URBAN TRANSFORMATION has always been on Turkey’s agenda especially after 1999 earthquake that occurred at Marmara Region, nearby Istanbul. However, the government decided to take concrete steps towards the demolition of illegal/risky buildings and the renewal of aged buildings in 2012 after another major earthquake that happened in 2011 at the eastern border of Turkey. In order to implement this long-thought plan, a new law “Regeneration of Areas under Disaster Risk numbered 6306” also known as “URBAN TRANSFORMATION LAW” was legislated on 16.05.2012 (“The Law”). A new era has started on URBAN TRANSFORMATION, construction and many sub-sectors supported by construction across Turkey.
The main purpose of the Law is to evacuate the aged risky buildings and demolish them in order to minimize the casualties in case of an earthquake. However, earthquake is not the only reason behind the motives of this Act, rapid urbanization, increasing population and housing demands in major cities triggered the need of the Law. The target is to renew 6.7 million units nationwide within 20 years which means a market of 23 billion USD each year.
LEGAL PROCESS & ACTORS
As stated above The Law specifically focuses on risk areas defined as areas that may cause casualties or assets during earthquakes & disasters. A risk area is determined by the Ministry of Environment and Urban Planning, Housing Development Administration (“TOKI”), or municipalities, by taking the opinions of the Presidency of Management of Disaster and Emergency, and decided by the Council of Ministers upon proposal of the Ministry.
However, individual buildings that have completed their economic life or which are scientifically and technically proven to be at risk can also be defined as a building at risk no matter whether they are located in a risk area or not. Ministry of Environment and Urban Planning is entitled to define individual buildings at risk if they are outside of a Risk Area.
Since the ratification of the Law, Council of Ministers declared many Risky Areas throughout Turkey. Istanbul is the leading city with 27,700 buildings accommodating approximately 230,000 people. However, the market in Istanbul is much bigger since thousands of individual buildings are also getting rebuilt in the regions that Municipalities allow higher zoning status for new buildings.
Since TOKI has only a capacity and budget to build at most 50.000 units per year collaboration with private investment is inevitable. In order to encourage private investment Turkish government implements some incentives in Urban Transformation Process such as zoning bonuses, tax exemptions, transfer development rights, budget for renting fees etc.
LEGAL CONCERNS IN URBAN TRANSFORMATION
Since the main purpose of the Law is to evacuate and demolish the risky buildings in order to prevent any casualties; some regulations are made in order to speed up the process. However, these regulations rose some concerns over the ownership right as only 2/3 of the landowners are entitled to overrule the remaining ones when it comes to decide on the destiny of a building.
Any landowner may apply to Ministry of Environment and Urban Planning requesting an analysis and grant a Risky Building Report according to the results. To enlighten, almost any building that was constructed before 1999 would get a Risky Building Report since the Earthquake & Safety Regulations were renewed after 1999 Marmara Earthquake.
After a Risky Building Report is granted and all the landowners are notified, 2/3 of the landowners may decide on how to rebuild the building (either by a private investor or TOKİ). The Law further grants a right to 2/3 majority of landowners to decide to sell the shares or units of the disagreeing landowners in an auction among themselves. If no one among the landowners bids for the shares of the disagreeing landowner TOKİ steps in and expropriate the share for its market value. These regulations are made in order to speed up the process and pressure landowners to reach a consensus however the negative effects of these regulations on the right of ownership is another discussion.
Regarding financing, private companies are currently using their own equity, therefore government supported construction loans should be provided with special interest rate and payment conditions in order to encourage more investment,
The process of approvals from different institutions (municipalities, ministries) for the required documents are perceived as being very time consuming, especially these processes may vary between municipalities a standard should be formed in UR processes among all the municipalities in order to spread the investments equally throughout the country.
CONCLUSION & OUR FIRM’S SERVICES
The increasing housing demand of the middle class and foreign interest, risk of a disaster and other abovementioned reasons makes Urban Transformation and construction one of the leading segments of Turkish economy. Being the economic, social and historical heart of the country Istanbul offers attractive opportunities for both local and international investors. However, the opportunities are not limited with metropoles like Istanbul, İzmir and Ankara as the population of cities like Gaziantep, Adana & Bursa is increasing due to local and international immigration.
The method of unit sharing is the most common method applied by the private investors. Government & has played a supportive role that should be appreciated in order to encourage private investors, municipalities also supported this policy by zone bonuses. However the classical method of unit sharing forces private investors to reach and agreement with at least 2/3 of the landowners and in practice this means a lot of time, negotiation, investment and patience.
The foreign companies interested in construction sector in Turkey, generally attempt to find a Turkish partner to form a joint venture. It is tempting for foreign investors to invest in the Turkish market and enjoy the incentives in Urban Transformation as the demand for real estate rises rapidly. According to the statistics provided by Turkish Statistics Institution, 96.589 residences sold during July 2015. Istanbul has the highest percentage is housing sales as 17.182 residences (17,8%). 46.623 of such sales are the new houses and Istanbul has the most sales (4.294) followed by Ankara (2.234).
As CVG Law Firm we provide legal assistance to foreign investors as one-stop shop service. We assist the investors on establishing a company, providing due diligence reports on acquisition of a company and reviewing the agreements or providing memorandum on relevant legislation.
For more information: info@cvghukuk.com
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