VZCZCXRO7924
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHAK #0432/01 0581236
ZNR UUUUU ZZH
R 271236Z FEB 07 ZDK PER NUM SVCS
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 1109
INFO RUEHIT/AMCONSUL ISTANBUL 2209
RUEHDA/AMCONSUL ADANA 1694
RUEATRS/DEPT OF TREASURY WASHDC
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 02 ANKARA 000432 
 
SIPDIS 
 
TREASURY FOR JONATHAN ROSE 
STATE PLEASE PASS OPIC/HOUSING DIRECTOR DEBRA ERB 
USDOC 4232/ITA/MACCHERIE RUSNAK 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN PGOV TU
SUBJECT: HIGH EXPECTATIONS FOR TURKEY'S NEW MORTAGE LAW 
 
ANKARA 00000432  001.6 OF 002 
 
 
¶1. (U) Summary.  In a social and economic watershed moment for 
Turkey, officials, real estate developers and finance experts are 
trumpeting the recent passage of a long-awaited mortgage law as an 
important step toward transforming Turkey's housing market and 
blighted urban landscape, a move that could potentially pave the way 
for millions of Turks to become first-time home owners.  In addition 
to facilitating home ownership, the new law will be a boon to the 
banking and construction industries and may lead to substantial 
job-creation by energizing growth and investment in Turkey's real 
estate sector.  Some local economists downplayed the impact of the 
new law's overall effect given still high interest rates and the 
absence of tax incentives for interest payments.  End Summary. 
 
------------------- 
MECHANICS OF REFORM 
------------------- 
 
¶2. (U) After three years of preparation and delay, the Government 
submitted to parliament legislation earlier this year that would for 
the first time create a legal framework for mortgage lending.  The 
legislation moved relatively quickly through the Budget and Planning 
Commission and was passed by the parliament on February 21.  Deputy 
Prime Minister Abdulatif Sener heralded this "vital new mechanism" 
of reform as ushering a new era in Turkey, one in which average 
Turks will be encouraged to think "I will have a house."  Short-term 
housing loans already existed in Turkey, but with the astronomical 
interest rates prevailing in high-inflation Turkey from the 1970's 
until very recently, Turks relied primarily on personal savings to 
finance home purchases. Far more commonly, they rent units in the 
uniform apartment blocks found throughout Turkish cities and towns 
or squat on public land.  For the first time in many generations, 
mortgage financing will enable middle income families to achieve 
home ownership through installment payments approximately equal to 
current monthly rents. 
 
¶3. (U) The new law requires consumers to pay one-fourth of a home's 
sale price up front and finance the remainder through long-term 
mortgage contracts with fixed or variable interest rates, in 
addition to requiring mandatory earthquake and life insurance for 
all homes purchased or sold. . Only homes with municipality-issued 
certificates of occupancy will be eligible for mortgage loans under 
the new system.  Consumers have the option to convert their existing 
housing loans to mortgage loans within three months of the new law's 
enactment. 
 
¶4. (U) To help deal banks originate long-term funding, the law 
allows for the establishment of mortgage finance institutions to 
which bank-issued mortgage loans may be sold.  In the event of 
default for two consecutive installments, banks will give customers 
an extra month to make their payments before foreclosing.  The law 
is thereby expected to make housing finance more attractive to 
financial institutions since it will make it easier for lenders to 
seize collateral.  The law will also facilitate the creation of a 
secondary market in asset-backed securities issued by financial 
institutions and available for purchase on the Istanbul stock 
exchange to institutional investors, such as insurance companies and 
pension funds.  By facilitating the creation of new, attractive 
assets, Sener asserted that the mortgage law will help Turkey 
attract more foreign investment. 
 
------------------------ 
RIPPLE EFFECT FROM LOANS 
------------------------ 
 
¶5. (U)   Haluk Sur, one of Turkey's leading property developers and 
chairman of the Istanbul-based Association of Real Estate Investment 
Companies (GYODER), estimated that sixty percent of the country's 75 
million inhabitants will benefit from the mortgage system.   Sur 
predicts Turkey's annual housing loan market could reach 60 billion 
dollars once the mortgage system is fully operational. 
 
¶6. (U) Many experts predict that new long-term financing will play a 
crucial role in creating much-needed employment opportunities, 
particularly in the construction sector.  Manufacturers of cement, 
glass, home textiles, building materials, and steel may also hire 
additional laborers as the demand for housing increases.  Others 
predict Turkey is poised to attract substantial foreign portfolio 
investment now that the law has passed.  The requirement that 
mortgages obtain private earthquake insurance also will help ensure 
higher quality construction in a country plagued by weak enforcement 
of official building codes despite the high earthquake risk. 
 
 
---------------- 
CRITICS WEIGH IN 
 
ANKARA 00000432  002.6 OF 002 
 
 
---------------- 
 
¶7. (U) Although the new law's passage has been widely praised, there 
are critics.  The Consumer Protection Association and others said 
the law would not help low-income people afford housing.  Some 
financial experts criticized the law's exclusion of tax incentives, 
and measures to encourage home ownership among salaried employees 
such as civil servants.  The Finance Ministry opposed granting tax 
relief to mortgage borrowers because of the prospective loss of 
revenue.  Minister of Economy Babacan said that other countries with 
mortgage tax breaks advised Turkey against including incentives in 
its legislation and the IMF opposed tax incentives.  Ozgur Altug, an 
economist at Raymond James, noted that to make the new law 
effective, "interest rates will have to fall and interest payments 
will have to be tax deductible."  Others adopt a wait-and-see 
attitude claiming it is too soon to assess the new law's potential 
until interest rates on bank loans come down from their current 
levels of more than 20 percent. 
 
------- 
COMMENT 
------- 
 
¶8. (U) The introduction of a mortgage system shows how far Turkey 
has come in creating a modern economy that meets the needs of 
consumers, as well as the work remaining to be done.  As the rural 
migration to Turkey's urban centers steadily continues, and with 
half the country's population under the age of 25, demand for 
housing is only expected to grow over the next decade.  The new 
opportunity for long-term financing, coupled with declining 
inflation, a growing economy, and falling interest rates, promises 
to provide growth opportunities for the housing, real estate and 
banking sectors.  The mortgage law will also help Turkey's financial 
sector continue to deepen and modernize.  There may also be 
additional opportunities for U.S. firms in niches like title 
insurance and asset-backed securitization. 
 
WILSON#