Residential Sector in Turkey Worldbank Conference May 30th Haluk Sur Chairman of Urban Land Institute Turkey Board Member of Emlak Konut REIT Chairman of TGBC Turkish Green Building Council Founder Board Member of Konutder (Housing Development and Investment Association) Former Chairman of GYODER (The Association of Real Estate Investment Companies)
Agenda Turkish Residential Market TOKI Lowering Costs through Green Buildings Housing Finance Mortgage System, Green Mortgages PPP in Urban Transformation Conclusion
Residential Market in Turkey Need to meet the pent-up need for low-energy consuming, resourceful energy efficient affordable sustainable housing built up Number of Housing Units Contsructed Housing construction cost breakdown (excluding the land cost) Turkey is at a historical conjunction: Urban Transformation with green housing will improve affordability and quality of housing and community development. Need for making adequate earthquake compliant, EE and quality housing available, accessible and affordable to built ~ 8 million homes to fullfill the needs of urban transformation with socio-economic environmental gains
Residential Market Supply Housing Market in Turkey is driven by demand fueled by a combination of population growth, ongoing migration, increasing urbanization, disposable income growth and affordable financing caused demand for new housing to escalate sharply and supply driven market. Annual housing demand of approximately 650.000 dwellings
Residential Market Supply Total Stock In an effort to lower macroeconomic risks, to ease transactions and eliminate disputes between government bodies and owners/tenantsand to induce further deregulation the government is amending three important laws. 1) Termination of Reciprocity principle to ease foreign transactions 2) Amendment to the pre - forested areas (2B) law to eliminate disputes between owners/tenants and the government 3) Condominium ownership law modification enabling a 2/3s majority of condominium owners to decide whether to demolish and reconstruct expected to unleash considerable housing demand given the 7.7m bad stock out of the total 19 million total housing stock in Turkey.
Urgency of Urban Transformation & Istanbul Earthquake Damages 1976-2005 Country Number of Earthquakes Number of Deaths Affected Population (Million) Economic Damage (US$ Billion) 1. China 82 244.344 20,7 8,0 2. Iran 67 100.852 2,0 10,9 3. Turkey 38 24.371 6,1 16,0 4. Mexico 20 9.738 2,5 4,7 5. Afghanistan 24 9.202 0,6 1,7 6. Indonesia 66 6.496 1,8 0,8 7. Japan 28 5.794 3,2 132,0 8. Italy 20 5.714 0,7 30,0 9. Greece 21 340 0,9 7,2 10. USA 21 45 0,1 25,0 In Turkey 96% of the total surface area and 98% of the population are situated in zones of varying degrees of seismic risk 76% of industrial centers are located in earthquake prone areas Turkey has met nearly half of its housing need (55%) by unlicensed buildings and majority of the existing buildings is of substandard low quality nature A significant portion of the housing stock (40% of 19 million) of Turkey should be refitted, demolished in terms of age, quality & earthquake risk Source: CRED - Centre for Research on the Epidemiology of Disaster An Istanbul earthquake at 8 Richter scale intensity could claim over 500,000 lives and create economic damage over 60 Billion as Istanbul constitutes 20% of total population and has 50% share in the Turkish Economy Catastrophic risk for Turkey Need for a planned and well designed urban regeneration in PPP Many municipalities in Istanbul have initiated urban regeneration projects to rehabilitate unlicensed shanty town housing regions
RealEstate Sector (Major Milestones ) 1)Termination of Reciprocity principle 2) Amendment to the forested area (2B) law to eliminate disputes between owners/tenants and the government 3) Condominium ownership law modification enabling a 2/3s majority of condominium owners to decide whether to demolish and reconstruct 2005-7 2008 2011 2012 1934 Establishment of Land Registry Law 2004-5 TOKİ is transferred to the Office of the Prime Minister. TOKİ & Greater Ankara Municipality authorized to plan, develop and create social housing, to transform the urban landscape. Bill 5366 is adopted to protect sites of historic and cultural importance 1965 1984 1987 1985 1990 Common Hold & Expropriation Laws Housing and Public Partnership Directorate established (TOKI inside) Mass Housing Law Mass Housing Fund MORTGAGE LAW Restoration & Temporary Land Laws FOREIGN INVESTMENT LAW Establishment of Environment & Urbanization Ministry of Turkey 1996 Habitat 2 was Hosted in Istanbul 2001 The Mass Housing Fund is brought to an end. Housing and Public Partnership Directorate, seperated the Public Participation Administration and the Housing Development Administration (TOKI) became stand alone URBAN REGENERATION LAW 2003 The Emergency Action Plan for Housing and Urban Development five-year goal of 250,000 housing units to be built by the end of 2007.
TOKI seeks to be a fair Mediator between the needs of Social Housing and Private Sector
TOKI s MISSION Produce housing for regions in Turkey where the private sector is not active, Offer low & middle income groups subsidized housing finance, Offer rural housing opportunities to reduce high urban migration burden Collaborate with local municipalities to create urban renewal projects, Create financial opportunities to finance social housing projects through innovative structures such as Revenue Sharing projects under PPP TOKİ offers subsidized housing loans & offer longer terms then the market, coupled with higher quality modern living conditions to people /families who could not afford it by themselves. To fulfill this mission, TOKI has created financial subsidiaries and affiliates like Emlak Konut REIT. TOKI is active in: Social Housing, Renovation of Squatter Areas and Urban Renewal Projects, Disaster Housing Applications, Agriculture Village Projects, Migrant Dwellings, Income Sharing Projects based on a Revenue Sharing Model,Restoration of Historical and Cultural Buildings.
TOKI SOCIAL HOUSING FOR LOW & MIDDLE INCOME GROUPS TOKI LAND INSURANCE DOWNPAYMENT & MONTHLY INSTALLMENTS PROJECT DEVELOPMENT SUBCONTRACTOR TENDER PROCESS CONTRACT SIGNING PRICING & SELLING CRITERIA SALE CONTRACT SIGNING FINANCIAL INTERMEDIARIES BUYERS/BENEFICIARIES DOWNPAYMENT & MONTHLY INSTALLMENTS
REVENUE SHARING MODEL EMLAK KONUT REIT TOKI LAND FINANCIAL INTERMEDIARIES /as ESCROW BANKS) PROJECT REVENUE : DOWNPAYMENT S& MONTHLY INSTALLMENTS TENDER PROCESS CONTRACTOR'S OFFER CONTRACT AWARD (BEST OFFER) PROGRESS PAYMENT BASED PAYMENTS BASED ON REVENUE SHARING AGREEMENT & UNTIL PROJECT COMPLETION FINANCIAL INTERMEDIARIES /as MORTGAGE BANKS) PROJECT DEVELOPMENT TARGET GROUP "HIGH INCOME" DOWNPAYMENT & MONTHLY INSTALLMENTS PRICING & SELLING CRITERIA SET BY THE CONTRACTOR MARKETTING & SALES SUPPORTED BY FINANCIAL INTERMEDIARIES BUYERS/BENEFICIARIES TITLE DEED AT PROJECT COMPLETION
ENVIRONMENT & URBANIZATION MINISTRY of the REPUBLIC of TURKEY
Affordable Green Buildings As of 2008 36% of total energy was consumed by households Turkey amongst top 25 high enery consuming countries Lack of government investment, financial support & appropriate incentive instruments (like tax & land rebates, cheap financing) for the property owner, businesses, developers and financial institutions for EE green buildings Green Buildings ~ 10 billion $ p.a. savings & EE potential ALARMING RAISE IN CO2 EMISSIONS! Weak Monitoring Mechanisms Need incentives for securing retrofit financing through Green Loans Public awareness for green buildings is increasing as goverment utilty bill subsidies are reducing. A green homes certification system is underway by Turkish Green Building Council
Green Buildings Expected Impact by 2023 Certified Buildings & Potential Savings Number of Certificated Buildings by 2023 Years Total Number of Certificated Project Total Number of Certificated Building Total Number of Residential Buildings 2012 - - 433.000 2013 0-492.000 2014 3 3.000 608.000 2015 5 5.000 651.000 2016 10 10.000 656.000 2017 15 15.000 662.000 2018 20 20.000 663.000 2019 25 25.000 669.000 2020 30 30.000 676.000 2021 35 35.000 680.000 2022 40 40.000 690.000 2023 45 45.000 680.000 Total 228 228.000 7.560.000 % 3 100 Years Total Energy & Water Savings (2023) Not Obligated Total Number of Certificated Building Total Savings by Year ($) 2012-2013 - 2014 3.000 1.643.367 2015 8.000 4.382.311 2016 18.000 9.860.201 2017 33.000 18.077.035 2018 53.000 29.032.813 2019 78.000 42.727.537 2020 108.000 59.161.205 2021 143.000 78.333.817 2022 183.000 100.245.375 2023 228.000 TOTAL 124.895.877 468.359.538 Years Obligated Total Number of Certificated Building Total Savings by Year ($) 2012 433.000 237.192.608 2013 925.000 506.704.763 2014 1.533.000 839.760.434 2015 2.184.000 1.196.371.030 2016 2.840.000 1.555.720.570 2017 3.502.000 1.918.356.843 2018 4.165.000 2.281.540.906 2019 4.834.000 2.648.011.702 2020 5.510.000 3.018.317.021 2021 6.190.000 3.390.813.495 2022 6.880.000 3.768.787.859 2023 7.560.000 4.141.284.333 TOTAL TOPLAM 25.502.861.564 Source: GYODER / Gülcemal Alhanlıoğlu & PhD M. Emre Çamlıbel
Comparison of Housing Loans Markets Turkish Market Interest Rates Implied LTV at ~ 25% on average between 2007 and 2011 given the underlying still high interest rates and average maturities. Current situation in housing finance: ~ 60% Inheritance or self finance ~ 15% Borrowing from relatives, friends & employees ~ 25% Mortgage Credit LTV to reach 50 by 2030, with still room to grow to the 75% standard set by the BRSA (Banking Regulatory Authority). Mortgage Loans,,ML Rates, ML/GDP Affordability is non-existent in Turkey, as evidenced by a high Median Multiple among developed and emerging countries Comparison of Median Multiples The Affordibility Index
SECURITIZATION HOUSING PRICES Mortgage System & Its Effects to the Real Estate Sector HOUSING DEMAND DEVELOPERS HOUSING MARKET HOUSING SUPPLY HOUSING DEMAND Appraisal Companies Appraisal Companies Appraisal Companies PRIMARY MARKET HOUSING FINANCE COMPANIES CERTIFIED APPRAISAL ASSOCIATION SECONDARY MARKET INVESTORS HOME PRODUCTION HOUSING DEMAND PURCHASERS 1.BANKS 2.LEASING Co s.. 3.CONSUMER FINANCE Co s Domestic Investors Foreign Investors INVESTOR PROTECTION FUND HOUSING MARKET PROPOSED HOUSING FINANCE SYSTEM UNDER THE 2007 MORTGAGE LEGISLATION SECONDARY MARKET STILL PENDING * Almost everyone enthusiastic about the Mortgage system & waiting for the secondary regulations to be enacted & system to be operational * Mortgages expected to give a strong boost to the real estate sector by helping transformation in squatter housing regions of cities * Mortgage system is destined to target a big portion of the population.
PPP in Urban Transformation Through the new Regenaration law enacted by the Ministry of Environment and Urbanization, Turkey is at a very unique cross road in order to define its Housing Road Map and has the power to develop a detailed implementation plan that will serve as a blue-print for improved sustainibility & affordable housing in collaboration with community and the private sector Government Needs technical knowhow on setting implementation policies and new set of monitoring skills Can take some risks Needs to build a self funding incentive system Preserve local quality of life Economic Development Demonstrate Energy Efficiency Private Sector Has Knowledge & Skills Needs capital & financing & Secondary Markets Needs risk sharing Needs incentives to invest into low income and green technologies land prices expensive - need land incentive Need to support a sustainable & environment friendly housing Needs of Public Healthier/durable home ownership Earthquake compliant higher quality EE housing Improved community life Better life standards To have a voice in the outcome Reduced maintenance costs Lower utility bills Increased resale value
Conclusive Remarks Increased public sensitivity to better housing quality & developer reliability especially after the 1999 Marmara earthquakes Pent Up Renewal & reinforcement requirements Driven an urgent need for urban regeneration need to raise 700 bn$ to regenare 8 m homes within 20 yrs Turn slums into quality assets Reduced disaster risk & economic-disruption catastrophic risk Greater national economic resilience Higher Energy Efficiency Reduced Current Account Deficit Higher national sovereign credit rating Lower cost of capital on all national sovereign borrowing Need sound Secondary Market to fuel Mortgage System in Turkey & attract solid direct FDI & mortgage funds in the real estate sector to finance urban transformation and growth Need Redeemable Subsidy System Lower housing costs Increased affordability Collabolarion with Private Sector Players & Communities
Q & A The Historical Peninsula, Blue Mosque and St. Sophia in Istanbul THANK YOU