve problems facing the upkeep of the sector. To be honest, we are facing a number of serious problems. First of all, since it’s a seasonal sector, the manufacturing period is too limited. Secondly, it’s immensely dependent on imports. Also, the insufficiency of its labor force is a pressing problem, since it’s a seasonal sector and the workplace safety is below the standards of workers who don’t tend to work permanently. Moreover, the procedure for building construction permission is extremely bureaucratic and we’ve detected evidence of widespread corruption for obtaining special licenses.
- What measures are you taking to lessen these drawbacks?
In order to deal with the problem of full dependence on imports, we must support domestic manufacturers. To become independent from imports we have approved a construction material program. Within the framework of the program, some manufacturing imports were freed from customs tax. Also, the government approved supplying construction material plants with working capital as part of the stabilizing basic commodities’ price program. We are aiming to be able to supply all kinds of construction materials to construction companies.
As for becoming less dependent on seasonal factors, pre-fabricated construction must be introduced to the sector. Several decisions have been made regarding bureaucracy in obtaining construction permissions and special licenses. Namely, permission to commence construction work is now issued by the province governors and mayor within 30 days. It was previously issued by a Supervisory Special Agent along with countless disputes. Not only have the general conditions for providing special licenses been relaxed, but the number of professional engineers who take part in supervising construction was also cut back.
As for this year, the number of foreign workers in the construction sector was drastically decreased and 10,000 jobs were filled by local workers. In the near future, we’ll take urgent actions to reduce workplace accidents, including conducting different kinds of training to improve workplace safety. We even started a program named ”Blue Card” in collaboration with NGOs and the Union of Employers.
-Can you please tell us more about the “supporting manufacturing construction material” program?
Should we become independent from imports, it’s possible that the ever increasing price of apartments will stabilize. Thus, the government supports the cement and lime manufacturing plant in Hutul, as well as the restoration of steel manufacturing. The government has granted working capital loans of 140 billion MNT in total to 60 companies engaging in gravel and sand, steel, cement and lime, armature and public industry construction. Fifty new concrete batching plants and four steel plants have become operational this year, as we are aiming to supply the domestic needs of cement and steel. More than 60 plants have applied for the credit and if they are approved and operations commence at the plants, then we are to become fully independent from imports. Furthermore, construction companies are already being supplied with bricks, PSP pipes for pure water and windows made by domestic manufacturers. Thus, in the near future, we’ll be able to domestically manufacture and supply 15 main construction materials. The working capital loan program is to be in effect for three years, so any construction material manufacturing company is allowed to take out credit.
- What is being done to support the local construction sector?
Construction work is thriving in local areas. We’re working on a plan to build apartments in every province for 1,000 households, along with a power grid, sewage system and everything needed to provide living conveniences.
There’s also a special program funded by the Chinggis Bond under the jurisdiction of Erel Company. The plan is to revive the decommissioned house manufacturing plant into full service next year, after importing the needed equipment and machinery. The estimated capacity of the plant can manufacture apartments for 5,000 households per year. The Chinggis Bond provided 14 million USD, 30 percent of the total cost of re-establishing the plant, and the remaining expenses will be covered by Erel.
-On what criteria and stages will the working capital loan be granted?
First the construction manufacturing company submits its request to the ministry to obtain credit. In terms of criteria, the company requesting the loan has to have its own substruction (baaz suuri) with active manufacturing. The construction material importing companies must have experience in importing armature and cement over the last 3 years.
There’s a special working group in the ministry, headed by the State Secretary, for sending the official documents of companies that have satisfied the criteria to a commercial bank. If the bank approves the company’s request for getting credit, then it sends the documents back to the ministry. The permission documents of both the commercial bank and the ministry are sent to Mongol Bank, along with the company’s documents. Finally, if Mongol Bank approves the loan after conducting some necessary research, then the ultimate permission is sent to the commercial bank, where the loan requester takes out the credit. The company must conclude an agreement with the ministry and The Agency for Fair Competition and Consumer Rights. If the agreement is violated, the loan will become instantly invalid. In other words, it’s a rather hard loan to obtain.
-It appears that the construction companies and construction material manufacturers are well supported by the government. But why is the price of apartments and private homes still increasing? Is it related to the ipotek loan with an eight percent interest rate?
We not only reduced the bureaucracy and criteria for obtaining both construction permission and special permissions, but also took significant steps to maintain the proper price for construction materials and supporting the private sector financially. The reason why we suggested building infrastructure, including schools, hospitals, kindergartens, etc. in relatively big apartment and private residence complexes is because we want them to keep their price in an affordable range. If the private sector were to develop infrastructure themselves the price of apartments would shoot up sky high.
As we conducted research regarding apartment prices on 160 private sector developments, ten were found to have increased their prices. The reason is not 100 percent related to the ipotek loan with an eight percent interest rate. Well, it definitely affected the price increase, but supporting demand always results in the price increase of supply, an undeniably direct interdependence. We were criticized for starting the ipotek loan with insufficient supply, yet it’s impossible to set the supply 100 percent. Thus, we should keep the balance of demand and supply and we assume that the ipoek loan was issued most timely.
As we estimated, 60,000 apartments and private homes can be built in UB and other provinces, 33,000 of which will be put into operation from 2013 to 2014. Due to the issues of construction site permissions, a number of construction projects were stopped. But now, with the assistance of government, such as developing infrastructure, solving electricity and network issues, the construction projects are back on track again.
-Does that mean the price of apartments will eventually decrease?
Yes. National construction companies are jointly building an apartment complex for 1,700 households in Buyant-Ukhaa. The infrastructure, electricity, water and central heating are already set by the government. Also, a number of apartment complexes are being built and soon be operational. The price for 1m² is 1,100,000 to 1,300,000 MNT. We’ll also soon establish the State Apartment Corporation (SAC), which will be responsible for supplying citizens with relatively cheap apartments built on state-owned land.
-When will the private home program start?
The planning of the program is in its final stage. The government issued the decision to grant 100 million USD to SAC. The fund will be invested in half the cost of building apartments and private houses in both local areas and UB. The private house program has already started in Sukhbaatar Province, as the engineering lines are being built on private lands.
Short URL: http://ubpost.mongolnews.mn/?p=5795
- Let’s start the interview with what you have accomplished after taking over Construction and Urban Development (CUD)?
It’s already been a year since I was appointed as the minister of CUD, and during this time I’ve become quite familiar with the construction sector by meeting the related officials, professionals, workers and visiting design companies that are currently building apartment complexes in both Ulaanbaatar and other areas of the country, as well as operational building material companies. Construction work is thriving in every province. Through this, I managed to identify the obstacles in the construction sector and what should be done to solve problems facing the upkeep of the sector. To be honest, we are facing a number of serious problems. First of all, since it’s a seasonal sector, the manufacturing period is too limited. Secondly, it’s immensely dependent on imports. Also, the insufficiency of its labor force is a pressing problem, since it’s a seasonal sector and the workplace safety is below the standards of workers who don’t tend to work permanently. Moreover, the procedure for building construction permission is extremely bureaucratic and we’ve detected evidence of widespread corruption for obtaining special licenses.
- What measures are you taking to lessen these drawbacks?
In order to deal with the problem of full dependence on imports, we must support domestic manufacturers. To become independent from imports we have approved a construction material program. Within the framework of the program, some manufacturing imports were freed from customs tax. Also, the government approved supplying construction material plants with working capital as part of the stabilizing basic commodities’ price program. We are aiming to be able to supply all kinds of construction materials to construction companies.
As for becoming less dependent on seasonal factors, pre-fabricated construction must be introduced to the sector. Several decisions have been made regarding bureaucracy in obtaining construction permissions and special licenses. Namely, permission to commence construction work is now issued by the province governors and mayor within 30 days. It was previously issued by a Supervisory Special Agent along with countless disputes. Not only have the general conditions for providing special licenses been relaxed, but the number of professional engineers who take part in supervising construction was also cut back.
As for this year, the number of foreign workers in the construction sector was drastically decreased and 10,000 jobs were filled by local workers. In the near future, we’ll take urgent actions to reduce workplace accidents, including conducting different kinds of training to improve workplace safety. We even started a program named ”Blue Card” in collaboration with NGOs and the Union of Employers.
-Can you please tell us more about the “supporting manufacturing construction material” program?
Should we become independent from imports, it’s possible that the ever increasing price of apartments will stabilize. Thus, the government supports the cement and lime manufacturing plant in Hutul, as well as the restoration of steel manufacturing. The government has granted working capital loans of 140 billion MNT in total to 60 companies engaging in gravel and sand, steel, cement and lime, armature and public industry construction. Fifty new concrete batching plants and four steel plants have become operational this year, as we are aiming to supply the domestic needs of cement and steel. More than 60 plants have applied for the credit and if they are approved and operations commence at the plants, then we are to become fully independent from imports. Furthermore, construction companies are already being supplied with bricks, PSP pipes for pure water and windows made by domestic manufacturers. Thus, in the near future, we’ll be able to domestically manufacture and supply 15 main construction materials. The working capital loan program is to be in effect for three years, so any construction material manufacturing company is allowed to take out credit.
- What is being done to support the local construction sector?
Construction work is thriving in local areas. We’re working on a plan to build apartments in every province for 1,000 households, along with a power grid, sewage system and everything needed to provide living conveniences.
There’s also a special program funded by the Chinggis Bond under the jurisdiction of Erel Company. The plan is to revive the decommissioned house manufacturing plant into full service next year, after importing the needed equipment and machinery. The estimated capacity of the plant can manufacture apartments for 5,000 households per year. The Chinggis Bond provided 14 million USD, 30 percent of the total cost of re-establishing the plant, and the remaining expenses will be covered by Erel.
-On what criteria and stages will the working capital loan be granted?
First the construction manufacturing company submits its request to the ministry to obtain credit. In terms of criteria, the company requesting the loan has to have its own substruction (baaz suuri) with active manufacturing. The construction material importing companies must have experience in importing armature and cement over the last 3 years.
There’s a special working group in the ministry, headed by the State Secretary, for sending the official documents of companies that have satisfied the criteria to a commercial bank. If the bank approves the company’s request for getting credit, then it sends the documents back to the ministry. The permission documents of both the commercial bank and the ministry are sent to Mongol Bank, along with the company’s documents. Finally, if Mongol Bank approves the loan after conducting some necessary research, then the ultimate permission is sent to the commercial bank, where the loan requester takes out the credit. The company must conclude an agreement with the ministry and The Agency for Fair Competition and Consumer Rights. If the agreement is violated, the loan will become instantly invalid. In other words, it’s a rather hard loan to obtain.
-It appears that the construction companies and construction material manufacturers are well supported by the government. But why is the price of apartments and private homes still increasing? Is it related to the ipotek loan with an eight percent interest rate?
We not only reduced the bureaucracy and criteria for obtaining both construction permission and special permissions, but also took significant steps to maintain the proper price for construction materials and supporting the private sector financially. The reason why we suggested building infrastructure, including schools, hospitals, kindergartens, etc. in relatively big apartment and private residence complexes is because we want them to keep their price in an affordable range. If the private sector were to develop infrastructure themselves the price of apartments would shoot up sky high.
As we conducted research regarding apartment prices on 160 private sector developments, ten were found to have increased their prices. The reason is not 100 percent related to the ipotek loan with an eight percent interest rate. Well, it definitely affected the price increase, but supporting demand always results in the price increase of supply, an undeniably direct interdependence. We were criticized for starting the ipotek loan with insufficient supply, yet it’s impossible to set the supply 100 percent. Thus, we should keep the balance of demand and supply and we assume that the ipoek loan was issued most timely.
As we estimated, 60,000 apartments and private homes can be built in UB and other provinces, 33,000 of which will be put into operation from 2013 to 2014. Due to the issues of construction site permissions, a number of construction projects were stopped. But now, with the assistance of government, such as developing infrastructure, solving electricity and network issues, the construction projects are back on track again.
-Does that mean the price of apartments will eventually decrease?
Yes. National construction companies are jointly building an apartment complex for 1,700 households in Buyant-Ukhaa. The infrastructure, electricity, water and central heating are already set by the government. Also, a number of apartment complexes are being built and soon be operational. The price for 1m² is 1,100,000 to 1,300,000 MNT. We’ll also soon establish the State Apartment Corporation (SAC), which will be responsible for supplying citizens with relatively cheap apartments built on state-owned land.
-When will the private home program start?
The planning of the program is in its final stage. The government issued the decision to grant 100 million USD to SAC. The fund will be invested in half the cost of building apartments and private houses in both local areas and UB. The private house program has already started in Sukhbaatar Province, as the engineering lines are being built on private lands.
Short URL: http://ubpost.mongolnews.mn/?p=5795
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