The plain truth is that Turkey has no housing finance market – unless, that is, the 0.2% of homeowners with mortgages qualifies. But Ankara is working on it. Establishing a mortgage market in Turkey starts with the will of the government to do so and the prime minister, Recep Tayyip Erdogan, particularly wants to help middle and low-income people to become homeowners.
Mr Erdogan has authorised his mass housing development administration, TOKI, to start 30-year financing plans for small units. He has also designated the Capital Markets Board (CMB) to co-ordinate all the details of establishing a viable mortgage system.
The CMB, in turn, has hired consultants and worked with the real estate investment trust (Reit) association Gyoder to get the views from the private sector. All of these consultants came to Istanbul last November for a conference on housing finance. From the various presentations, the CMB prepared a draft law proposing changes to 31 statutes related to property transactions.
Gyoder, set up a legal committee that worked with international law firms such as Case & White and responded to the proposed draft law.
“The CMB incorporated all our comments,” said Nahit Öztürkcan, a shareholder and board member of Stewart International in Istanbul.
Mr Öztürkcan is also a member of the Reit association and sits on its mortgage committee.
Implications and timing
The law touches on everything from bankruptcy provisions and consumer rights to the licence requirements for property appraisers.
This crucial law is expected to come before parliament soon but there is speculation that it will not be passed until September or October. “Most probably it will be in May, but there’s always a chance that things can get pushed to the end of summer because of the holiday recess,” said Bahadir Teker, institutional investors department manager at the CMB.
There is a lot of speculation on the follow-through from the new law. People want to know exactly what it will take to be part of a mortgage company. Despite all the effort, the state remains unable to give an answer before the new legislation is passed.
Market models
A mix of high interest rates, low per capita purchasing power and lack of title insurance has inhibited the market in the past. The booming economy is helping with the first two problems and the new law should deal with the title insurance, so what else could there be?
Last year, US home finance agency Fannie Mae completed a study of the market for OYAK, the Armed Forces Pension Fund. “The country also has no centralised or regulated system for title deeds, and no accurate records of sale prices, with most records kept by hand,” said Fannie Mae administrator Rosemarie Sabatino.
Part of the struggle in Turkey focuses on the very nature of the infrastructure model. The British say that the UK mortgage system suits Turkey better than the US system, that its reliance on private mortgage-backed securities is more appropriate for the European way of doing business.
The CMB in fact wants a hybrid system incorporating both government-issued and commercial bank mortgage bonds. As proof of their sincerity, Mr Teker was on his way to New York in late April to promote Turkish mortgage financing to US investors.
The US has many title guarantee companies because the government does not get into that so much, according to Gyoder, while in the UK and Turkey the treasury does, though it is very slow in Turkey. Still, the system here is more similar to that of the UK.
Long-term outlook
Falling interest rates make home loans much more attractive to the public. Interest rates have fallen from an average of 2.5% per month last year to 1.5% in April, with analysts expecting a further decline to less than 1% by 2006.
The consultants and bankers say that the point of a mortgage system is to develop ways for banks to share the risk, making home loans easier to finance, but the real estate sector sees it from another angle.
“Then it will be very profitable for the banks and they won’t even want to get backing for their loans,” said Mr Öztürkcan. “They won’t want to share.”