Construction, licensing, land and immovable property are key parts of real estate market in Mongolia.
In order to implement the construction project (e.g., building, apartment, energy, auto road, railway etc.), the project company will need to prepare the mass of documents and obtain the various of permissions, licenses and approvals from the relevant governmental authorities of Mongolia. List of requirements and qualifications are specified in the relevant laws, regulations, procedures and norms which enacted by the governmental authorities depending of such sector.
The construction licenses are typically only permitted to the legal entities established under the Mongolian law. The foreign enterprises are subject to obtain such licenses by way of incorporating a subsidiary (SPV) in Mongolia for that purpose. Another option is the acquisition all or part stocks of the licensed local project company, then develop, improve the management and operation of the project company and conduct the project.
The construction project starts from obtaining the land title accurately. The land title could be granted through (i) auction or (ii) project selection process under the Land Law of Mongolia. The specified procedures for organizing (i) auction or (ii) project selection has been specified in the Land Law of Mongolia and other relevant regulations approved by the governmental authorities of Mongolia. Breach of these procedures can lead the cancelation of land title and imposition of criminal or infringement responsibilities. The second method is to acquire and transfer the land title from third party who has already obtained the land title from the government of Mongolia based on the procedures above. In this case the client should conduct the due diligence in order to determine whether the land title has been granted accurately in accordance with the laws and regulations of Mongolia.
We note that the local company (i.e., not foreign investment company) can hold “land possession right” initially for up to 60 years with the right to extend, transfer, lease the whole or part of the land, or to pledge as security and this period can be extended up to 40 years. The foreign investment company can hold “land use right” instead of “land possession right” under the legislation of Mongolia. The difference between “land possession right” and “land use right” is that the “land use right” cannot be directly transferred to anyone or pledged as security.
According to the definition in laws of Mongolia, an immovable property means the land and items of property that cannot be used for their original purpose when they are in separation with the soil belongs to the immovable property. In other words, immovable property includes the land plots, buildings, apartments, constructions, facilities and other property naturally annexed to the land. The ownership of immovable property should be registered at the registration office of Mongolia (the “SRO”). Accordingly, all transactions (including sale, transfer, lease, pledge, construction on other’s land, servitude, usufruct) related to the immovable property (the “Contract”) should be registered at the SRO as well. We note that only after the successful registration of the Contract (i.e., the transaction mentioned above) at the SRO, the Contract shall become valid and effective. Prior to execution of the Contract, the client should check the ownership and determine whether the co-owners (e.g., family members or co-investors) or any encumbrance over such property exist. If the co-owner or encumbrance over the property exists, it is mandatory to obtain the written consent from the co-owners or the pledgee respectively. Otherwise, the executed Contract shall be considered as void under the laws of Mongolia.
There is no prejudice for ownership of the immovable property in Mongolia between foreigners and Mongolian residents except the land rights mentioned above.
Our firm helps the client on setting up the SPV in Mongolia, obtaining the licenses from the relevant Mongolian governmental authorities, conducts due diligence on acquisition of SPV, land title and immovable property and advises in relation to the local laws and regulations.
Our construction/real estate practice is led by Uchralbayar.