Mongolia : Ulaanbaatar Green Affordable Housing and Resilient Urban Renewal Sector Project

Energy / Energy efficiency and conservation - Renewable energy generation - solar

Finance / Housing finance

Water and other urban infrastructure and services / Other urban services - Urban housing - Urban policy, institutional and capacity development - Urban slum development

The project will deliver sustainable and comprehensive solutions to transform the substandard, climate-vulnerable, and heavily polluting ger areas of Ulaanbaatar city into affordable, low carbon, climate-resilient, and livable eco-districts. It will leverage private sector investment to (i) deliver 10,000 affordable green housing units; and (ii) redevelop 100 hectares of ger areas into eco-districts.

The project is aligned with the following impacts: living conditions in Mongolia improved; and Ulaanbaatar is a safe, healthy, and green city that is resilient to climate change, and provides a livable environment for its residents. The project will have the following outcome: access to low-carbon and climate-resilient eco-districts and green affordable housing in Ulaanbaatar ger areas increased. The project is consistent with ADB's country partnership strategy for Mongolia, 2017-2020, and with the core themes of green, competitive, and inclusive cities of ADB's Urban Operational Plan.

The project will have three outputs: (i) resilient urban infrastructure, public facilities, and social housing units in ger areas constructed (public sector component); (ii) long-term financing to developers for low-carbon affordable housing, market rate housing, and economic facilities in ger areas and to households for green mortgages increased (financial intermediation loan [FIL] component); and (iii) sector policy reforms implemented and capacity strengthened. Output 1 will deliver (i) green social housing units with climate adaptation and mitigation features; and (ii) resilient infrastructure, public space, and public facilities. Under output 2, up to $75.7 million of the GCF loan will be made available under the proposed FIL to enable an eco-district and affordable housing fund (EDAF) to provide long-term debt financing (denominated in local currency) to eligible commercial banks to support real estate developers' participation in the low-carbon housing market, and produce affordable green mortgages. Output 3 will support (i) project implementation; (ii) eco-district feasibility and development, policy improvement on climate change adaptation and mitigation, and improved supply and access to affordable green housing units; (iii) detailed design and supervision; and (iv) sustainable green housing finance.

Eco-district parameters. The project eco-districts will be low-carbon, climate-resilient, mixed-income, and mixed-use areas with approximately 30% public space. The project's five phases will deliver about 20 eco-districts or subprojects, with each covering an average of 5 ha. Phase 1 include two core subprojects (10 ha) in Bayankhoshuu and Selbe subcenters, phases 23 will have 8 subprojects (40 ha), and phases 45 will have 10 subprojects (50 ha). Each subproject should be completed within 5 years. Phases 25 will identify and prepare a batch of subprojects to be appraised based on eligibility and selection criteria, including financial and physical parameters, formulated from the feasibility study of the two core subprojects. A detailed infrastructure and architectural design produced for each subproject will ensure (i) adequate ratio for social (15%), affordable (55%), and market rate (30%) housing units; (ii) balance between public space and amenities, commercial areas, and residential units; and (iii) financial viability and rentability to allow private sector participation. The redevelopment process and housing construction will be undertaken onsite, and will be demand-driven.

Sector lending with financial intermediation loan component modality. The sector lending modality was deemed the most appropriate modality to achieve the project objectives because (i) a large number of subprojects in the sector are to be financed; (ii) the government and MUB have sector development plans (SDPs) to ensure the priority development needs of the cross sectoral policy improvement plan are met, and to guide project implementation; (iii) sector and institutional capacity analyses have shown that the government and MUB have adequate institutional capacity to implement the SDPs and the project; and (iv) policies applicable to the sector are deemed appropriate and will be improved, if warranted. The project will support the government and MUB in translating their SDPs into implementable investments, and coordinated policies, actions, and institutional improvement.

Financial and institutional arrangements will facilitate the application of a blended finance strategy using the FIL modality. The FIL modality will leverage private resources through the EDAF to be established and managed by the Asset Management Company of DBM (AMC-DBM) on behalf of the Ministry of Finance. The EDAF will be established as a private investment fund structured as a revolving fund, and will be used to onlend a portion of the GCF loan to participating commercial banks. Based on eligibility and selection criteria, commercial banks will use the GCF loan proceeds to support housing supply and demand: (i) for supply, the EDAF will provide medium-term loans to selected private developers, which will be combined with the developers' equities and additional loans by DBM and participating commercial banks to implement output 2; and (ii) for demand, the loan proceeds will be converted into low-cost long-term mortgages to home buyers for purchases of the affordable housing and market rate housing units.

Following the transition from a centrally planned to a market-based economy in 1991, Mongolia has experienced rapid ruralurban migration, mainly caused by (i) extreme climate events, such as droughts and severe winter conditions (dzud), combined with poor veterinary services and livestock management; and (ii) adoption in 2003 of a policy giving each citizen access to about 700 square meters of urban land. Inadequate infrastructure investments, housing policies, and urban planning regulations to accommodate the migrant population led to the formation of vast peri-urban areas, named ger areas after the Mongolian yurts (gers) around Ulaanbaatar's central districts. In 2017, the population of ger areas was estimated at 850,000 people, that is 60% of the city's population of 1.46 million, and 30% of the country's population.

Ger areas are settlements of low- and middle-income households characterized by loosely aligned plots, with irregular and unpaved pathways. Dwellings in ger areas are unserved detached solid houses and gers, poorly insulated, using inefficient coal and biomass-fired stoves generating large amounts of carbon dioxide emissions and air pollution, especially during winter. Most households have land tenure. Poor sanitation, with most households relying on open pit latrines, coupled with poor solid waste collection create unsanitary living conditions. Residents have limited access to water, which is being supplied via water kiosks, and access to public space and facilities, commercial areas, and economic amenities is lacking. This situation (i) makes ger areas highly vulnerable to climate change impacts and intensifies their carbon emissions; (ii) increases the cost of doing business, discourages investors and developers, and inhibits both economic integration and urban redevelopment processes; and (iii) affects vulnerable groupsmostly women, children, elderly, and disadvantaged persons. Incremental growth and migration are increasing the population living in these poor conditions, because affordable housing options for low- and middle-income households are limited. A 2016 survey by the Capital City Housing Corporation estimated housing demand at 150,000 units, while available affordable housing stock is about 4,000 units; with 60% of ger areas residents willing to move to apartment units if acceptable and affordable solutions are proposed.

In 1997, the Government of Mongolia and the Asian Development Bank (ADB) developed a legal and policy framework for the housing sector. Under the National Housing Strategy, housing policies were made demand-driven with new standards and regulations. In 2002, ADB approved the first housing finance project, which introduced long-term mortgage lending to the banking system. In 2006, the Mongolian Mortgage Corporation was set up to create a pool of long-term funds to stimulate a secondary mortgage market. Housing finance expanded from 2013 through the government's 8% mortgage program. However, stringent mortgage access conditions and a lack of housing products for low-income households meant the mortgage program mainly served the upper middle-income households, creating an oversupply of high-end market housing products. The program is currently suspended. Recently, the government and the Municipality of Ulaanbaatar (MUB) initiated a series of programs to increase the supply of affordable housing units, and support ger area redevelopment. The objective is to deliver up to 130,000 housing units through the redevelopment of ger areas and the development of new areas. However, a lack of viable solutions, infrastructure investment, financing support to developers, and sustainable housing financing mechanisms have resulted in these programs not developing into implementable plans. The few residential blocks that were initiated focused on lowering construction costs, to the detriment of community well-being and sustainable urban planning, and lacked energy-efficient and renewable energy features.

Through the ADB-financed Ulaanbaatar Urban Services and Ger Areas Development Investment Program, MUB is extending basic urban and social services to upgrade economic hubs or subcenters in ger areas and provide an enabling environment for urban redevelopment and private and public investments. This provides an opportunity to implement onsite solutions for households to access apartments within their communities by integrating housing solutions into an urban renewal program. In addition, in November 2017 the government issued a resolution ordering the Development Bank of Mongolia (DBM) to establish the first green development fund to promote green urban development and economy, making DBM a key partner to leverage the private sector for green housing finance. International housing projects and Ulaanbaatar housing and redevelopment experience show that a complete solutionintegrating housing, infrastructure, urban development, and financing support to both the supply and demand sidesis the best way to create a paradigm shift to improve access to green affordable housing, and resilient and low-carbon urban development.

1. Living conditions in Mongolia improved

2. Ulaanbaatar is a safe, healthy, and green city that is resilient to climate change, and provides a livable environment for its residents

Access to low-carbon and climate-resilient eco-districts and green affordable housing in Ulaanbaatar ger areas increased

Resilient urban infrastructure, public facilities, and social housing units in ger areas constructed (public sector component)

Long-term financing to developers for low-carbon affordable housing, market-rate housing, and economic facilities in ger areas and to households for green mortgages increased (financial intermediation loan component)

Sector policy reforms implemented and capacity strengthened

Extensive consultations will be held during the project implementation.

Quality- and cost-based selection - 1,350 person-months - $12.53 million

Quality-based selection - 42 person-months - $0.20 million

For the financial intermediation loan component, developers will undertake procurement of goods and civil works in accordance with commercial practices acceptable to the Asian Development Bank.

International competitive bidding (including procurement in loans to financial intermediaries for works/commercial practice) - 8 contracts - $40.49 million

National competitive bidding - 5 contracts - $6.54 million

Community procurement package - 8 contracts - $0.20 million