Head of Capital Markets Board Warns Constructors in Turkey

Rumors about looming troubles for some Turkish construction companies are partly confirmed at a real estate summit, as a top official says some firms are ‘trying to develop their own financing methods,’ inviting more risk. Speaking at the Istanbul REState summit, Vedat Akgiray, head of the Capital Markets Board, says such companies cannot find financing ‘by proper ways’

Failing to raise capital for their projects, some constructors in Turkey are trying to develop their own financing methods, which is a “too risky” approach, according to Vedat Akgiray, head of the Capital Markets Board, or CMB.

“We should not let this happen,” Akgiray warned. He was speaking at Istanbul REState, a key real estate fair and summit that started in Istanbul on Monday. Akgiray’s warnings come as many real estate and construction firms are under pressure from rising commodity prices. Over the next few months, they could also be facing a second problem, as regulators have imposed limits on bank loans, a key source of financing for home purchases.

“Some companies, a minority indeed, are ‘making up’ their own financing methods as they cannot find financing by proper ways,” he said. “In some cases, they are acting as middlemen, or even lenders.”

Warning that this approach may also be a result of a lack of knowledge, Akgiray said CMB was ready to support “every innovative demand” that would expand the market.

“If someone unauthorized is collecting money and developing a method similar to a public offering, this is a crime,” Akgiray said.

Regarding Turkish real estate, the CMB chief said demand continues to rise. “Look at the smallest building complex and you will see a few hundred apartments.”

There currently are more than 20 real estate investment companies that are being traded at the Istanbul Stock Exchange, Akgiray also said. But in regards to the volume of the sector, the situation is not enough, he added.

Growth of capital markets

“It is impossible to protect investors without growing capital markets,” Akgiray said. “We are looking for a new instrument that would offer new financing to our real estate companies. But there is a financial illiteracy in the sector. Companies developing projects and constructing buildings are still not aware of the importance of becoming a real estate investment trust.”

Demand for housing should be financed “correctly,” he also said. “In such an economy, there could be no risk of a bubble or real estate crisis.”

Speaking at the conference, Işık Gökkaya, board chairman of the Association of Real Estate Investment Companies, or GYODER, said the “House Price Index” prepared by the association each month showed that a housing bubble is nowhere to be found, despite some contrary claims. “There is an increase in prices, but according to March data, this increase is at around 6.17 percent compared to a year ago.” Meanwhile, housing loans stand at 5.5 percent of gross domestic product, or GDP, much lower than the levels seen in other developing economies, Gökkaya added. The ratio of housing loans to GDP in developing European economies stands at around 15 percent.

The Turkish construction sector grew by 17.1 percent last year, said Gökkaya. “This development increased the confidence of foreign investors in the sector.”

Real estate sales to foreigners, which totaled $1.8 billion in 2009, increased to $2.5 billion last year, he also said, adding: “The share of construction in Turkey’s GDP is at around 5.6 percent. The sector is expected to grow by 15-20 percent this year.”

However, due to uncontrolled urbanization, Istanbul has ranked 110th among 140 cities in the “livable cities” list of the Economist magazine, he said.

The financing of home sales is a key factor for the sector, Gökkaya said. “Home purchases aim to both meet a housing need and to invest. Real estate, seen as a reliable investment instrument, is mostly preferred.”

The mortgage system is still not functional in Turkey, Gökkaya said, adding that loans are still mainly offered by banks. “For a healthy mortgage system, the development of secondary markets is a must,” he said.

May 17, 2011
SOURCE: Hürriyet Daily News