Most people’s idea of Mongolia’s property market might be felt-covered yurts on the steppe. But now the remote Asian country has turned into the latest unlikely magnet for cash-rich British homebuyers in search of a new booming frontier.

They have been snapping up flats in Ulan Bator, the capital, to rent out to expat businessmen in the hope that their investment will appreciate by at least 20% a year.

With much of the Mediterranean swamped by second-home owners, Mongolia has joined countries such as China, Russia, India and Malaysia as an exotic new location.

One property company based in Oxford said last week that all 52 flats it has been marketing “off-plan” (before construction) in a block in Ulan Bator had been sold in two months, mostly to British people.

Will Jeremy, 33, an engineer from Reading, said he saw the three-bedroom flat he had bought in Ulan Bator for £72,000 as a long-term investment.

“It’s obviously a risk to invest in a country that is only just opening up to outside investors, but I’m expecting excellent rental returns and hope to make a good profit when I do sell,” he said. “I’ve also bought in Grenada and Montenegro as I feel much more comfortable with overseas property than investing in buy-to-let in the UK, where potential for growth is much lower.”

Jeremy anticipates rental income will bring an annual 20% of what he paid for the property in addition to the 20% annual capital growth.

Lord Newborough, 57, an organic farmer who lives in the Welsh Marches, has, with his wife Susan, 58, bought two three-bedroom penthouses in Ulan Bator for £152,000. The couple plan to visit Mongolia to view them next year.

“I was looking for an interesting high-yielding investment,” said Newborough. “It’s a democracy and the government are keen to see more foreign investment. Providing common sense prevails, it should be a very good long-term investment.”

Mongolia’s most famous resident was the 13th century empire-builder Genghis Khan, whose nomadic armies lived in yurts. This traditional form of collapsible housing, consisting of wooden walls covered in felt, is still preserved in Mongolia.

Landlocked between Russia and China, the country is 14 hours’ flight from London and has a population of just 3m, despite being six times the size of Britain.

Most of Ulan Bator consists of grim communist-era concrete blocks rather than yurts, but demand for property is being driven by western businessmen.

The country is only now emerging from decades of isolation and its economy is growing at about 7.5% a year thanks to its booming neighbour China.

Ben Whitaker, a consultant at Property Frontiers, said: “The growth of China has created an enormous demand for minerals such as copper, coal and oil. With global mining companies such as BHP Billiton and Rio Tinto opening operations, demand for high-quality accommodation from executives and ambassadors in Ulan Bator is at an all-time high.”

Soaring British house prices have created a new class of overseas investor, cashing in at home to take advantage of far lower prices abroad. According to a study at the end of last year by Mintel, about 800,000 Britons owned houses or flats abroad, up 45% in two years.

Most stick to traditional second-home markets such as France and Spain, but with prices forecast to rise in those countries by just 5% this year, many are prepared to risk their money further afield.

Primelocation.com, a property website, was last week offering a £25,000 two-bedroom apartment in Tirana, the capital of Albania, Europe’s last unexploited Mediterranean country; and flats in Ho Chi Minh City, Vietnam, from £68,000.

But the biggest countries are offering the highest returns. Liam Bailey, head of research at Knight Frank, a consultancy, said: “In terms of price growth, crucial players to watch are St Petersburg and Moscow in Russia and Delhi and Mumbai in India.

“Together with Guangzhou and Beijing in China these are future key prime cities.”

Going global

- About 800,000 British people own homes abroad, up 45% in two years thanks to surplus cash generated by the booming UK housing market

- Spain, France, Australia, Italy and America are the top destinations for buyers, according to Mintel. Most homes are rented out for at least part of the year

- The majority of people buy abroad for a better climate, with 40% saying they thought of the second home as an investment. A similar proportion saw the house as a retirement or family home

Explore UK News

• Crime News

• Education News

• Health News

• Science News

• Scotland News

Times Recommends

• Olympic-size television coming to your town
• Mosley opens new front in battle for privacy
• Decorator fined for smoking in van