london, 17 december 2008 tbcci briefing buying property in turkey: a lender’s perspective
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London, 17 December 2008TBCCI Briefing
BUYING PROPERTY IN TURKEY:
A LENDER’S PERSPECTIVE
INT’L DIRECT INVESTMENTS in TURKEY (in million USD)
2003 2004 2005 2006 2007 3Q/07 3Q/08
Total 1,751 2,785 10,031 20,185 22,214 17,096 12,311Net equity 7531 1,442 8,190 17,263 19,288 15,044 10,085Real Estate 998 1,343 1,841 2,922 2,926 2,052 2,226
INT’L DIRECT INVESTMENTS in TURKEY (in million USD)
FOREIGN PROPERTY BUYERS (September 2008)
Investors’ country of origin Number of properties Total square meters Number of buyers
Germany 18,996 22,824,763 16,889
UK 15,342 5,161,155 22,124
Denmark 3,631 1,177,245 4,667
Netherlands 3,365 1,712,386 4,273
Ireland 3,897 745,984 5,271
All countries 68,094 45,949,254 78,054
FOREIGNERS BUYING PROPERTY
De jure & de facto “reciprocity” Different categories exist
Eligible countries: UK, Ireland,Germany, Greece, Syria etc
Countries not qualified Romania, Czech Republic, Bulgaria etc
Other set of countries’ citizens need to reside in Turkey for a certain period before owning a propertyAustralia (5 yrs), Egypt (6 months) etc.
Equal treatment in payment of duties 1.5% from both the buyer and the seller, total 3%
INVOLVEMENT OF A LENDEREases finance requirements
Provides safeguards to both the seller and the (foreign) buyer
Streamlines the process
Might seem costlier but a big investment need to be handled with care
SAFEGUARDS FOR THE BUYER
Prudent lending practice (reasonable LTV)
Independent valuation
Proper conveyance
Legalities need to be adhered to before release of funds
Application for the military permission (both the location and the prospective buyers are checked)
SAFEGUARDS FOR THE SELLER/DEVELOPER
Enhances selling activities
Favourable credit assessment signals to a dependable/credible buyer
Expedites completion or starting of a new development
FUNDING AVAILABILITIESLending continues
Prudent lending criteria
Variable rates
Widened base rate–LIBOR gap prevents tracker mortgages
Ideally, no currency mismatch
Affordability (household budget surplus)
STAGES Pre-assessment tool (
www.isbank.co.uk/afford.html )Application Payslips, bank statements, address verification
etc.Credit reference agency checksLender’s own credit scoring platforms Decision makingConditional offer A key component: independent valuation Upon conveyance and the lender becoming the
first mortgagee, release of funds to the seller
OTHER IMPORTANT ITEMSRequirement of both earthquake &
property insuranceIsbank London lending: in line with MCOB Contracts governed by the English law Originators in Turkey lend according to
Turkish practices with contracts governed by the Turkish law
Joint applications possible
ADVICE TO THE BUYERSDon’t refrain from borrowing banks
Your own interests will be protectedYou can always ask for a smaller percentage of the
transaction
Whenever possible, bring in independent valuers of the bank before agreeing on the price
Consider operational issues for making the monthly repayments
ADVICE TO THE BUYERSAvoid currency mismatch
don’t make ill judgements on the promised lower interest rate of a currency in which you have no regular income
Remember:£/€ was 1.37 at end-2007 and only 1.10 now £/$ was 2.0 at end-2007 and only 1.55 now
RECENT MORTGAGE LAWCovered bonds , Mortgage Backed Securities
Lack of such products prevented Turkey from facing bigger difficulties in the present economic downturn
Adjustable rate mortgagesWas at the stage of implementation
Consumer InformationPre-contractual information sheet to be mandatory
BIG DOMESTIC POTENTIALHouse loans to GDP still below 5% Population growth of around1.1%
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