Turkey Prepares for Mortgage Revolution: Turkey's Real Estate Market Is Set for Major Changes in the Year Ahead, as New Laws on Mortgages and Foreign Ownership Take Their Places on the Statute Books

By Gorvett, Jon | The Middle East, February 2006 | Go to article overview

Turkey Prepares for Mortgage Revolution: Turkey's Real Estate Market Is Set for Major Changes in the Year Ahead, as New Laws on Mortgages and Foreign Ownership Take Their Places on the Statute Books


Gorvett, Jon, The Middle East


RECENT DEVELOPMENTS ARE likely TO revolutionise Turkey's housing market and have a major impact on the rest of the as well. This will be the first time Turks will have been able to take out a mortgage, a step many analysts see as likely to mark a major surge in investment as Turks begin using property as collateral.

"A lot of people are looking to mortgages as a way to underwrite debt," explains Kerem Tezcan, real estate analyst for Raymond James Securities in Istanbul.

"This will lead to a much healthier business climate and a lot of international clients will be interested." Until now, long-term loans at relatively low rates of interest have been but a dream in Turkey.

A history of high inflation--the annual rate topped 100% in the late 1990s--and major uncertainty over even short-term investments in a troubled political and economic climate made risks too great. In late 2000 and then again in early 2001 major financial crises saw a number of high street banks collapse too, underscoring traditional fears about the vulnerability of the financial sector.

Yet since then, there has been a remarkable economic turnaround. Inflation for 2005 looks likely to be under 8%, with rates of interest at the Central Bank fluctuating between 13% and 14% at the start of 2006.

The banking sector has also been stiffened by the 2001 shake out and by a number of foreign interventions since then. Fortis, HSBC, Unicredito, BNP Paribas and Rabobank are all now heavily involved in the Turkish market.

When it comes to the real estate sector, banks have recently been providing housing credits on a 7-9 year repayment period at interest rates of around 1.02% per month. Mortgages should both extend the period of the loan and be at lower rates.

So, many are now hanging on the progress of the new mortgage law. By the start of the Eid festival in January, this had passed through the Council of Ministers and been signed by Prime Minister Recip Tayyip Erdogan. The next stage was for it to go to the parliamentary budget committee for further consideration. Most analysts then expected it to finally go through parliament itself, take presidential approval and be on the statute books before the end of the first half of 2006.

How the banks will respond depends greatly on how low interest rates can be kept. Many market watchers suggest few banks will really see mortgages take off until they feel confident of 30-year plus loan periods at rates of less than 1% per month. Currently, one bank, Anadolu, is offering a rate of 0.9%, but when commissions are added on, the real rate pushes back over the 1% barrier.

The main obstacle delaying the passage of the bill at the moment involves the debate over tax breaks. Advocates of one approach are arguing that some amount of the mortgage should be deducted from tax, a formula that would encourage people to take out the loans, but which the Ministry of Finance is currently set against, fearing a loss of tax revenue. However, few people expect this dispute to seriously delay passage of the bill.

When the mortgage system gets underway, the effect is widely expected to be spectacular. Most Turks live in property they, or their family, own. The ability to remortgage these homes will undoubtedly release enormous amounts of credit into the economy. At the same time, the real estate market, which is already booming, is likely to go still further. …

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