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Presentation for the 17th Annual Conference The European Real Estate Society 23- 26th June 2010, Milan, Italy

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Title: Presentation for the 17th Annual Conference The European Real Estate Society 23- 26th June 2010, Milan, Italy


1
Presentation for the 17th Annual Conference The
European Real Estate Society 23- 26th June 2010,
Milan, Italy
  • AN ANALYSIS of the STRENGTHS and WEAKNESSES of
    the TURKISH REAL ESTATE MARKET
  • 26.06.2010
  • Yener COSKUN
  • Senior Specialist
  • Capital Markets Board of Turkey
  • PhD Candidate, Ankara University The Graduate
    School of Natural and Applied Sciences, Real
    Estate Development Department

2
  • Professional Experience
  • Capital Markets Board of Turkey, Senior
    Specialist (1995-Current)
  • Education
  • Ankara University, Faculty of Political Science,
    Public Finance Dpt. (1989-1994)
  • University of Pennsylvania, Wharton School,
    Visiting Scholar, Capital Markets Program
    (2003-2004)
  • Gazi University, Business Management Dpt., MSc,
    Banking (2005-2007)
  • Ankara University, The Graduate School of Natural
    and Applied Sciences, Real Estate Development
    Dpt., PhD Candidate, Real Estate Development
    (2008-Current)
  • Publications
  • Published books/journal articles planned
    book/book chapters/journal articles

3
Presentation Plan
  • OVERVIEW TO TURKISH ECONOMY AND REAL ESTATE
    SECTOR
  • OPPORTUNITIES in TURKISH REAL ESTATE SECTOR
  • DISADVANTAGES of TURKISH REAL ESTATE SECTOR
  • A MODEL SUGGESTION

4
OVERVIEW TO TURKISH ECONOMY AND REAL ESTATE
SECTOR
5
The Outlook of Turkish Economy
  • Growth pattern and financial sector
  • Open economy and liberal regulations in finance
    sectors
  • Short term capital movements
  • Intensive portfolio investments on stocks and
    T-bonds
  • Crisis
  • Turkey has faced several financial crisis arisen
    from the banking sector
  • 2000-2001 banking crisis, was the most
    destructive one
  • 2003-2007 Boom Period
  • Liquidity surplus in global economy
  • Increasing stability/positive outlook of the
    Turkish economy
  • FDI between the 2005-2009/9 period is 73 billion
    USD

6
Global Financial Crisis and Turkish Economy
  • Economy enjoys having less developed markets
  • No crisis conditions in banking, capital markets
    and insurance sectors
  • External impacts
  • Negative growth,
  • Increasing unemployment etc.
  • Real Estate Sector
  • Currently
  • Excess supply in housing
  • Decrease in property values
  • Positive long-term outlook

7
Real Estate and the Turkish Economy
8
Fundamentals
  • Forest, Pasture, Cadastral Area
  • The area of Turkey is 778.000 km².
  • 26 is forest, 12.3 is pasture area
  • The rest is the cadastral area which contains
    480.000 km², in total.
  • Residential and rural area
  • Residential area is about 5 (40.000 km²)
  • Rural area is about 56 (440.000 km²).
  • Parcels and Registers
  • There are approximately 35.000.000 parcels
  • 600.000 registers in Turkey
  • (Bank and Mataraci, 2004 3).
  • As for cadastre, the works with a completion
    percentage of 88.1 as of 2009 (Çete et al.,
    2010 627)

9
Demographic Trends and Real Estate
  • Urban population
  • Population growth and inter-regional migration
    significant drivers
  • Increased by some 10 million dwellers,
  • Istanbul alone has grown by nearly 2 million new
    inhabitants.
  • The last census counted a population of roughly
    70.6 m at the end of 2007.
  • In 2007 the fertility rate was at 2.2 (children
    per woman) compared to an average fertility rate
    of 1.5 for the EU-25 countries.
  • With currently more than 53 of inhabitants
    younger than 30 years
  • Overall growth and construction volume reached
    24 bn in 2007.
  • Deutsche Bank Research (2008 7), Deloitte (2009
    77) and Jones Lang Lasalle (2008 5)

10
Household Sentiments
  • Real estate economy is growing at the expense of
    financial economy
  • The motive is related to protection of savings
    from adverse impacts of
  • High inflation rates,
  • Negative real interest rate
  • Real estate represents
  • Hedging instrument rather than a short-term
    investment instrument,
  • Particularly for the perception of the middle and
    lower - income residents

11
Construction Sector
  • Construction activities seems critical for
  • GDP growth
  • Employment
  • Turkey is among the top countries in the export
    construction services.
  • In the period of 1972-2009
  • About 700 Turkish contractors have completed,
  • Over 5.000 projects
  • In 75 countries
  • The total value 155 billion USD.

12
Housing Construction
  • Most housing in Turkey is produced by
  • private developers,
  • public, quasi-public (cooperatives)
  • private organizations.
  • There are also substantial amount of shanty
    houses (Halicioglu, 2005 1).
  • Social Housing by HAD

13
Housing Shortage
  • Due to population growth and continuing
    urbanization
  • Turkey will require an additional 5,5 million
    housing units,by 2015.
  • 500,000 new housing units required to be built
    annually
  • (Turhan, 2008 4).

14
Opportunities in Turkish Real Estate
Markets Motives in Domestic Demand Opportunities
in Istanbul RE Markets Advantages of REITs
15
(No Transcript)
16
Motives in Domestic Demand
  • High inflationnegative real interest rates
    Incresing investment in
  • Precious metals (specifically the gold market)
  • Real estate (Coskun, 2010a 30).
  • Real estate is symbols of socio-political statute
    (particularly for rural area).
  • Spending on housing finance and rent consist of
    considerable part of consumer payments.

17
Motives in Domestic Demand
  • Ownership ratio seems high in Turkey,
  • Average housing ratio
  • 67 in EU 27 countries
  • 68 in Turkey
  • The ratio is below 40 in the urban areas.
  • The main component of the strong domestic demand
    is residential.
  • Demographics,
  • Rural immigration,
  • Urbanization
  • Industrialization
  • Renewal
  • But still housing shortage in the market
  • European Mortgage Federation (2007 124) and
    Kongar (2003 562) .

18
Opportunities in Istanbul Real Estate
Markets The Latest Reports
  • In the report Emerging Trends in Real Estate
    Europe 2010, ULI and PwC (2010 9, 35) ranked
    Istanbul third for investment prospects and first
    for development.
  • In the next twenty years, the population in the
    provinces of Antalya, Bursa and Istanbul will
    likely increase by more than 30 (Deutsche Bank
    Research, 2008 7).
  • The built-up area in the province of Istanbul
    increased by more than 40 between 1990 and 2005
    (Deutsche Bank Research, 2008 6).
  • Financial services in Istanbul might create
    further expansion in real estate markets.

19
Opportunities in Istanbul Real Estate
Markets Potential Development
  • Istanbul needs more office space, upper/middle
    class residential, logistics and hotel
    investments.
  • It is estimated that 5 million sqm new office
    space will be required in the next 10 years in
    the largest 25 cities (Altan, 2009 18).

20
Advantages of REITs
  • REITs offer leverage opportunity to real estate
    companies.
  • Less developed, BUT,
  • Exempted from corporate and income taxes
  • Freedom to choose their dividend policies
  • Significantly more flexibility in managing their
    portfolios than their counterparts in developed
    countries (Erol and Tirtiroglu, 2008 2694).

21
Disadvantages in Turkish Real Estate
Markets Inefficient Finance-Real Estate
Link Problems in Real Estate Appraisal Problems
in Housing Caricature http//www.hse.gov.uk/my
th/images/risk2.jpg (07.05.2010)
22
(No Transcript)
23
Inefficient Finance-Real Estate Link Primary
Market
  • Real estate growth may not reflect the same
    amount of growth in primary/secondary mortgage
    markets.
  • Bad news
  • Housing loans or institutional housing finance
    has only 3 of the total housing ownership
    (Tüsiad, 2005 83).
  • Residential mortgage debt per capita were 30,
    100 and 170 in Turkey (i.e. 650, 860,
    1.170 in Crotia) (European Mortgage Federation,
    2007 122).
  • Good News Room for development

24
Inefficient Finance-Real Estate Link Secondary
Market
  • Capital market finance broadly depends on stock
    financing rather than bond financing
  • No securization in secondary market

25
Inefficient Finance-Real Estate Link Secondary
Market
  • Legal Structure
  • General belief mortgage regulation is sound.
  • Crowding Out
  • Interest rates were gradually decreasing,
  • But still no securization.
  • Financial crisis/constraints are also
    destabilizing the real estate market.

26
Problems in Real Estate Appraisal
  • Appraisal problems
  • Market/public based real estate transactions
  • Appraisal problems are increasing NOISE in the
    MARKET!!
  • Land shortage in the urban area,
  • Complexity of land use and zoning practices
  • Data/Information Problems NOISE in the MARKET!!
  • Less effective data availability (sales and rent
    information/statistics)
  • No sound/generally accepted official/unofficial
    value maps
  • Absence of real estate index

27
Protecting Public Interest
  • Intensive political content and complicated
    structure
  • The appraisal need of public properties
  • Public institutions transactions
    (sale/lease/privatization etc. agreements,
    expropriation etc.)
  • Decisions of courts
  • The system implies weaknesses

28
Appraisal Problems Results
  • Less observable price mechanisms/information and
    non-transparent market structure
  • Impair rational decision-making
  • Negative impacts on buyer/seller incentives in
    both residential and commercial markets.
  • Negative impacts to marketability of real estates
    and real estate investors satisfaction
  • Consumer Protection (??)
  • Impair mortgage markets
  • Credit market increasing non-performing loans
  • Securitization markets future problems
  • Caricature http//z.about.com/d/politicalhumor/1/
    0/Z/q/1/mortgage_morning_after.jpg

29
Appraisal and Public Interest
  • Public sector is the leading actor in real
    estate.
  • Central and local governments have extensive
    authorities
  • Appraisal requirements for public
  • Sales, Lease, establishment of servitude,
  • Privatization of public properties,
    expropriation,
  • Contracts on build-operate-transfer
  • Public private partnership (PPP)
  • In the expropriation, the value of land may
    change depends on the decision of
  • Value Appreciation Commission
  • Special Value Appreciation Commission
  • Expert witness (Keskin, 2003)

30
Better Standards for Appraisal
  • Good News
  • CMB has adopted international valuation standards
    as a regulation in 2006.
  • Regulated appraisal activities in banking sector
    and capital markets.
  • Bad news
  • Less effective regulatory framework on public
    properties appraisal
  • Market culture and knowledge (??)

31
Problems in Housing Market
  • Illegal Buildings
  • Permits to use buildings criterion, it is defined
    that 67 out of 100 buildings are illegal in
    Turkey (Turhan, 2008 5-6).
  • The number of irregular housing reached up to
    2.200.000 in Turkey in early 2000s (Keles, 2004
    560-561).
  • Cost of Land
  • In a typical housing construction (or development
    projects) CoL is ranging between 30-50 in the
    urban area
  • Absence of effective land management and land-use
    regulations

32
Solving Housing Problem
  • Can Social Housing Solve the Problem?
  • Mission of the State.
  • Low-cost housing for middle and lower class
    people
  • Housing Development Administration produced
    423.854 housing unit between the period of
    2003-2010
  • Sustainability?? (no secondary market for
    mortgage)
  • What About Other Residentials?

33
A MODEL SUGGESTION ESTABLISHMENT OF REAL ESTATE
REGULATION AND SUPERVISION AGENCY
34
Rationale
  • Failures of solving the problems of
  • Housing,
  • Land-use,
  • Urbanization,
  • Real estate appraisal,
  • Protecting consumers and public benefit etc.

35
Customer Protection
  • Conceptually, related to
  • Capital markets, banking and insurance.
  • In real estate
  • Massive transactions/unsophisticated
    investors/Information asymmetry
  • No (single/effective/financial market
    like)watchdog in the market
  • Particularly critical in residential and rural
    property transactions.
  • In Turkey consumers are unprotected
  • Incomplete housing sales,
  • Real estate broker communications,
  • Mass-housing projects,
  • Land-use/development projects,
  • Cooperatives etc.

36
Different Focus in Investor Protection
  • For financially developed countries
  • Mortgage market financial transactions/products,
  • Turkey
  • Real estate marketing/brokerage activities,
  • Non-institutionally financing real estate
    transactions

37
Primary Expectations I
  • To issue regulations/standards for
  • Real estate brokerage/marketing/appraisal, and
    also housing finance
  • To enhance
  • consumer protection,
  • public interest
  • market efficiency,
  • To coordinate the authorized government
    institutions based on the above objectives.

38
Primary Expectations II
  • To promote fair market practices,
  • To protect unsophisticated investors,
  • To enhance appraisal profession,
  • To enhance primary and secondary mortgage markets
    through incentives,
  • To develop policies for the management of public
    properties and urban area land shortage,
  • To develop policies for sustainable housing
    finance,
  • To issue periodic public reports on real estate
    sales/rent data, indexes and value-maps,

39
Primary Expectations III
  • Simplifying, consolidating and converging zoning
    practices,
  • To oversee foreign real estate investments,
  • To increase and coordinate local/SROs authorities
    on regulatory/supervisory process,
  • To issue reports on the major developments,
  • To analyze the developments in land use
    practices,
  • To publicly disclose their balance sheet,
    policies and practices.

40
CONCLUSION Carthago delenda est, (Carthage must
be destroyed) CATO, Roman statesman
  • Limitations
  • Public side doing business culture and political
    influence
  • Prerequisites
  • Suggestion may be helpful to discuss with a new
    viewpoint of
  • consumer protection
  • public interest and
  • market efficiency
  • problems of the Turkish real estate markets.

41
Thank you very much for your attention...
  • For discussion/more information
  • Adress Capital Markets Board of Turkey,
    Eskisehir Yolu 8.Km No156 06530 Ankara/Turkey
  • Phone (90 312) 292 88 24
  • e-mailycoskun_at_spk.gov.tr

42
REFERENCES
  • Altan, Özgür. (2009). Momentum, Transformation
    and Institutionalization. Spring-Summer. Issue 3.
    GMTR Real Estate Turkey Executive Summary 18.
  • Bank, Emin and Orhan Mataraci. (2004). Cadastral
    Data Management System in Turkey. FIG Working
    Week 2004, Athens, May 22-27, Greece. Available
    at http//www.fig.net/pub/athens
    /papers/ts28/TS28_3_Bank_Mataraci.pdf
  • Capital Markets Board of Turkey. (2009). Annual
    Report 2008. Available at http//www.cmb.gov.tr/d
    isplayfile.aspx?actiondisplayfilepageid53fn53
    .pdf (13.04.2010).
  • Central Bank of the Republic of Turkey. (2008b).
    Financial Stability Report. Volume 7. Available
    at http//www.tcmb.gov.tr/yeni/eng/
    (10.04.2010).
  • Coskun, Yener. (2010a). Housing Market Without
    Mortgage The Need of Transformation.
    Spring-Summer. GMTR Real Estate Turkey Executive
    Summary 30.
  • Çete, Mehmet, H. Mustafa Palancioglu, Abdurrahman
    Geymen and Mehmet Alkan. (2010). The Turkish
    Cadastral Information System and Lessons Learned.
    Scientific Research and Essays 5 (7) 625-633.
  • Deloitte. (2009). European Powers of Construction
    2008. Available at www.deloitte.com
    (16.04.2010).
  • Deutsche Bank Research. (2008). Real Estate
    Investment in Turkey Look Beyond Istanbul.
    August.
  • ErnstYoung. (2010). Global Real Estate
    Investment Trust Report 2010. Available at
    http//www.ch.ey.com/Publication/vwLUAssets/Global
    -REIT-report-2010-Against-all-odds/FILE
    /Global_REIT_report_2010_Against_all_odds.pdf
    (13.04.2010).
  • Erol, Isil and Dogan Tirtiroglu. (2008). The
    inflation-hedging properties of Turkish REITs.
    Applied Economics (40) 26712696.
  • European Mortgage Federation. (2007). Hypostat
    2006 A Review of Europes Mortgage and Housing
    Markets. November. EMF Publication. Internet
    http//www.hypo.org/Objects/6/Files/Hypostat
    20200620-20Web20Version.pdf (14.04.2010).
  • Halicioglu, Ferda. (2005). The Demand for New
    Housing in Turkey An Application of ARDL Model.
    Conference Paper. 2005 Business and Economics
    Society International Conference. July 22-25
    2005. Grand Canyon. Arizona, USA.
  • Jones Lang Lasalle. (2008). Turkeys Rising Stars
    A Region of New Opportunities. Available at
    http//www.joneslanglasalle.com.tr/ResearchLevel2/
    ResearchDocument_3621.pdf (14.03.2010).
  • Keles, Rusen. (2004). Kentlesme Politikasi.
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  • Kongar, Emre. (2003). 21. yüzyilda Türkiye
    2000li yillarda Türkiyenin toplumsal yapisi.
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    Arayislari Seçilmis Sektör/Kurum Önerileri.
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