Turkish gov't redefines real estate certificates, targets urban renewal projects

NEVDIL ŞAHIN
ISTANBUL
Published 03.08.2016 22:29
Updated 03.08.2016 23:54
Urban renewal projects are expected to benefit from the real estate certificates, allowing quick access to financing.
Urban renewal projects are expected to benefit from the real estate certificates, allowing quick access to financing.

The government changes to regulations concerning real estate certificates will ease funding for urban renewal projects. The new financial tool aims to quicken project terms

Wednesday, Deputy Prime Minister Nurettin Canikli announced that an official statement initiating the use of real estate certificates in urban renewal projects and developing interest-free financial tools had been published in the Official Gazette and is now effective. The new regulations define more precisely procedures and rules regarding the use of real estate certificates, basically to ease the construction sector's access to funding, while offering a new medium for investors, offering value to projects.

Canikli said that the use of real estate certificates in urban urban renewal projects would offer various opportunities. Among these, real estate certificates will provide investors with the option to merit the ownership of the property on condition that the purchaser of the certificate possesses sufficient investment size expressed in square meters. Also, according to Canikli's remarks, investors also have the option of either retaining the certificate until maturity or selling it off before the maturity date to another investor.

In addition, through the new regulations, Canikli emphasized that investors can sell off the real estate certificates before maturity on the stock exchange or can ask the firm, the issuer of the certificates, to provide them with liquidity.

Stressing the advantage of these financial instruments from the investor's side, Canikli said that the issuer of the real estate certificates would provide investors with a repurchase guarantee in certain predetermined periods. Furthermore, he added the issued certificates could be sold via the stock exchange either by the direct involvement of the issuer construction firm or via an intermediary financial institution. Thereby, the real estate certificates gain a liquid characteristic through continuous transactions on the stock exchange in accordance with negotiations among investors.

On the other hand, Canikli reported that while private firms are allowed to finance at most 50 percent of their residential and commercial projects through the issue of real estate certificates, all costs could be financed through these tools for urban urban renewal projects.

The Capital Markets Board (SPK) considered the use of real estate certificates first in 1995; however, despite many attempts to promote their use in the real estate sector, facing funding problems, these certificates were not demanded as a financial tool due to the common belief that the benefits for both the issuing firm and the investors are questionable. In this regard, through more detailed regulations, these uncertainties are trying to be eliminated.

However, recently, a new line of thought has started being formed, defending the use of real estate certificates, saying they are beneficial, particularly for urban urban renewal projects because of their diminishing effect on costs as well as being a relatively quick source of financing. In Turkey, since there is a huge necessity in the field of urban gentrification, experts in the construction sector, such as Optimal PMO Chairman Burhan Özdemir, say that real estate certificates can be beneficial for urban renewal projects, aiming to alleviate the urban renewal costs from the shoulders of the residents of the buildings to be reconstructed.

Speaking to Daily Sabah, Özdemir said that the primary objective to operate profitably for a construction firm is to finish the project as early as possible along with minimizing costs. In this respect, the optional use of real estate certificates might be particularly beneficial for urban renewal projects, possibly minimizing the cost burden taken on by both the firm and the old residents that are given new apartments at the end of the project. By reconstructing a building with 50 flats instead of the 20 flats in the old building and financing these via these financial tools, the costs are deemed to be reduced by some authorities in the sector.

Along with quick financing, Özdemir said the fact that either by predetermined prices by the issuer firm or market prices, the project becomes more transparent, which should be beneficial for the state in its fight against informal construction projects.

Özdemir also said that the buying and selling of these certificates might keep the demand for such projects more vivid, due to their promotion on the stock exchange, noting that this might even have an upward effect on prices. In addition, Özdemir said the sector needs a couple of years to see if these financial tools successfully work for the real estate sector, considering that the probability of failure still exists for this certificate system.

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