Affordable And Energy Efficient Housing Development
Affordable And Energy Efficient Housing Development
Business Model Description
Invest in B2B/B2C models engaged in building affordable homes for the population in peri-urban informal settlements with a focus on sustainability. The focus is especially on 'ger districts' that are located on hills and mountains surrounding Ulaanbaatar. They have schools, stores and hospitals. However, they do not have paved roads and there is seemingly no organization or layout to how the buildings and gers are arranged. The people that live here have often migrated to Ulaanbaatar from the countryside, or they are the children of migrants. They are typically from low-income segments and lack facilities that are otherwise available to more affluent population segments. Examples of companies active in this space are:
Hybrid House LLC, founded in 2017, constructs energy and water-efficient buildings and distribution of solar energy equipment and other energy-efficient construction materials. The Company has the capacity to build 20-40 houses per year by importing building materials. It intends to expand its operations by establishing a factory that manufactures energy-efficient building materials.
Under the pilot housing financing, scheme in cooperation with the Mongolian Bankers Association (MBA) and the Mongolian Sustainable Finance Association (MSFA/ ToC), households in off-grid areas were enabled to switch from burning coal to living in energy-efficient standalone houses with up to 80 percent less (heat) energy consumption.
Commercial banks in cooperation with international organizations have implemented a pilot subsidized loan program for energy efficient houses. By the end of 2021, a total of 26 EE houses were built through the subsidized pilot.
Expected Impact
Benefitting the wellbeing of peri-urban informal settlement (ger district) population and address their health and safety concern
How is this information gathered?
Investment opportunities with potential to contribute to sustainable development are based on country-level SDG Investor Maps.
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Country & Regions
- Mongolia: Ulaanbaatar
Sector Classification
Infrastructure
Development need
TCData 360 reveals that Mongolia performs poorly in terms of its quality of infrastructure as it ranked at 130 out of 160 countries in 2018, indicating a need to address infrastructure development, including housing, waste management, and water treatment along with the rapid urbanization. (1)
Policy priority
The Vision 2050, the Five Year Development Plan, the Government's Action Plan and the New Recovery Policy determine the infrastructure development as one of the top priorities. Particularly, Vision 2050 aims to create conditions for providing affordable housing fit to the needs and purchasing power of households.
Gender inequalities and marginalization issues
A study reveals that women and children are highly impacted by air, water and soil pollution which is a result of inadequate urban infrastructure. During winter season, daily average pollution levels reach 27 times the safe level recommended by WHO. Primary source of such air pollution is coal-burning stoves in the peri-urban informal settlements.
Children are most vulnerable to adverse health effects of air pollution from the day they are conceived (3). Women primarily engage in unpaid household work, living in ger districts – cooking and heating using traditional stoves as well as accessing water supply from public kiosks.
Investment opportunities introduction
With the newly approved Law on Public Private Partnerships of 2022, the Government of Mongolia places a high priority on the use of public-private partnerships to undertake large-scale infrastructure projects.
Key bottlenecks introduction
Access to adequate finance to undertake infrastructure projects is complicated due to long payback periods and high risks, thereby limiting cash flows to finance rapid expansion. Also, upfront costs are significant.
Real Estate
Development need
Ulaanbaatar, planned for half mn people, is today home to 1.5 mn people. As the urban infrastructure is overloaded, over half of total households live in peri-urban informal settlements (ger districts) which have limited access to electricity, water, sanitation and heat supply. This makes the city a pollution hub, and exposes it to a public health crisis. (2)
Policy priority
Mongolia NDC intends to reduce the equivalent of 830,000 tons of carbon dioxide in the construction sector. Specifically, 599,000 and 231,000 tons of CO2 equivalent will be reduced by using improved fuels and insulating prefabricated apartments, respectively.
Gender inequalities and marginalization issues
The population living in peri-urban informal settlements (ger areas) of Ulaanbaatar are highly vulnerable to climate change and hotspots of greenhouse emissions and air pollution. Majority of Mongolian women do not have land ownership rights, which hinders them from obtaining bank loans.
While 60 percent of men and 33 percent of women own their homes, 55 percent of men and 27 percent of women have officially registered their ownership rights. 1.5 times more men than women in the urban areas and 3 times more men in the rural areas have home ownership certificates. (5)
Investment opportunities introduction
Ensuring access for all to adequate, safe and affordable housing and basic services, and upgrading slums by 2030, as defined by SDG 11, requires investing in adequate infrastructure by concessional financing
Key bottlenecks introduction
It includes (i) limited access to long term and low cost financing for the developer, (ii) constrained access to long term and low cost financing for the buyer, and (iii) inadequate supply of affordable housing.
Home Builders
Pipeline Opportunity
Affordable And Energy Efficient Housing Development
Invest in B2B/B2C models engaged in building affordable homes for the population in peri-urban informal settlements with a focus on sustainability. The focus is especially on 'ger districts' that are located on hills and mountains surrounding Ulaanbaatar. They have schools, stores and hospitals. However, they do not have paved roads and there is seemingly no organization or layout to how the buildings and gers are arranged. The people that live here have often migrated to Ulaanbaatar from the countryside, or they are the children of migrants. They are typically from low-income segments and lack facilities that are otherwise available to more affluent population segments. Examples of companies active in this space are:
Hybrid House LLC, founded in 2017, constructs energy and water-efficient buildings and distribution of solar energy equipment and other energy-efficient construction materials. The Company has the capacity to build 20-40 houses per year by importing building materials. It intends to expand its operations by establishing a factory that manufactures energy-efficient building materials.
Under the pilot housing financing, scheme in cooperation with the Mongolian Bankers Association (MBA) and the Mongolian Sustainable Finance Association (MSFA/ ToC), households in off-grid areas were enabled to switch from burning coal to living in energy-efficient standalone houses with up to 80 percent less (heat) energy consumption.
Commercial banks in cooperation with international organizations have implemented a pilot subsidized loan program for energy efficient houses. By the end of 2021, a total of 26 EE houses were built through the subsidized pilot.
Business Case
Market Size and Environment
> USD 1 billion
Approximately 75,000 affordable housing units will be required for 300,000 people by 2030 (4).
Under Vision 2050, the Government aims to increase the proportion of households living in affordable housing in total households to 35.8 percent by 2030 from 25.3 percent in 2018.
Responding to the undersupply of affordable and green housing and urgent demand for basic urban services, the Affordable housing and Resilient Urban Renewal Project will be implemented until 2026 to deliver 10,000 affordable green housing units by leveraging private investments. Under this project, the Company has delivered 20 houses in 2022.
The Government of Mongolia aims to relocate the peri-urban informal settlements to apartments with proper infrastructure in the Ulaanbaatar City by providing low interest loans (6 percent) and other housing programs i.e. 150,000 housing program. The traditional and serviced built-up areas of the city center comprise some 130 km2, whereas the informal settlement areas cover about 350 km2 in Ulaanbaatar.
Indicative Return
15% - 20%
As per private sector consultation, ROI is estimated to be around 15-20 percent, but can be improved if the supply chain risk and currency risk are lower.
Average price of houses under affordable and energy efficient scheme is USD 1000 per square meter. There has been an increased demand for such houses, however, the building companies could not fulfill the market demands due to the supply chain constraints.
Commercial banks offer concessional loans with annual interest rates of 3-12 percent, the tenor of 30-240 months and 10-20 percent of advance payment.
Investment Timeframe
Long Term (10+ years)
Real estate is a capital intensive sector and the players in the affordable housing market are addressing the needs of the low-income population. Thus, generating a substantial return on investment would take more than 10 years.
Ticket Size
USD 1 million - USD 10 million
Market Risks & Scale Obstacles
Capital - Requires Subsidy
Business - Supply Chain Constraints
Capital - CapEx Intensive
Impact Case
Sustainable Development Need
Private investment in construction sector can offer affordable and energy efficient housing solutions to ensure shelter for the ger residents who lack of access to clean energy, safe drinking water and sanitation, and waste management services and live in areas prone to flooding.
Provision of affordable and energy efficient housing can help in improving national health indicators by reducing air pollution and other communicable diseases.
Gender & Marginalisation
Private investment in construction sector can reduce air pollution which has become the main threat to the children's health in Ulaanbaatar city. In last 10 years, incidences of respiratory diseases in Ulaanbaatar alarmingly increased including a 2.7-fold increase in respiratory infections per 10,000 population. (3)
In Mongolia, a 3.5-fold increase in fetal deaths have been documented between winter and summer. (3)
Provision of affordable and energy efficient homes through concessional financing can enable vulnerable population to purchase adequate housing. Since 2001, a 2-3 fold increase in the number of new rural migrants have been documented (4). New migrants are increasingly moving in ger districts in Ulaanbaatar resulting from climate-induced disasters. (4)
Improvements in infrastructure (water supply and sanitation, heating) will have a significant impact on time savings for ger area residents, particularly women. According to the NSO's Time usage survey, Mongolian women spend 3 times more on unpaid care work compared to men as of 2019.
Expected Development Outcome
Affordable and energy efficient housing will effectively improve health of households by bringing down indoor and outdoor PM production to zero due to a shift towards central hot water heating, electric stoves and hot water heaters.
Develop infrastructure in ger areas to reduce the negative impact of urbanization on the environment. According to the SWITCH Asia estimates, 1000 energy efficient houses will save 1.600 mT of coal and avoid the emission of 6.000 TeqCO2.
Decreased inequalities in accessing housing for low and middle income families, thereby reducing overall poverty.
Gender & Marginalisation
Reduce the extremely high levels of toxic air which would prevent and treat health problems among vulnerable groups including women, children and elders.
Improved access to energy, water and sanitation not only reduce the time and labor burden on female population but can also improve their level of mobility, productivity and access to markets.
Primary SDGs addressed
11.1.1 Proportion of urban population living in informal, informal settlements or inadequate housing
Proportion of households with access to adequate housing: 2018 - 25.3 percent
Proportion of households with access to adequate housing: 2025 -33 percent, 2030 -35.8 percent
3.9.1 Mortality rate attributed to household and ambient air pollution
Composition of PM 10 level in air was 141mkg/m3 and PM level was 64mkg/m3 in 2018
Reduce pollutants PM10 and PM2.5 by 38 percent in 2025 and 65% in 2030
1.2.1 Proportion of population living below the national poverty line, by sex and age
Proportion of population living below the national poverty line was 28.4 percent in 2018.
Reduce the proportion living below the national poverty line to 20 percent by 2025 and 15 percent by 2030.
Secondary SDGs addressed
Directly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Indirectly impacted stakeholders
People
Gender inequality and/or marginalization
Planet
Corporates
Public sector
Outcome Risks
Incorporating smart features and green building components in housing may increase construction and per-unit costs, potentially leading to the exclusion of lower-income population.
As the energy efficient house developers import most of their building material there is a high supply chain risk which results in delays.
Due to the perception and the fact that mortgages can create a long term financial burden for households, households may not be willing to purchase such properties.
Affordable and energy efficient housing might lower demand for other apartments, and inflate land prices in the neighbourhood.
Gender inequality and/or marginalization risk: The absence of regulations to maintain the quality of construction will render vulnerable populations at risk of being exploited with poor-quality housing.
Impact Risks
In the absence of accessible financing schemes/loans that are serviceable, especially by low income households, the model will remain fragmented, unable to address the affordable housing market gap.
High interest rate volatility could make it less attractive for investors and financial institutions to offer loans
Gender inequality and/or marginalization risk: Mongolian women may face challenges to meet bank loan requirements due to the fact that most of them do not have property ownership rights (8).
Impact Classification
What
Affordable and energy efficient housing provides access to quality shelter available for all, especially the vulnerable communities
Risk
There is a risk that limited availability of construction materials and loans may negatively affect the scale of the projects.
Contribution
If only 10 percent of the new houses built in the ger districts were built in an energy efficient way, this would result in a saving of about 48,000 tons of CO2 per year (6)
Impact Thesis
Benefitting the wellbeing of peri-urban informal settlement (ger district) population and address their health and safety concern
Enabling Environment
Policy Environment
Vision 2050 3.2. Affordable housing: Improve the conditions of ger district by increasing access to and provision of affordable, and quality green housing that conform to the purchasing power of the population.
Mongolia NDC target: Reduce the equivalent of 830,000 tons of carbon dioxide in the construction sector. These include: -599,000 tons of CO2 equivalent due to the use of improved fuels; -231,000 tons of CO2 equivalent due to the insulation of prefabricated apartments.
The Action Plan 2020-2024 of the Government of Mongolia states that the Government will aim to provide 150,000 households with formal housing through public-private partnerships and promote concessional financing for low income households to increase affordability of the formal housing.
Financial Environment
Financial incentives: According to Law on Energy Saving and the Government Regulations on incentivizing citizens and entities that introduce environmentally friendly technology and practices, the Green passport/Eco Label holder will receive incentives including subsidized loans.
Fiscal incentives: The Law on Corporate Income Tax provides for exemption with respect to sales of imported equipment and machinery which is environmentally friendly and reduces environmental pollution and wastes.
Other incentives: Under the Personal Income Tax Law, the purchase of environmentally friendly equipment for household use and private apartments that were built or purchased for residential purposes for the first time, are tax exempt.
Regulatory Environment
(Regulation): The Mongolian Norm and Regulation BnDB 23-02-09 “Thermal Performance of Buildings” provides performance objectives with measurement and monitoring criteria, which allow building designers the flexibility to determine their own methods for achieving the requirements
Marketplace Participants
Private Sector
XacBank, Trade and Development Bank, Khan Bank,Golomt Bank, State Bank, Construction companies - Hybrid House LLC, Passive Housing Development" LLC, Grand Avgush House LLC, Erel house LLC, ISO House LLC, Buiman Kharsh LLC
Government
Ministry of Road, Transportation, Ministry of Construction and Urban Development, Ministry of Environment and Tourism, the Municipality of Ulaanbaatar, The Capital City Housing Corporation (NOSK), Land Agency
Multilaterals
Asian Development Bank,International Finance Corporation, United Nations Development Programme, Green Climate Fund, The Deutsche Gesellschaft für Internationale Zusammenarbeit GmbH - GIZ, Global Green Growth Institute, European Bank for Reconstruction and Development
Non-Profit
Mongolian National Construction Association (MNCA), Mongolian Sustainable Finance Association (MSFA/ToC)
Public-Private Partnership
Mongolian Green Finance Corporation
Target Locations
Mongolia: Ulaanbaatar
References
- (1) World Bank. (2018). TCData 360 Mongolia, https://tcdata360.worldbank.org/indicators/trade.fac.infr?country=BRA&indicator=332&viz=line_chart&years=2007
- (2) Government of Mongolia. (2019). Mongolia Voluntary National Review Report 2019:Implementation of the Sustainable Development Goals."
- (3) United Nations Children's Fund (UNICEF) in Mongolia. (2023). Climate Change. https://www.unicef.org/mongolia/environment-air-pollution
- (4) Green Climate Fund (GCF). (2018). Funding Proposal for Ulaanbaatar Green Affordable Housing and Resilient Urban Renewal Project. https://www.greenclimate.fund/sites/default/files/document/funding-proposal-fp077-adb-mongolia.pdf
- (5) Asian Development Bank (ADB). (2018). Mongolia Gender Situational Analysis
- (6) German Agency for International Cooperation or (GIZ). (2022). Energy efficiency in the Building Sector for a More Sustainable Mongolia
- (7) National Statistics Office (NSO) https://www.1212.mn
- (8) Government of Mongolia, United Nations Mongolia and Joint SDG Fund. (2021). Integration of Gender Responsive Financing Practices in Mongolia’s Financial Sector