Professional Documents
Culture Documents
Real Estate Development Process in Turkey
Real Estate Development Process in Turkey
Author
Meric Tuhral
Supervisor
Kurt Psilander
Stockholm, December 2005
Author:
Meric Tuhral
Department:
Report Reference:
Supervisor:
Kurt Psilander
Key words:
ABSTRACT
In the last three decades Turkish economy has suffered from revolutions, war and terrorism,
and many economic crises. These incidents have been active getting weaker economically.
The poverty in rural areas has led the immigration to urban areas. Especially Istanbul began
attracting immigrants 30-35 years ago. With this high scaled migration, illegal and unsecure
real estate development started to come up. Today unsystematic development has been a
problem in most of the big cities of the country.
In the earthquake of 1999 in the region of Marmara, it was seen that many apartment
buildings had been built without strickt inspections. This was another result of unsystematic
development.
Today there is a more positive picture of the country. With the elections in 2003 one party
regime has been appointed to establish the government after many years. In 2004 Turkey was
promised to start the meetings of EU entry in October 2005. These changes and the economic
performance of the country are expected to attract foreign investments. By coming mortgage
system the market will be well-formed.
In order to get rid of these untidy images of metropolitan cities in Turkey, many different
development companies have been getting in the urbanisation process with different projects.
The purpose of this thesis is to analyze widely used development procedures of main
developers of the country.
ACKNOWLEDGEMENTS
This master thesis has been carried out for the Department of Infrastructure at the Royal
Institute of Technology in Stockholm, Sweden.
First of all, I would like to thank my supervisor, Professor Kurt Psilander at the department of
Building and Real Estate Economics, for his guidance, discussions and comments in different
questions.
I would also like to thank Husnu Diken from Diken Construction Company, Zafer Eguven
from Yapi Kredi GYO and Mahmut Demir from Alarko GYO, for sharing their precious
experiences and information.
Finally thanks go to my wife and my parents for their lovely support during my stay in
Sweden.
Stockholm, September 2005
Meric Tuhral
TABLE OF CONTENTS
Abstract
Acknowledgement
CHAPTER 1. INTRODUCTION
1.1 Background
1.2 Problem Formulation and Purpose
1.3 The Method and Scope of the Study
1.4 Objectives
1.5 Limitations
1.6 Disposition
.6
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REFERENCES
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1. INTRODUCTION
1.1 Background
Turkey is a country which is geographically divided into two parts one of which is included in
Europe and the other in Asia. With the population of 65 million people the country is accepted
having a great economical potential.
Over the past five years, the financial markets in Turkey have been subject to two major
crises. The country experienced an enormous earthquake catastrophe in 1999. Dynamics on
both the international and domestic levels have contributed to a significant contraction in the
construction and real estate sectors. In addition to the share of the construction sector in GNP
having fallen from six to three percent, retrenchment in that sector has affected some 240 subsectors, resulting in such problems as unemployment, which has had an impact on tens of
thousands of Turks.
On the other hand, the insufficiency of institutionalization in the real estate development
sector, the fact that only 62 percent of housing being constructed has building licenses, and
only 35 percent of completed houses have received housing permits all point to the disarray in
which the sector finds itself.
Commitment to abiding by the 2003 IMF Stabilization Program and the presence of political
stability have contributed to an important degree of success in the areas of interest, inflation
and exchange rates. This success has had a positive impact on housing loans both in terms
of amounts and interest rates.
However, the interest rates are not low enough for applying a mortgage system. But
considering the positive economic figures of the last three years with one party government
regime it is expected to initiate the mortgage system. Even the speculations about coming
mortgage system have doubled the prices by increasing demand before the system comes.
One other reason of increasing demand is the new legislation allowing many foreign country
citizens to purchase real estate in Turkey. This new legislation has especially affected the
holiday resorts which are on the coast of the Mediterranean and the Aegean.
By joining EU in 10-15 years time these figures of Turkey are expected to increase further.
1.4 Objectives
The objectives of this thesis are as follows:
1.5 Limitations
It was not the intention of this study to include all information of development processes from
Turkey. Although the development in Turkey is mainly studied, the lack of literature about
the sector has limited the thesis. The undeveloped internet sources about Turkish economy
finance and all other sectors was also a limiting factor. Another difficulty in Turkey is that
there is limited possibility of reaching the experts in the sector for related interviews.
1.6 Disposition
The thesis work is divided into nine parts
Chapter 1: Introduction- definition of the purpose of research, its background, the method
and scope of the study, objectives and limitations.
Chapter 2: Real estate development process- definition of general process and the elements
of development process.
Chapter 3: Stages of Real Estate Development- defines the eight stage model of real estate
development in theory
Chapter 4: Beginning Developers- defines the needs of developers who are getting in the
process.
Chapter 5: Market in Turkey- presents Turkey, the economic performance of the country,
residential market and the city of Istanbul, demand supply and price figures.
Chapter 6: Players of the Sector in Turkey- presents the types of players and institutions
that are active in the market.
Chapter 7: Case Studies- defines some case studies from Turkey (all the studies are from
Istanbul) presenting the procedure of the subject development projects.
Chapter 8: Results and Analysis- Analysed results from the study about the situation of the
market in Turkey and comparison of Swedish and Turkish markets in brief.
Chapter 9: Summary and Conclusions- results from the study and suggestions.
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
E le c t r ic s
Land O w ner
C o n s t r u c t io n
M anagem ent
S tru c tu re
A r c h it e c t
S a le s
C o n t r a c t o r / F in a n c e
M e c h a n ic s
Up to the Sell/Lease-Build model (Figure 2.2), the developer exists with his idea, finance and
land. A project manager, an architect, construction management staff, appraisers are involved
in the process where real estate project is planned, marketing is performed, property
management firm is involved and relationship with regulators are developed. The project
manager undertakes a central role in the process and coordinates the efforts of whole
disciplines. Many disciplines such as landscape architect, traffic, and security may be
involved in the process. It is possible to add many various disciplines to the process that
continues till the stage of property management.
Within the structure, optimization of cost, quality and cost should be taken into account.
Providing proper expenditure of money and time within the process is crucial for the desired
quality.
Land Owner
Mechanics
Entrepreneur
Appraisal
Financor
Idea
Land
Financor
Feasibility
Business
Plan
Project
M anager
M arketing
Property
Managem ent
Landscape
Municipal/Public
Structure
Traffic
Electrics
Fire
Architect
Construction
Managem ent
Construction
Audit
InfraStructure
Security
Environm ent
Others
10
Construction
Poperty
Managem ent
2.1.1 Architect
Drawing the developers or his own ideas, producing a set of obtaining construction bids,
guiding the construction process are some of the main activities ,that the architect of a
development project mostly perform. The responsibilities of architect to the project are,
mainly based on the subjects of, aesthetics, physical safety, political and market risk.
Architects can also help developers in securing planning and zoning approvals, working with
community groups to understand their needs and preferences for proposed projects,
performing related site studies in selecting a site for a specified use or develop alternative
concepts for a site and head the land use team to bring a concept to fruition.
In Turkey, architectural projects are reviewed by municipalities for all privately owned
construction projects and by the Turkish government contracting agency for all publicly
owned projects.
11
2.1.2 Engineers
Structural, mechanical, electrical, civil engineers have a vital role in the development process
of a project. They are required to ensure that the design can accommodate the required
physical systems.
Effective project coordination relies on upfront communication and should be coordinated
early in the process. Experienced developers generally facilitate a series of meetings with all
architectural and engineering project personnel to define scope and communication channels
and to discuss each disciplines goals and objectives in depth2.
In Turkey engineers play a crucial role in both preparing the development project and on the
site. A whole construction development process is coordinated by either an architect or a
construction engineer. Mechanical and electrical engineer are only needed in related sections
of the whole process. Project manager who has the whole responsibility of a project is
generally an architect or an engineer with also an economical background. Most developers
have construction engineering education in Turkey.
2.1.3 Surveyors
Surveyors determine a propertys physical and legal characteristics- existing easements, right
of-way, and dedications on the site-and prepare a site map plotting these characteristics. This
critical information reveals how much of the site can be built on and the allowable square
meter.
Developers commonly use two types of surveys: a boundary survey, which determines the
boundaries of the site (easements and other legal requirements affect ownership of the
property being plotted on a map); and a construction survey, which plots the location of
relevant infrastructure- water, sewers, electricity, gas lines, and roads-to assist in planning
connections to utility services2.
They are involved at each stage of the development of property and land, from initial planning
to completion. They advise their clients on planning issues, obtain planning permission from
local authorities and prepare reports.
PEISER B. Richard and Anne B. FREJ; 2003. Professional Real Estate Development: The ULI
Guide to the Business. Second Edition. Washington, D.C.
12
2.1.6 Contractors
Contractors are builders and managers of builders who turn ideas on paper into enduring
physical forms3.
Construction contractors take the responsibility of the physical construction of a development
project and its elements. Each contractor is required to complete the proposed service to a
development project on time and within the budged which are explained in detail in the
contract.
Jonathan Rose, principle of Jonathan Rose and Companies, suggests keeping in mind three
points when choosing contractors,
Find someone who is experienced in the product type being considered for the project.
A specialist in assisted living facilities will likely not be an appropriate choice for
multifamily housing.
Be certain that your project amounts to no more than one-third of the contracting
firms total workload, a good benchmark for organizational and financial stability.
That is, if you have a $20 million project, look for a contractor with at least $60
million in total business at the time the contract is signed.
Ask for and check references to understand how the contractor has performed for past
clients.
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
13
2.1.10 Appraiser
Appraiser is the member who is responsible for estimating the value of a project. He may be
needed in every stage of the development process-before, during and after project completion.
Appraisers can also evaluate a project as input to market studies, marketability studies, and
feasibility studies.
Appraisal is especially needed when the ownership of a development project is transferred to
another developer. When developer seeks financing and credit, has problems with tax matters,
and in the situation of compensation in condemnation proceedings, an appraisal is needed.
14
The use of in-house agents is appropriate for larger projects and large development firms that
can carry the cost. The benefit of an in-house staff is that the developer hires the staff during
initial planning and the agents become very familiar with the project, providing input design
and merchandising.
Small development firms may find it useful to retain outside brokers who are knowledgeable
about the local market and who have lower carrying costs.
The working relationship between developer and broker is defined in a contract referred to as
a listing agreement. Under an open listing agreement, the developer may recruit several
brokers and is responsible for paying a commision only to the one who sells or leases the
property. In addition, if the developer completes a transaction without the brokers assistance,
no commision is necessary4.
2.1.15 Regulators
Local zoning requirements and subdivision regulations are also limiting factors for
development projects. Developers must comply with these regulations and should obtain
approvals locally for site plans and special use permits before the project is initiated.
PEISER B. Richard and Anne B. FREJ; 2003. Professional Real Estate Development: The ULI
Guide to the Business. Second Edition. Washington, D.C.
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
15
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
16
Developers are the coordinators of those activities, converting ideas on paper into real
property. They create, imagine, fund, control, and orchestrate the process of development
from the beginning to the end. Developers take the greatest risks in the creation or renovation
of real estate and receive the greatest rewards7.
The developer should have the ability to give proper investment decisions in an environment
of uncertainty and, should be flexible enough to give respond to the continuous changing
conditions of market.
Developers must have a clear vision of what they want to do; they must also provide strong
leadership along with that clear vision. Developers by nature have strong egos and opinions,
but they must be good listeners. They depend on many other people; they cant possibly be
authorities on all the many different fields of expertise involved in a project.
Like most good business people, developers seek the maximum possible return with minimum
commitment of time and money and, the return may consist of several components such as;
PEISER B. Richard and Anne B. FREJ; 2003. Professional Real Estate Development: The ULI
Guide to the Business. Second Edition. Washington, D.C.
17
PEISER B. Richard and Anne B. FREJ; 2003. Professional Real Estate Development: The ULI
Guide to the Business. Second Edition. Washington, D.C.
18
Six: Construction
19
Marketing through out the whole development process and market research is one of the
major tasks of whole marketing effort. More information results in more accurate modeling
figure. Figure 3.2 represents the cost and value of market information to the overall
development process.
Figure 3.2 Cost and Value of Market Research [TOKOL T.]
Cost
Value
Net Value
Max. Value of
Information
Duration of Research
Projects go through several stages of risk. The risk money is typically limited to what is spent
on feasibility studies, analyses of soils, and the market design.
Developers need to be able to live and work in risky environments. According to Gayle
BERENS, successful developers price all risks and accept only when costs justify it. He
defines six basic ways to reduce risk;
Avoid risk by stopping in stage one, two, or three before much money is committed
Increase the research and know more about the possibilities by completing a more
substantial feasibility study in stage three
Engage in some form of loss prevention the most obvious of which is a competent
development team assembled in stages four and five
Transfer a potential loss to other players through the contracts negotiated in stage four
Combine and diversify to reduce the pain of large losses by buying insurance for
stages six through eight
Assume risks. Even after adopting these five strategies, the developer must assume
some amount of residual risk
20
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
21
into a particular project. Otherwise it should be abandoned before extensive resources are
committed to the concept9.
At this stage identifying the right use of the right site is crucial and many activities that are
carried out simultaneously are involved. The inputs that will be used are the development idea
that is generated at stage one, market research and general knowledge of construction,
urbanism, real estate law and finance. Strategic planning, construction cost modeling,
concepts of site selection and specific market research for refining the idea are the tools and
techniques, that are used to produce refined idea which is object to feasibility and preliminary
project design.
In stage two, developers must acquire land, make contracts with general contractor, subcontractors and other members of the development team, and undertake initial project design.
They also bear uncertainty and risk as they try to bring the subject idea to physical reality.
At this stage financial feasibility of the idea and search for the strategy in order to capture the
greatest market share should also be refined. Following activities are involved in stage two.
Market Research
Scanning the environment; public policy environment, macro environment and
competitive environment
Analyzing local market; demographic, economic and sociocultural
Analyzing competition; companies, comparable projects, potential competing sites
Site Selection
Establishing site selection criteria; market, physical, legal and political,
Evaluating alternative sites
Negotiating contract for site
Negotiation with players
Public sector
Contractors
Tenants
Architects and Engineers
Project Specifications
Preliminary project design
Determining feasibility; go, revise or dont go
Market search is the core activity of this stage. There are three major activities of market
research, those are;
Scanning the environment
Scanning the environment is the activity of searching possible competitors, government
jurisdictions, and political power base. Developers need to have strong relationships with
city officials, politicians, and the general public.
22
10
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
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L e g a l u s e o f th e s ite
R e s tiric tio n s o n d e n s ity a n d la y o u t
C o n tig u o s la n d u s e s
L ik e lih o o d o f o b ta in in g v a ria n c e s
E n v iro m e n ta l Im p a c t
- A d v e rs e im p a c ts o n a ir, w a te r, a n d n o is e le v e ls
- A m o u n t a n d ty p e o f w a s te p ro je c t w ill g e n e ra te
- O th e r a re a s o f c o n c e rn , in c lu d in g h is to ric d is tric ts , p a rk s ,
o p e n s p a c e , tre e s , w ild life h a b ita ts
G o v e rn m e n t S e rv ic e s
P h y s ic a l F e a tu re s
-
S iz e
S o ils
T o p o g ra p h y
H y d ro lo g y (flo o d p la in s , s u b s u rfa c e w a te r)
L o c a l A ttitu d e s
U tilitie s
- Sew age
- W a te r
- C o m p u te r lin e s , fib e r o p tic s , c a b le te le v is io n , te le p h o n e
g a s , o il, e le c tric ity
T ra n s p o rta tio n
-
- D e fe n s iv e ( H o w p o w e rfu l a re a n tid e v e lo p m e n t fo rc e s ? )
- N e u tra l ( W h a t s o c ia l c o s ts d o e s th e p ro je c t im p o s e ?
w h a t a re th e b e n e fits to th e lo c a lity ? Is th e p ro je c t in
th e p u b lic in te re s t? )
- O ffe n s iv e ( W h a t a re lo c a l a ttitu d e s to w a rd g ro w th
a n d h o w c a n th e y b e u s e d to h e lp s h a p e , re fin e , a n d
s p e c ify th e p ro je c t to b e b u ilt? )
P ric e o f th e la n d
- C o s t o f la n d , in c lu d in g a c q u is itio n a n d s ite d e v e lo p m e n t
D e m a n d a n d s u p p ly
P a rk in g
- U s u a lly n e e d e d o n s ite , th e re fo re , c o m p e te s w ith th e
b u ild in g fo r la n d
- If s ite c o s t p e r s q u a re m e te r is le s s th a n c o s t o f s tru c tu re d
p a rk in g , s u rfa c e p a rk in g is w a rra n te d ( a n d v ic e v e rs a )
P o lic e a n d fire s e rv ic e
G a rb a g e c o lle c tio n
S c h o o ls , h e a lth fa c ilitie s , a n d o th e r g o v e rn m e n t s e rv ic e s
Im p a c t fe e s , p ro p e rty ta x e s , a n d p e rm it fe e s
If the specific site seems feasible, the developer should negotiate for the acquisition of the
site. It is also possible to include the landowner in the development process.
In stage two, the developer also should answer some questions. For example will the tenants
be interested in the project or not, will the lenders want to invest on the project or not and will
the developer be able to find the general contractor who can construct the project or not.
The developer should also introduce the project to others players of the process for deciding
whether the idea is worth taking to stage three or not.
If the refined idea still seems feasible, the developer takes it to stage three. Outputs of this
stage are,
Idea linked to a specific site
Preliminary design
Startup capital
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
24
are the possible outputs of this stage using market analysis, construction cost modeling,
discounted cash flow, sensitivity analysis, and value management as the tools and techniques.
Following are three basic inputs essential for the viability of feasibility study;
Market Study
Design
Cost Estimates
3.3.2 Design
If the developer decided to go on the project after stage two he has to spent more money to get
the final design plans that the formal feasibility study requires. The developer must then
decide on the quality, quantity, and timing of design talent.
12
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
25
The feasibility study is the formal demonstration that a proposed project is viable or not. a
typical feasibility study includes executive summary, maps, pictures, and resumes, a market
study, preliminary drawings, cost estimates, information about terms, sources of financing,
government considerations, time line and the estimate of value.
The major output of the phase is the feasibility study, which is an important management tool
providing multiple forms of risk control over several subsequent stages of the development
process. The formal feasibility study is both a sales tool and also an organization tool.
The preliminary project design is also an important output of the phase and demonstrates the
physical structure. Up to the result of feasibility study, the developer decides to continue with
the task, revise it or to stop it.
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To provide the necessary equity from the own funds of the firm,
To bring in an outside equity investor for the development,
To establish a joint venture with the lender
When developers are financially strong enough it is usually more profitable to construct the
development project using own funds. Lacking the resources for equity, developer might
prefer either some outside investors or establishing joint venture partnerships with the lenders
of the project.
13
BERENS Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development: Principles and
process. Third Edition. Washington, D.C.
27
The feasibility study, detailed design, budget, construction contract, supervision agreement,
financial arrangement, sales or leasing arrangement are the inputs of stage six and seven. The
objectives of these stages are building the physical structure of the subject property formal
opening of subject property with property management plan using some tools and techniques
like construction method, cost control techniques, time management, and feasibility study.
Stage seven, completion and formal opening requires public sector, tenants, operations
personnel, and financing to long term investors. This stage is actively the last phase of the
development process and sets the stage eight which is asset and property management of the
development.
In stage six once the construction initiates, the developer must concentrate on the construction
management. He must control the time, the quality, and the budget as the stage processes.
Controlling these items means that he must control that the players do their jobs on time with
the needed quality, considering and monitoring the costs of these jobs. Because the previous
stages have created binding obligations, it is hard and expensive in this phase to implement
changes to the project.
In the process of construction the developer needs to charge someone for controlling and
coordination of the construction. The architect who designed the project, an in-house project
manager who is an architect or a construction engineer, or a team from a consultant firm can
be appointed to that responsibility on the construction site.
During the construction so many players are involved making coordination and collaboration
on the focus of the process. On site supervision is one of the major tasks that the developer
must consider.
Scheduling the subcontractors work and maintaining that schedule are other major tasks for
which the general contractor is responsible. The general contractor must be able to force
subcontractors adjusting their schedules as necessary. He must manage the subcontractors
having the needed time and resources for the job. He must be flexible enough to hire an extra
subcontractor for the same job when it is needed.
While the general contractor manages the subcontractors, project manager manages the
general contractor representing the developers interests. He is the one who is responsible for
making changes and modifications. Periodic inspections are made by the project manager, to
pay the general contractor in the same periods. Lenders for construction may also need these
inspections about the construction work.
If the tenant space is not totally leased before the construction phase, it must be marketed
during construction. At the same construction is coordinated with marketing effort.
The construction phase needs also to be financially managed and that management involves
managing the budget, payment of the bills and ensuring that insurance coverage is exactly
what is required. The financial management should also estimate the cost of any changes in
the construction phase and determine whether the lender or the equity investor can be
convinced to cover the additional costs implemented in the project. Lenders generally provide
funds up to the progress of construction.
28
Similarly the developer pays the general contractor once the work is performed. Payment to
general contractor is based on periodic payments up to the work progress. The developer pays
the amount retained only upon satisfactory completion which must be accepted by the project
manager and the developer.
The financial management involves the management of construction costs, development
insurance, property taxes, interest on the construction loan, marketing costs and general
administrative overhead. Construction lender claims a total figure of all these costs.
Formal opening of the subject property constitutes the closing process of the construction
phase. Training the operations staff, connecting the utilities, beginning the on-site operations,
final marketing of the development, the grand opening, tenants moving in, and a transition in
financing from the construction loan to the permanent loan are involved in this part of the
phase.
29
Land
Capital
Knowledge
Tenants
4.1 Land
Buying land for development is just one integral part of the planning process; however it
tends to be the focus of most start-up developers.
Before starting the process of selecting and buying land for development, the developer need
to decide who or what legal entity is going to buy the land. For instance is it going to be in
your personal name, in you and your partner's names or a company name?
Answering that question is important because developer need to decide who or what entity is
going to borrow the money to purchase of the land, but also borrow the money for the total
development.
Land capacity is important as it affects the land cost per unit. A developer must know the
capacity of the land for his subject development project. Local authorities decide that
capacity. For example if the developer buys land in order to put eight units for $100,000 and
the local authority says that he can only put four units, this doubles the developers land cost
per unit.
Landowners might be partners especially in a beginner developers early projects. They dont
only supply equity for the deal but also make it possible to tie up to obtain the necessary
approvals and financing. This type of partnership is common in small development projects
in Turkey. Developer promises to landowner a specific percentage of the outcome with
respect to land on which the subject development project is going to be built.
In Turkey provision of new settlement and public-use areas are carried out by municipalities.
Using regional plans, zoning plans are prepared and implemented for local urban
development.
The rapid urbanisation, especially, requires readily built-up areas in suburban areas. Hence,
the provision of new sufficient lots, streets, roads, green areas, play gardens and parks are the
main objectives of local land planning authorities.
In Turkey when a landowner wishes to obtain a construction permit to build a house the basic
principle is to fix and define the limits of existing cadastral parcel boundaries according to the
30
rules of zoning plans. In regard to zoning requirements, the suitability of a cadastral parcel is
examined by the municipalities.
The public in Turkey supplies the development control with the subdivision control and
building permission and control. The subdivision control is to be limited the subdivisions that
cause to the irregular urbanization. The aim of the subdivision control in urban areas is to
supply the development of the plots in the types of land use proposed according to the
decisions of the local physical plans. The aim of subdivision control outside of urban areas is
to prevent the unplanned development and to protect the agricultural areas.
In Turkey, the subdivisions are carried out as voluntary or without the consent of owners. In
the voluntary subdivisions, these transactions are controlled whether the subdivisions are
carried out according to the decisions of the local physical plans and whether the size of plots
is suitable to the decisions of local physical plans or by-laws. Where is separated to areas as
road, square, park areas, car parks in the local physical plans, subdivisions are not accepted by
municipality or governor office. Then subdivisions have to be approved by the committee of
municipalities or province administrative committee.
The subdivisions without the consent of owners are carried out the land readjustment method.
Land readjustment in Turkey is directly linked with an adopted urban plan defined in Title
No.18 of Reconstruction Law (Law No. 3194) and its accompanying regulations14. The aim of
this method is to achieve a development or reorganization of built and un-built areas, produce
urban plots of suitable location, shape and size for building or for other utilizations within the
framework of the detailed local plans and to supply land for primary and secondary public
areas. This title authorizes implementation to be carried out by the municipality without the
consent of owners with the delimitation of project area determined by municipalities
depending on the detailed local plan.
In Turkey, the subdivisions are usually realized as voluntary. Especially, because of legal,
administrative, technical and financial problems in the implementation of the land
readjustment method, this method is not often used by municipalities. The subdivision control
in Turkey cannot be supplied sufficiently in squatter areas. In these areas, sub standard
commercial subdivisions have often emerged.
4.2 Capital
Even the smallest property development projects require a considerable amount especially for
beginner developers. A developer never should begin a project without at least twice as much
cash available as seems necessary to get the project to the point where other funding is
available. Most lenders require a developer to invest cash equity to cover 20 to 30 percent of
the total project costs.
14
The Use of Land Acquisition Methods in Turkish Urban Areas, Sevkiye Sence TURK, Turkey 2003
31
Purchase of land
Site development costs
Design fees (architectural and engineering)
Hard construction costs (labour and material)
Permitting costs
Infrastructure and services
Capitalisation of interest
Conversion and refurbishment.
Marketing costs
Pre opening and operating costs
Accounting costs
Developers may prefer borrowing from banks or private companies that provide especially
development funding. Property finance in the form of mortgages, is a method of acquiring
financial assistance for land and buildings. Since land and buildings are tangible assets that
can be sold reasonably quickly, loans secured on them are fairly easy to arrange. However, it
is important to understand that there will be monthly mortgage payments for a long period of
time, which means that future cash flow calculations are very important. Mortgage interest
payments are tax-deductible expenses in many countries.
In order to borrow from a company or a bank it should be considered that the quality of the
project and management team employed is important. Lenders are normally comfortable
lending to experienced individuals and established companies.
In Turkey there isn't a developed mortgage system, which makes the business harder to enter.
For a development company a common method of finding capital and reducing risk for
especially large projects in Turkey is to establish partnerships with REITs (GYOs) of large
banks such as Is Bank, Yapi Kredi Bank or Garanti Bank Which are some of the largest banks
in Turkey.
For smaller projects it is a widely used method to construct co-operatives. Co-operatives find
members who pay monthly fees and sometimes higher amounts once or twice in a year to
finance their projects. But this requires marketing before or in the middle of the construction
phase. However in the last 20-30 years most households have suffered from this type of cooperative applications by not getting their homes on the promised time. This general condition
has created lack of confidence in the market.
When we think about public as a developer, finance is more easily financed for real estate
development projects. Traditionally the biggest finance source of municipalities is real estate
tax. It is very important for the land and property owners to pay their taxes. Tax revenues
supplies financial independence to the municipalities.
A research made in 1997 showed that only 50% of all real estate taxes is paid regularly due to
the unsufficient tax system used in Turkey. Since there is not a developed e-government
system in Turkey, tax evasion exists in all areas making a huge hole in the tax system.
32
4.3 Knowledge
Development is a risky business investing the first money in a project taking the last money
out. At the low extreme developers may work for a fee managing the development process as
agents for other investors to incur a small degree of risk.
Beginning developers must accept greater risk than experienced developers do because
beginners lack a strong bargaining position to transfer risk to others.
As developers prefer partnerships with lender to get financed, lenders prefer experienced
developers to get into the business. The motivation behind partnerships in development
process is the multifaceted and multidisciplinary character of the business. Knowledge or
experience for land acquisition, market analysis, financial feasibility, design, finance (equity),
construction and management (sales) is needed for the period of a whole development.
4.4 Tenant
Tenant is the entity who tries to evaluate facility needs and to make responsible financial,
functional and aesthetic decisions that will serve the organization in which he is a tenant in
the future. A development process can begin with the decision to evaluate requirements for an
individual tenant. In such a development process, to meet the needs of the tenant is essential
for the developer.
Unless the entire tenant space remains un-leased before the initiation of the process marketing
must continue during the development process. If the developer can control the tenant factor
before the process, he can also create financial sources for the development by presenting
cash flow reports. On the contrary it is difficult to continue the process until all space is
leased.
The real estate development sector in Turkey is generally dependent on the people who
purchase property units but not the tenants who pay regular mothly fees. Developers prefer
selling the units because of higher profit margins.
Only the cooperative system and Public comanies such as TOKI or KIPTAS which are
studied in Chapter V let the tenants pay monthly fees. However when one partner of a
development project becomes the landowner, he may prefer leasing his units, because he is
not a professional in the profession and he will not need capital (since he is not a property
developer) for future development projects.
Due to the lack of a developed mortgage system in Turkey, purchasers of property mostly
suffer from being forced to pay the entire price to the developer without using a credit
opportunuty. Propety is mostly financed by the savings of households. Considerably higher
interest rates, higher inflation rates and uncertainties in the economy make it harder to use
financial tools. However, since the beginnig of the decrease process in interest rates, its been
planned to apply a mortgage system for the people who wants to buy their houses. But the
banking infrastructure of Turkey has not been sufficiant yet.
33
5. OVERVIEW OF TURKEY
5.1 Overall Economy
Industry and commerce along with a traditional agriculture sector constitute a complex mix of
Turkey's dynamic economy. Although the government has a major role sectors such as
industry, banking, transportation and communication, the private sector has been growing
rapidly. Private sector runs almost entire textiles industry which has been the largest and most
important exporting industry in the last 20 years.
In recent years, the economic situation in Turkey has been pointed out by unstable economic
growth and crucial imbalances. Development in the GDP has exceeded 6% in many years, but
this strong expansion has been interrupted by sharp declines by economic crises in 1994, 1999
and 2001. After the last crises in 2001, however, Turkish economy took significant steps
towards a rapidly growing economic environment.
The table below lists some of the key economic indicators for Turkey between 2000 and
2004:
Year
Real GDP Growth (%)
Nominal GDP (USD billion)
CPI (%)
Unemployment Rate (%)
Weighted Average Interest
Rate for 1-year Deposits (%)
Exports (USD billion)
Imports (USD billion)
Trade Balance (USD Billion)
2000
7,4
197
56,4
8,3
2001
-7,4
145
53,5
8
2002
7,8
181
47,2
7
2003
5,8
242
25,5
7
2004
7
310
9,3
10
45,6
62,5
48,2
28,6
18
27,8
54,5
-26,7
31,3
41,4
-10,1
36,1
51,6
-15,5
47,1
68,8
-21,7
62,7
97,1
-34,4
The reform process that is initiated by the IMF in the single party regime with the advances in
EU negotiations, led to a stable development procedure in the economy. The table above
shows that, Turkeys real GDP growth in 2002 and 2003 was 7.8% and 5.8%, respectively.
These growth numbers indicate that Turkey has outperformed most of the EU and Central and
Eastern European countries in this period. The growth in 2003 was mostly observed due to the
high performance achieved in industrial, trade, transportation, tourism and communication
sectors.
The inflation rate in Turkey also decreased significantly from 56.4% in 2000 to 9.3% in 2004.
It is expected to continue to decrease to a single digit in 2005. From these numbers and the
positive environment, it is possible to say that Turkeys chronic high inflation trend has been
closing to an end and the numbers of inflation are closing to numbers of EU countries.
The table above shows that the tough fiscal policies of the government also lowered the
interest rates. The 1-year interest rate decreased from 62.5% to 18% between 2001 and 2004.
The real interest rates are still high compared to the EU countries, but policies of the single
party regime target further reductions in interest rates.
34
In addition to these developments, by dropping six zeros off the currency a redenomination
has been made for the Turkish Lira. This procedure started to take effect in January 2005 and
the transition period is supposed to be completed by the end of 2005. This redenomination is
also expected to have positive effects on the economic indicators. As of September 2005, the
Turkish currency exchange rate on the free monetary market was 1.33 Turkish Lira (YTL)/1
US Dollar (USD).
The Key Economic Indicators table also shows some important numbers of the foreign trade
in Turkey for the period between 2000 and 2003. According to these figures, Turkeys exports
growth rate accelerated at a significant pace after 2000, increasing from 27.8 billion USD in
2000 to 47.1 billion USD in 2003. Turkeys imports, on the other hand, declined by around
25% in the year 2001, as a result of the general economic crises. In the following years,
however, imports started to grow in line with the recovering economy.
More than 50% of Turkeys exports and imports are traded with EU countries which are the
most important trading partners. Especially in the last 4 years trading with the USA has also
been in an increasing trend. The other important regions for Turkeys exports are the CIS and
the Middle East countries. In terms of a share in Turkeys imports, the EU countries are
followed by the CIS countries, as a consequence of crude oil and natural gas imports from that
region.
The inflation rate which was 9,3% in 2004 is expected to decrease further in the future year to
the averages in EU countries with the successful monetary policy that the central bank
applies, the appreciation of the Turkish currency and low increases in the prices of public
goods, agriculture ad energy sector. Single digit inflation has not been seen for three decades.
The GDP growth rate is expected to level off around 5% in 2005.
All of these macroeconomic figures and expectations show that Turkey is on the way to have
a stable and growing economic environment after efforts of many years. This economic
environment will provide favourable conditions for the foreign investment. Except for the
stable economy, Turkey had many of the advantages for attracting foreign investment, such as
dynamic, young and low cost labour and special geographical location before the specified
period.
35
According to the data from DPT (State Planning Organization) 1 unit of investment into real
estate sector comes back to the national economy as 2,5 units. This makes real estate sector as
a sub-sector of construction sector a great employment tool. Today %58 of construction
activity in Turkey consists of real estate investments.
When we look at the residential property market an excess of 2,6 million units exists in the
sector. On the other hand, according to the 8th 5-year development plan of DPT, 2 714 000
units are needed to be built by the end of the year 2005 (the plan has been made for the years
2001-2005). At the same time there is an excess in supply and a deficit in demand. It seems
like a paradox is coming out. The reason is that the most of the units of this excess are old,
insecure for living in or illegally constructed without needed permits from public. This
paradox shows that the main problem of the sector is not with the number of units, but it is
with the standards of housing.
36
industrial buildings with long term rent leases by credible tenants. However, considering the
last 10 years, the average growth rate of Turkey has always exceeded the growth rate of the
construction sector. As a result, high quality office buildings are scarce and the existing
supply consists of older buildings. Financial weakness of local construction companies has
caused most of the current building stock to have low architectural and technical quality,
compared to the EU countries` standards. For these reasons, high quality office property
stock, hence investment alternatives for foreign investors are currently scarce.
5.4.1 Demand
There are four major factors that affect the demand for residential real estate in Istanbul:
closeness to transportation junctions, closeness to destinations where large holdings plan to
invest, closeness to existing or planned shopping malls and closeness to office and production
facilities that are supported with powerful sub-centers.
The demand for residential real estate in Istanbul was affected significantly by Marmara
earthquake of 1999. The fear for a future earthquake which is predicted to happen in the next
30 years, encouraged many residents of old buildings especially in the urban areas to search
for newer buildings which are constructed after the 1999 earthquake complying with the
earthquake safety regulations.
37
The earthquake also had an effect on the demand in suburban residential areas. Especially the
regions along the Marmara coast bear higher earthquake risk because of the earth structure of
these areas. Due to the better earth structure in the northern region the demand in these areas
increased significantly. Moreover, most of the suburban settlement models consist of 2-4
storey town house or villa type buildings, which are known to be more resistant to earthquake
risks.
Overall, Istanbul observed a shift towards suburban areas, because of the increasing prices
and higher earthquake risks in urban areas. Recently, however, the residential demand started
to shift back to urban residential areas once again.
The recent recovery of economic factors have had a positive affect on both suburban and
urban demand, but the demand in urban areas increased much more significantly. High living
costs of suburban areas and closeness to the CBD for the urban areas have constituted this
difference.
5.4.2 Supply
Suburban
In suburban areas, some development projects have been initiated in recent years. These
projects are mostly villa type housing or 2-4 store building projects which were mentioned
above in demand part as the demand for these types of housing is higher in suburban areas.
Projects having good construction quality with creative architecture, located in technically
and socially well-developed areas, have been a successful investment model in these areas.
Some of the most successful projects in Istanbul suburban areas:
SUBURBAN PROJECT
DEVELOPER/INVESTOR
Istanbul Istanbul
Olimpiakent
Soyak Construction
My Country
Agaoglu Construction
Evidea
Kasaba
Is Koray
Alkent 2000
Alarko REIC
Villa
Kemer Country
Kemer Construction and Tourism
Table 5.2: Major development sites in suburban of Istanbul
Source: Colliers Resco
Villa
Urban
The term of residence came into the Turkish residential market 10 years ago. Akmerkez
Residence, Metro City, Elit Residence, Polat Residence and the newly launched Elysium
Residence, Kanyon and Selenium Residence are examples of this concept in Istanbul. Most of
these urban projects have had successful sale numbers especially in the recovery years of the
national economy.
38
DEVELOPER/INVESTOR
Metrocity Milennium
Yuksel Construction
Apartment / 203
Maya Residence
Maya Construction
Apartment / 284
Kanyon Project
Apartment / 157
Atasehir Residence
Emlak REIC
Table 5.3: Major projects in Istanbul urban areas
Source: Colliers Resco
Apartment / 180
Prices
In 2004, the prices for new constructed suburban villa and townhouse projects in Istanbul
varied between 800 USD/m2 and 2,000 USD/m2. The new apartment projects in the city were
on sale for 1,000 USD/m2- 1,500 USD/m2 and the high-rise residential projects were on sale
for 2,000 USD/m2 - 3,000 USD/m2.
The table below summarizes the selling prices of different types of units for the major
suburban and urban projects in Istanbul:
SUBURBAN PROJECT
Kasaba Phase II
Olimpiakent
My Town
Evidea
Arkeon Evleri Phase I-II
Eston Ardicli Evleri
UNIT TYPE
Apartment / Town House / Villa
Apartment / Villa
Apartment
Apartment
Villa
Town House
URBAN PROJECT
AREA (m2)
Metrocity Milennium
121 302
Maya Residence
169 400
Kanyon Project
82 212
Atasehir Residence
75 207
Table 5.4: Price range of projects in Istanbul
Source: Colliers Resco
PRICES (USD)
114 -175,000 / 250 -347,000 / 200 -370,000
47 -200,000 / 200 - 357,670
72 - 243,000
40,650 - 226,000
134,000 - 302,000
215 - 295,000
PRICES (USD)
325 - 735,000
490 - 900,000
250 - 760,000
80 - 215,000
5.4.3 Forecast
Its estimated that the population of the city of Istanbul is around 12-14 million. It is also
estimated that 92% of 2,550,607 households in Istanbul live in urban areas and that the city
population increases by approximately 700,000 immigrants each year. These figures also
identify the increasing residential real estate demand in Istanbul.
The planned mortgage system will also provide many opportunities in the residential real
estate market. The mortgage system, which has been in application in developed countries for
a long time, was also initiated in developing countries in recent years. These countries, have
exhibited significant progresses. It is expected that the efficient implementation of a
mortgage system will lead to considerable developments in the residential market of Turkey.
39
6. DEVELOPERS IN TURKEY
6.1 TOKI (Toplu Konut Idaresi)
TOKI (Toplu Konut Idaresi) can be translated to English as housing development
administrating office. It can be accepted as the biggest developer of Turkey working
dependent on Turkish government. TOKI manages the real estate development and urban
development projects of the government in seven different methods;
1. Real estate development on TOKIs own sites
One of the basic activities of TOKI is housing development on TOKIs own lands, which
means the lands of government. 43.145 housing units were developed between the years 1984
and 2003 by TOKI. From the beginning of 2003 till the end of 2004, projects of totally
100.000 housing units have initiated on the lands of TOKI in 75 cities of Turkey. TOKI works
getting the lands of the government, which are appropriate for housing development. These
housing units are specially built for poor citizens, widows, orphans, handicapped people, and
the citizens who work for the public sector with considerably low prices.
2. Transformation projects of illegal housing units in cooperation with municipalities
TOKI cooperates with municipalities of especially big cities like Istanbul, Ankara or Izmir to
prevent the illegal housing -which is one of the biggest problems of municipalities, and to
transport these units into legal and modern housing units. With this scope, 22.565 units have
been projected in 35 cities. The objective of this activity is to expand the project especially in
big cities.
3. Operations to meet the needs in the regions which are damaged from natural disasters
TOKI has some official rights to acquire sites from the government depending on the scope of
their projects as subsidies, for housing development without any fee and to supply credits to
the development projects in these regions, which are affected from disasters like earthquakes.
These units are sold to the citizens, which are affected from disasters being paid in 20 years
without any interest rates.
4. Source development projects
Projects of 100.000 housing units involve a serious financial source. In order to supply the
needed source for the projects, TOKI develops income-sharing projects on valuable lands in
especially big cities. The method of these projects is to build and sell the units on valuable
lands to create source and to use these sources to develop projects for the people with low
incomes. In the scope of source development projects it has been planned to build 42.000
housing units in 30 big cities in Turkey.
5. Implementations for villages and farming areas
The development of village architectures, providing villagers with housing, creating appealing
conditions for preventing the immigration to the big cities are objectives of TOKI in this
scope.
40
6. Credit applications
TOKI supports real estate developers by supplying credit. The time for credit applications, the
quantity of these credits and the minimum construction level needed for real estate developers
are decided and announced by the government.
TOKI coordinates with commercial banks supplying credits to real estate developers.
According to the protocols between TOKI and banks, banks serve as guarantors and in the
condition that developers delay payments of these credits banks pay the loan to TOKI and
claim that from the developer. Banks have the right to get the mortgaged development units in
the need.
The repayments of the loans initiate three months after the completion of construction of all
units. The repayment time period is between 5 and 10 years depending on the usable area of
the constructed units. If the developed units of a project is smaller than 100 m2 the repayment
time period of the credit is 10 years. For larger units this time period gets shorter. The interest
rate implemented in this period is the same with the average increase rate implemented to the
wages of officials working for the public sector.
7. Applications of Emlak GYO
Emlak GYO is another administrative office, which has a partnership structure with TOKI.
GYOs (REICs) will be inspected more detailed in the next section.
TOKIs revenues are;
Housing units, offices, lands and fields which are sold and leased by TOKI
Repayments of loans which are lent to other real estate developers by TOKI
Shares from land costs of housing and office units that are built on the lands of Treasury
Ministry
Loans taken from foreign countries
Interest payments
Subsidies from government budget
In order to acquire the needed land for its projects, TOKI has the right to purchase or transfer
the land from official institutions. They can also sell these lands to another person or company
without building a development project.
The housing units that TOKI produced are sold in different methods;
Selling by drawing lots; if the demand for the units that will be sold is higher than the
supply in the subject project, selling process of these units is applied by drawing lots.
Buyers of these units pay between 10% and 25% of the price in advance and the rest
with monthly payments in 8 to 10 years. These monthly payments are increased
according to the increases in the officials wages
Open sale method; the units, which are not sold in the process of selling by drawing
lots are sold openly. The payments in this method are as in the preceding methodsome percentage paid in advance and the rest in monthly payments.
41
By public auction; this method is used in the selling process of income and prestige
projects to create source for the institution. The aim is to get the highest possible
revenue.
Selling to the poor; specially produced housing units are sold to the poor in first
method selling by drawing lots. In this method 5% of the price is paid in advance and
the rest is paid as monthly payments in 15 to 20 years.
42
Inception of an idea: this part of the procedure is mostly related to the demand among
the poor for TOKI. Especially the projects for the poor and for special purposes are
not very different from each other. Because the aim of the development projects of
TOKI is not generally getting high profit margins, costs of projects are important in
this section.
43
Refinement of the idea: acquiring a site is one of the easiest parts of the activities of
TOKI. If a project is appropriate, needed land is acquired from the government or
bought by the institution. As it is stated in chapter 3 market search is the core activity
of this stage. In the phase of scanning the environment, searching possible competitors
especially for the projects in the rural area is an important activity that TOKI need to
do. TOKI is a very powerful institution on the political base.
Feasibility: market study, design and cost estimate are phases of this stage. Absorption
rate and capture rate are mostly analysed for the projects in the rural areas in the
market study phase. Design and cost estimate are related with each other in TOKI`s
projects as the land cost is not considerable (close to each other in different projects)
for the institution and costs changes generally with respect to design. Cost of a project
is estimated easily via previous cost data of other projects because many of
development projects of TOKI are almost similar to each other.
44
The lands, which in general are in the rural side surrounding the city or within the city, have
been turned into proper settlement areas and gained value in terms of economy, city planning,
social life and environment.
The housing units that are handed over to the people have a payment term of instalments for
48 months and as a result of this, people with low income (proportion of 60%) find the chance
of buying a house of their own. Between 1995 - 1999, 16 000 housing units were built and 11
000 housing units were handed over to the housing unit-owners and little combs of city alive
with all its functions have come out.
The main aim of KIPTAS is to make Istanbul a city where everyone lives more comfortably
by solving the settlement problems piled over because of the negligence since many years. It
is a principle to avoid any attempt that may damage the historical or natural structure of the
city, water resources, and forest and agriculture areas and stop the raid while setting the
solutions.
The municipality of Istanbul allots a budget for the financing of the projects, which KIPTAS
develops. KIPTAS has also power to borrow foreign investors. Istanbul municipality is
planning to draw 25 billion USDs of foreign investment in the next 5 years17.
For the construction procedure, KIPTAS signs a contract with one or more construction
companies on a fixed amount. These construction companies handle the jobs in the control of
KIPTAS. However the marketing phase is totally made by KIPTAS. Because KIPTAS is a
participation of the metropolitan municipality it is very easy to settle a confidence
environment. In all of KIPTASs projects demand for constructed units exceeds the supply
and the management needs to draw lots.
As an example project, KIPTAS is selling out 135 m2 units which are located between the
center and the airport. The price for one unit is about 150 000 YTL (800 000 SEK)15 if it is
paid in advance. These units are constructed for acquiring more capital for future prjects and
selling to the people with middle and high income levels
15
www.kiptas.com.tr
45
Inception of an idea: General idea is getting rid of illegal housing gradually. Every
year many illegal housing units are demolished and new, legal units, which are strong
for earthquakes and healthy to live in, are constructed. Mostly apartment units are
included in their development ideas.
46
Refinement of the idea: The first phase of this stage is acquiring the needed land. If it
is suitable for new development, the lands that are supplied from previously
demolished sites are preferred. In some conditions, especially in the process of urban
transformation projects, the owners of demolished houses are promised to get newer
units from these projects. Another phase of this stage, that is crucial at that stage, is
selecting the general contractor. This phase is considered as the most important phase
of the stage, since the future of the project depends mostly on the general contractor.
Selecting an insufficient general contractor can cause a great damage for KIPTAS. In
this phase, in order to be selected as the general contractor for a KIPTAS development
project, it is an advantage for applying companies to be active in some previous
projects. Sub-contractors are mostly selected by the general contractor.
Feasibility: In the market study phase of this stage, national economic condition can
be a considerable factor, since the budgets of projects are supplied from the
municipality and the total budget is limited. Overall absorption rate is also estimated
in this stage depending on expected sale prices. Like in the projects of TOKI, in design
phase, designs of previous projects are used as example projects, which means that the
developed units in different projects of KIPTAS look like each other with some
differences. In the cost estimation phase the cost of land can be considered as a
subsidy from the municipality. Hard costs of construction constitute a great deal of
whole development costs.
Construction and formal opening: In this stage KIPTAS has generally a role as only
the controller. Some staff from the organisation controls every single step of the
process.
16
17
47
It is said that all the portfolio investments in the whole world is worth 95-100 trillion US
dollars. And %10 of these funds is accepted as real estate investments18. GYOs in Turkey
have been applied as a way of capturing a share from this worth. These applications can
attract interests of global capital in the world since GYOs must have the international finance
and investment standards.
REICs (Real Estate Investment Companies) are the institutions that can invest on real estate,
real estate development projects and establish partnership structures, in order to undertake
large-scale, distinctive real estate projects. The real estate sector in Turkey acquired the first
GYO company in 1997 and today (last quarter of 2004) there are 9 GYO companies which
are traded in Istanbul stock exchange market with a total portfolio of around 1 billion dollars.
This number seems very low especially compared to the REITs in the USA which has a total
portfolio size of more than 370 billion dollars with 180 companies being traded in a stock
market. The GYO companies in Turkey claims similar rights and tax advantages from the
government. Although tax and legal infrastructure exists in Turkey, the economic situation in
the country slowed the development of the sector.
Investing to the GYO companies is the only investment opportunity to the sector in Turkey
except for direct purchase of housing units.
Even though REICs sector is a newly developing sector in Turkey, a considerably high capital
has been gathered to the sector. By the tax advantages that Turkish government supplies,
several companies have established REIC partnerships to get new financial resources from the
stock exchange market.
These institutions have to sell their 49% shares in Istanbul Stock Exchange which is the only
stock exchange market in Turkey19. These companies have also some tax advantages by not
paying some kinds of taxes. They gather investors money in a fund and use these funds to
structure portfolios with high revenues or to construct development projects.
Although they exist in real estate sector, they are not permitted to get in construction or real
estate agency activities. For these kinds of activities they have to sign contracts with
contractors.
By this method it is possible for the capital that is managed by the sectors professionals to
enter the development and construction sectors. Application of the mortgage system long
period housing financing, will make it easier for REICs to play a more crucial role in the
sector.
After 2000 economic crisis in Turkey the demand for large-scale, luxurious office area has
decreased and smaller office units have been preferred more. This has led to a decrease in rent
revenues of REICs in Turkey. However the demand for luxurious housing units has been
increased. REICs have had a crucial role in meeting this demand. Almost all of the property
units that these corporations have developed include mostly this type of property units. They
develop apartment units near to the CBD of Istanbul city or villa type housing units in regions
close to the suburbs.
18
19
48
There are currently 9 GYOs traded in Istanbul Stock Exchange Market. The total net asset
value of all these corporations is around 1 billion USD (March 2005).
Net Asset Values of GYOs Traded in IMKB
600
500
million USD
500
400
300
200
121
100
70
68
57
56
32
30
19
Y.Kredi
Koray
Atakule
EGS
Garanti
Vakif
Nurol
Ihlas
0
Is
Alarko
GYO
509
million USD
500
400
300
200
78
100
68
48
39
26
22
18
16
Ihlas
Garanti
EGS
Nurol
Vakif
0
Is
GYO
49
As it is shown in table 6.1, although the GYOs have been getting more active, only 16% of
their whole activity takes place in the development sector. Mostly they hold and lease
buildings and lands.
Total market value of GYOs is 823 million USD (March 2005). This value reached 1,3 billion
USD which has been the peak, in 200020.
In order to solve the finance problem of the real estate development sector, it is also needed to
develop a mortgage system (housing credit system with mortgage). This system leads to use
the customers future incomes. By preparing the sufficient infrastructure for the system it will
be seen that the potential of the sector comes out.
20
Inception of an idea: Because the goal of these institutions is acquiring higher profit
margins in their transactions, inception of an idea comes from the demand among the
people with high income. Their real estate development ideas include mostly
apartments close to the CBD or villa type housing units in extensive areas in suburbs
of metropol cities, especially Istanbul.
Refinement of the idea: For these institutions acquiring the needed site is a costly
procedure which costs around 30-40% of all project costs. This procedure can be
realised either by purchasing the needed land or proposing some share from the final
product to the owner of the land, depending on the contents of the subject project, such
as how much area is needed or how luxurious the projected housing units are.
Searching the possible competitors is also an important part of this stage. These
competitors are mostly the other GYO projects.
TEB Yatirim (TEB Investment Comp.) The analysis of the GYO sector.
50
Feasibility: Market study mostly includes analysing absorption rate and capture rate
among the professionals who are employed mostly in the management teams of large
companies and mostly foreign companies investing in Turkey. Among these
corporations this activity can be realised by professional research companies. Design
is shaped depending on general needs of the members of the target market. It affects
strongly both the development costs and the final price of the units because developers
need to select high quality material in their projects. Cost estimate is realised generally
by using the cost data of similar previous projects. This cost changes depending on
many different parameters unlike the projects of TOKI. Land cost changes in a wide
range and the cost that conceptual design makes up is also considerable in estimating
total project cost.
Contract negotiation and formal commitment: Several of all GYO corporations in the
sector include large construction companies in their partnership structures. General
contractors of the projects of such GYOs are generally these partner companies unless
the project includes some special elements. Other GYO companies must hire
experienced large construction companies to realise their development projects. There
are also some cases in which two GYO companies make up partnership in one specific
project for either this reason or supplying the needed capital. Design negotiation phase
is also crucial for GYO projects. For the final design of units and environment some
professional and sometimes famous international consultants are used.
Batikent Project was started by the Municipality of Ankara in 1974. 250.000 people were
planned to be living and 50.000 houses to be built on the land at Batikent. The total cost of the
project was about 1 billion $ including expropriation, social and technical infrastructure, fixed
investments and housing construction21.
Having commenced in 1979, with the foundation of Kent-Koop which has been a union of
housing cooperatives, the Batikent Project has sheltered 200,000 persons in 45,000 housing
units since 1983, in which the first settlement had begun with only 516 housing units.
Kent-Koop has started and developed BATIKENT Project as a joint, tripartite endeavour and
initiation based on cooperation among cooperatives (as non-governmental and voluntary selfhelp organizations) with the municipality and central administration in Turkey.
For the first time in Turkey, the sources and experiences of those three different types of
organization has been brought together in order to meet the housing demands of lower and
middle income groups, by creating a new, decent, green, clean, liveable and sustainable urban
environment as well as a community life socially and culturally desirable, by establishing a
civic engagement and spirit of citizenship on the part of new dwellers who are the members of
the same cooperative.
In order to accomplish this financially and technically big project, workers, civil servants,
traders, and low or middle income people who all could not own a house under the existing
mode of supply came together in cooperatives. Thus the project was accomplished through
cooperation among civil social organizations, the local administration and the central
administration.
The establishment of the cooperatives by the workers of limited income, lower public officers
and non-organised groups, were realised under the social cooperation model introduced in the
Batikent Project for the first time in Turkey. 13 cooperatives came together in 1979 in order to
form the Union of Housing Cooperatives in Batikent, KENT-KOOP.
Kent-Koop began to form the model of organization to be developed towards three aims.
These aims are:
* Organise on a project basis, particularly the lower and medium income people who suffer
from the housing problem and urge them to cope with their problems through democratic and
participative ways.
* Treat the cooperative movement not only with its housing construction dimension but rather
as an urban cooperative movement which also involves the social and economic dimensions.
* To effect cooperation among public organizations, particularly among local administrations
and civil organizations.
Three delegates from each member cooperative union have formed a general assembly who
meets once a year to discuss the operation and audit reports for the current year and the
programme and budget for the following year.
For the financing of the Batikent Project, Kent-Koop could supply some foreign resources in
1980 by introducing the Project to the European Resettlement Fund. On 21 May 1980,
21
52
European Resettlement Fund allotted a loan of 28.5 million USD to the project for utilisation
in fixed investments and housing loans. The sum of the loans, allotted to the Batikent Project
by European Resettlement Fund between 1980 and 1984 was 86 million USD.
Batikent Project has an environment sensitive approach. Fifty percent of the project area was
allocated for housing and fifty percent allocated for non-housing areas; especially in green
and open areas the land use is above the standards.
The model of urban cooperatives, which was initiated by Kent-Koop, extended beyond
Ankara first in 1984 and later became popular nation-wide. At present, this model has taken
its place as nearly 600 cooperatives in 30 settlement sites, covering a 300 million m2 land in
the form of civilian organizations.
With the Batikent Project, Kent-Koop was awarded International Year of Shelter for the
Homeless 1987 trophy, which was organised, by UK Building and Social Housing
Foundation.
The Batikent Project was also entitled to another prize at a competition, organized in 1995
within the framework of the celebration programme for the 50th anniversary of the foundation
of the United Nations.
As a whole, Batikent project:
- is the biggest housing project in Turkey,
- is the first to demonstrate the success of public and cooperative collaboration and
cooperation,
- is the pioneer in bringing lower and lower-medium income people together in cooperatives,
either place of work and through workers unions,
- is successful, through cooperative action, in making the people able to decide on the housing
and environment plans and projects.
However for the last 10 years these cooperative institutions have lost their reputation, since
many of them could not complete their projects on the time that they promised. They were
quite easy to misuse and cheat because of their weak management structures. In 2004, more
than 1800 cooperatives got sued22.
Today because of the shortage of an implemented mortgage system in Turkey, cooperative
system is still a widely used type of housing development. It is quite hard to pay all the price
of a unit in advance for a person with middle-income. However a mortgage system is about to
come into the Turkish real estate market and this is expected to cause a decrease in the
number of cooperatives in the future.
53
housing units if the members can afford these payments. Construction companies can also
establish and run a cooperative system if they have not enough capital.
Finding affordable customers who are willing to pay for a planned development project is the
most important question for these systems, among all other asset problems. Capital comes
also by that way from these customers. They pay all the capital that is needed for their future
properties. Land is also a problem since they need the land before negotiating with the
possible customers. People need to see the land to be convinced in order to get in these
membership systems. Knowledge and experience are important terms for especially managing
the general contractor. It is widely seen in Turkey that general contractors break their
promises about the finishing date of constructions. That damages the customers if the system
is not managed well.
Inception of an idea: These systems are set up for individual projects. This requires
that the inception of an idea comes before a cooperative is established. A person or a
group of people plan developing a site and establish a cooperative system.
Refinement of the idea: Acquiring the needed land for a project and negotiating with
possible customers are the core activities of this stage. Land cost is a problem in this
stage. Management team of a system generally need to get the land before negotiating
with the customers. Some loans from local banks may be arranged for land costs and
some part of payments that the customers pay, can be used for repaying this loan with
the interest rates. Another option for acquiring the needed land is sharing the future
property units with the owner of the land. Selecting the right option determines how
much the members of a project need to pay in the future.
Feasibility: Because the future owners of the units of a project are determined before
the development is initiated a detailed market study for analysing absorption rate and
capture rate is not needed. Design and cost estimate phases are crucial for this stage.
These phases should be also realized before finding the future customers. Before
getting in a project the possible members would like to know how the units are
designed and how much they will pay for the development. Design phase is generally
realized by professional architectural offices. The cost of a project is estimated by
either a consultant firm or an in-house staff.
Construction and formal opening: Construction phase must be managed very carefully.
The members who pay for financing the development of a cooperative system have the
option to leave the project and to stop paying. They would like to see how the
construction goes on in order to continue paying. If one or some of the members chose
to abandon project -since the construction is not going well, some compensation must
54
be paid by the management to these members. In this condition the cooperative must
find new members instead of the leaving ones.
55
such as Istanbul, Ankara, Izmir and Antalya, the city gives the opportunity of getting larger.
Consequently these large cities create high competition level.
Land, capital, knowledge and tenants are main factors a construction company needs to
consider. The land problem is mostly solved by promising the landowner 40-50% of the
future property units. Capital is more important for small and beginning developers. Since the
business is risky, starting developers and construction companies must think twice.
Knowledge and Experience are the least important terms -among others, for small Turkish
construction companies. When the national economy is growing, people not having enough
experience but having little capital start running a construction company. Finally, if a
construction company has at least some of the needed tenants or customers, before a
development project is initiated, it is easier and less risky for the company to develop new
units.
Inception of an idea: This stage is initiated depending on the needs of different target
groups in different geographical regions. The average purchasing power of a target
group determines the size and the scope of a project. Market research is done
professionally only for the projects of large scaled construction projects which are
generally active in cities like Istanbul or Ankara because of the diversity of purchasing
power in these cities. In rural areas or small cities it is easier to decide the target group
without making detailed market research. Having the needed site is a great advantage
in large cities to initiate a project.
Refinement of the idea: this stage is important for the construction companies
especially when the needed land is purchased. Because if the land is not productive for
the development, it is costly to abandon the project after purchasing the land and small
construction companies may not be able to bear that cost. Right use of the right site is
crucial for this stage. Widely used way of acquiring the needed land is sharing the
future product with the landowner instead of purchasing. However when a project
includes luxurious and expensive units, this method of acquiring land may not used so
widely. Since construction companies generally have the needed knowledge and
experience of constructing structures, they dont need to make contracts with a general
contractor. They are both the general contractors and the developers of their projects.
They manage their projects and make contracts with sub-contractors. Negotiations
with the public sector, future possible tenants, engineering and architectural offices for
preliminary project design and sources of finance are some other activities that the
company need to do on this stage.
Feasibility: For construction companies which are active especially in small cities, the
characteristics of the region have an important role in the market study which is the
first phase of the feasibility stage. For larger companies developing more than 1000
units, national economic conditions are more important. Estimating the capture rate
and the absorption rate of a project is also done in the market study phase. Design
phase is realized depending on the scale and scope of a project. According to the target
market, designer team may be selected among famous architects and engineers. In
construction companies cost of a project is estimated by in-house staff. Hard costs and
land costs are the most considerable terms of cost estimation.
teams unless some problems occurred in former projects. In rural areas and small
cities final design and finance problems are solved in the same way without
negotiating detailed. But in more extensive and costly projects these terms are
negotiated more deeply.
Construction and formal opening: For these companies construction stage is the easiest
stage since the activity is in their professions. They are active in all the phases of the
construction stage. However controlling the construction is also done by some other
companies which are charged by the municipalities. In large-scaled projects formal
opening may be done with some ceremonies but in small projects only some
documents are signed and the customers get their units.
Property and asset management: This stage is realized depending on the scale of the
project. Small construction companies do not take place in this stage. The new owners
of the units are responsible for establishing a small organisation for this activity. But
in large projects the developers can take this responsibility of managing the developed
sites. In this condition every property owner pays a fee to the developer.
57
What happened in Istanbul local elections in the last twenty years can be interpreted as an
attempt of gecekondu populations to transform traditional urban politics into some other form
that would not exclude them. Traditional urban politics always tended to see both gecekondu
and informal economic activities as unwanted urban land uses and activities. However, both
urban and economic growth was developed. Urban policies excluding these two factors are,
then, neither realistic nor for the people of the city.
Gecekondu inhabitants were accepted as people who usually preferred this type of housing in
order to survive. After 1980s, this type of informal housing has been transformed to a way of
making money from land. It started to be sold and purchased by the people and to be seen as
an investment for the future. There were important changes both in the physical appearances
and the construction processes of these settlements. For the municipalities whose duty was to
prevent this type of structuring, it was almost impossible to decide which of those informal
housing were to survive. Gecekondu concept has turned to a very complex process from that
innocent one.
Land and housing market in gecekondu neighbourhoods can be considered as a way of profit
making for many people who are living there especially for the early migrants. The recent
researches pointed how complicated the production of these settlements are, regarding three
simultaneous processes: first the inclusion of the actors like land mafia, gecekondu traders,
secondly changing forms of illegal housing from three or four story buildings to the
construction of lower middle class quality and luxurious apartments, and finally political or
economic struggle over gecekondu lands.
High urban growth rate and illegal housing has led to inadequate services and infrastructure.
In the report of United Nations Centre for Human Settlements (UN-HABITAT) these people
are defined as the people who are crowded and lacking of basic services and clean water.
Basic environmental problems in these regions are as follows:
Lack of adequate water with the risk of infections and diseases- especially for women
and children,
Indoor air pollution occurring because of low quality fuels such as charcoal and
animal dung for cooking and heating,
Solid and hazardous wastes creating problems in squatter settlements with no or little
garbage collection,
These problems in gecekondu settlements have some costs such as, medical costs,
productivity losses because of ill health days lost and finally loss of pleasure of a natural area.
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The approximate cost of Illegal housing to the municipalities is about 20-25 billion dollars.
The land policy of the government plays another role in this problem. 55% of all lands in
Turkey belong to the public19. This constitutes a huge area and it is hard to control all these
lands.
For the last ten years municipalities suffering from illegal units and the government have been
applying projects called urban transformation projects. The main idea is to produce land for
urbanization by demolishing the old illegal units by promising new legal houses to the owners
of these units. The most important aim is to get rid of or at least decrease poverty in suburbs.
These projects are only for the poor living in illegal houses.
Furthermore with the new law entry municipalities get more rights to acquire the lands that
the treasure ministry has, in order to apply their projects. Metropolitan municipalities like
Istanbul or Ankara will be able to get the lands larger than 10 000 m2. Municipalities have the
authority to produce infrastructured lands for providing systematic urbanisation, to purchase
or nationalize land for constructing and selling property, selling these lands to individuals and
co-operatives and applying projects in cooperation with public and private companies.
In Istanbul where the illegal housing is most comprehensive, it is planned to demolish more
than 85 000 property units in the scope the project. The owners of these illegal houses will be
settled in temporary social dwellings until their new units are suitable for living. The project
comprises not only the lands of illegal housing but also some lands of Treasury Ministry. The
constructed units are planned to be sold to former illegal housing units owners. They are
supposed to pay only the total cost of the unit that they purchase. As an average example they
will pay 50 000 YTL (300 000 SEK) to a flat which can be sold by the price of 120 000 YTL
(700 000 SEK).
Public companies like TOKI and KIPTAS have the greatest role in the project by managing
the individual projects especially in suburbs of Istanbul city. They sign individual contracts
with construction companies according to the size of each project.
An example of an urbanization project which is called Orange Flower project is shown in
figure 6.4. First figure is a picture of former situation of the project area and the second
picture is the present form of the area. An average price of a 120 m2 apartment flat varies
from 120 000 to 150 000 YTL (700 000 900 000 SEK).
59
60
7. CASE STUDIES
7.1 Yeni Umit Evleri Project
The Name of the project: Yeni Umit Evleri Project
The Developer: DIKEN NSAAT
Developer is a small, family owned construction company working both as a contractor and as
a developer in different projects.The project is the first development project of that scale of
the company. The firm was previously more active in consultancy services for some other
construction projects and companies.
Husnu Diken who is a civil engineer and the partner of the company is assigned for the
management of Yeni Umut Evleri project.
The decision making process of the developer involves both partners to negotiate and make a
decision accepted by whole partners.
Location: Kurtkoy / ISTANBUL
Land: 7100m
The Subject of project: Low density, detached residential real estate project. It includes 35
detached units (ranging 169-244 m2), social center with an outdoor swimming pool, tennis
courts, playgrounds for basketball and some areas prepared for walking.
The Contractor: DIKEN NSAAT
The Purchase of Land: The vast majority of the land had been purchased by the family long
time before the project started, the remaining part of the land was purchased with the
commitment of 10 units.
The calendar of development: The planned and realized calendar of process is defined
below;
However, in the development program the whole units are projected to be sold and, delivered
until May 2003, 25 (ten of them were sold for the part of the land) units of 35 units have been
sold until the end of 2003 and 6 units are still for sale25
25
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The motivation behind the development: There are several reasons/motivations behind the
decision of initiating the development process;
The land is owned by Diken family and, the permission of construction was initiated
to be given to lands in Kurtkoy. Thats why one of the major motivation is the site
looking for a use.
By the time, the Diken Construction Company initiated importing a pre-fabricated
construction system called ATY (Ahsap Tasiyicili Yapim Sistemi) and was looking
for a site to demonstrate the system.
62
But because of the economic crisis (Increase in construction costs and decrease in speed of
sales) there have been a lack in the financial resources of the project and the own wealth of
the partners, which was transferred to the company, was used to finance the gap.
Features of development concept: The construction system provides the flexibility of
making changes in interior layout and electrical-mechanical structure. As the construction
begins after sales (Accept sub and infra structure) each customer has the choice of making
changes in interior design.
As the building process after sales takes only 3 months, system also serves flexibility for
fitting the building process to the payment schedule of customers.
The marketing of the project: However, it had been negotiated to out source the marketing
and sales activity of the project, the cost of such effort did not seem feasible within the budget
of the project. Thats why the development team also undertook the marketing responsibility
of the project. Marketing effort followed the below listed steps;
Defining the target market
The target market is defined as the middle stage managerial staff of international firms.
Reaching the target market
Like the other development projects, advertisement played a major role for reaching the target
market. Another key tool was using customers themselves as sales representatives by building
the social center buildings (Accept swimming pool) first and motivating the customers to visit
the project with their friends in the weekends.
Demo house Demonstrating the end product
The demo house, which was built first play a key role for convincing customers.
The Strategic decisions through out the process: The major problem that development
team faced was the economic crisis of year 2001. Five units have already been sold and, the
construction of infrastructure was initiated when the economic crisis began.
The sales stopped and the construction costs (Especially imported items) increased. The vast
majority of the target market of the project was affected economically by the crisis. The
strategic decision was to continue to the projects infrastructure and give the whole customers
the message that the project is going on.
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64
customer satisfaction having a key role in the strategy by providing customers the new
projects. Developing new areas where other developers have not already been is one of the
key concepts.
Location: Riva / stanbul
The Subject of project: Low density, detached residential housing project. It includes 164
detached and units and social centers.
The Contractor: KUZEY NSAAT
The Purchase of Land: The land was owned by a several private people and brought to the
developer with regard to some of the units after completion. The land was purchased with
regard to %30 from the development. This share seems lower than the general market
numbers. The reason is the fact that these planned units would be constructed with the first
class and luxurious material and therefore the future prices of the units are excepted to be
higher respectively to the worth of the land.
Before the purchase of the land the developer made a market research to constitute the basis
for feasibility study. By the completion of the feasibility study of subject development, the
developer negotiated with the land owner for the purchase conditions of the land.
The calendar of development: The development process was divided into three phases listed
below;
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The sales schedule was better than projected in the feasibility study, which made initiating the
following phases easier and provide the developer the chance to increase the sales prices of
units. The approximate sales price was 200,000 USD at the beginning where the approximate
sales price of similar units increased to 500,000 USD through out the following phases. This
time period was a process of getting out of the economic crises for all sectors in Turkey.
Thats why these prices increased so sharply.
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The developer made a strategic marketing decision by initiating the second phase of the
project after the economic crisis in 2001 and while the construction of the first phase was
going on. Initiating the second phase enforced the trust to the project and developer.
His strategy of satisfying the customers provided the developer with customers from previous
projects. Eighty percent of the customers of the first phase were owners of a developers
previous project, Alkent project.
However the only on-site sales tool in the first phase was the sales showroom, the developer
build and decorated five different demo houses each for a different type of unit, those made a
great contribution to the sales.
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The developer defines measurable aims for five years time horizon and aims to reach the
defined goals via an optimum in house staff focused on coordination.
The management system of the developer is evolving from basic development staff to matrix
organization by the new investments of the company. There exists three basic functions;
Finance, Marketing and Project Management. For each development project, coordinators
from both project management department and marketing department are assigned whose
responsibility is limited with the decision making on the details of project without affecting
the main concept or end product.
Location: Kemerburgaz / STANBUL
The Subject of project: Low density, semi detached and apartment type residential housing
project. It includes 144 semi detached and 60 apartment units and social centers (Spread to
8500m area). Social centers include a small lake, outdoor and indoor swimming pools, tennis
courts, squash courts and a restaurant.
The Contractor: Koray Yap Endstrisi
The Purchase of Land: The land was owned by Koray Yap Endstrisi and, a family. The
land was purchased from the owners and constituted the first investment of the company. The
value of the land (max. price), up to the procedures of SPK27, was defined by analysis of three
different appraisers.
The calendar of development: The development process was divided into two phases listed
below;
First phase: 117 semi detached units (188-274 m2) and 29 apartment units (79-158 m2)
Second phase: 27 semi detached units (188-280 m2) and 21 apartment units (79-158
m2)
The planned and realized calendar of process is defined below;
The sales initiated in October 1998
The construction of first phase initiated in May 1999
The construction of second phase initiated in September 2002
Whole units of the first phase have been sold approximately one and half year before the
initiation of the construction and there havent been any delays or deficits in the schedule of
the project. The decision of initiation of sales by the completion of preliminary design served
the developer the chance of completing the first phase when the economic crisis occurred.
The approach of the developer is to assign the architect before the decision of development
and the architect plays a key role in the selection of the site and features of the product. The
property manager of the project (property management firm YKS28) was assigned by the
completion of the first phase thus, the property manager had no affect on the features of the
project but the developer aims the early assignment of the property manager (also to
participate in the take over from the contractor) for the new developments.
27
28
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The motivation behind the development: There are two major motivations behind the idea;
The demand in the residential market for the target market of professional managers
aged between 35 and 40.
The land, partially owned by one of the partners, fits the concept of development.
The Strategy of the development: Development strategy is based forming a residential
development, planned to be financed by pre-sails. The developer defined the niche in the
residential market and aimed to serve the market by forming a trademark of residential
development.
The Feasibility of Project: The feasibility study of the project followed the steps listed
below;
Market research and analysis
The market research was out sourced to different firms and the information gathered is
analyzed in order to define the target market. The residential development segment for
professional managers, especially the enlarging families, came out as an evolving
market.
Defining the key concept of the project
By the participation of the architect, the key concept and conceptual layout of the
project is formed. This layout formed the basis of cost calculations up to the cost/m of
gross floor area.
Fitting the property to feasibility
The design than is formed to fit the pre-defined cost of construction by also keeping
the standards of commitment to the customers.
The major deficit in calculations, as the cost of the construction is formed via the conceptual
layout, occurred in the unpredicted construction details those realized while transforming the
preliminary design to detailed design. But the cost of construction had never been above the
limits defined in the feasibility study.
The Equity of Development: Up to the development budget, the major financial resource of
development is Pre-Sails. The whole development process is financed by pre-sails and, there
havent been any needs for additional resources.
The trade off of the project investment occurred eight months after the initiation of sales (also
7 months earlier than the initiation of construction) and the cost of the land was financed by
finance of pre-sails. From that point whole of the project was figured out without any
financial commitment of the developer. The developers plan, in the circumstances of a lack
in financing the development, was adding extra resource from the own equity of the firm and
describes the circumstances of economy, during development, unstable for purchasing a loan.
The financial approach of the developer, to financing the process via financial instruments,
can be summarized as to be cautious.
The marketing of the project: The marketing strategy of the developer is to create a
trademark of real estate based on product and customer oriented approach to development
process.
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The developer defines his strategy also by standing by the customer not as a part of
commitment and realizes this approach by constituting a customer relations department. The
developer undertakes two major missions; serving the customer in the period of guarantee and
assisting the customer at all. This approach served the developer for customers from their old
projects.
Sales activity was undertaken by the in house staff of the developer and the developer also
defines this approach a strategy of securing the know-how in house.
The strategy of increasing the prices periodically also enforced the sales activity. The price of
1200 USD/m increased up to 1700 USD/m till the economic crisis. After the economic crisis
the developer reinforced a new sales strategy by decreasing the sales price through 1500
USD/m to keep the sales speed still.
The Strategic decisions through out the process: The major strategic decision of the
developer was made by the decision of initiation via conceptual design.
The risks associated with the decision were; defining the sales price of the units up to the cost
projections based on conceptual layout and sales of units again up to the conceptual design.
An unidentified product commitment might have caused further problems between the
customers and the developers about the end product.
The developer undertook the risk up to the analysis of performed market researches thus, the
developer should move fast to supply the demand of the market niche in the residential
development. Supply of the right product to the evolving market served the customer with the
sales of whole units of the first phase approximately one and half year before the initiation of
construction. And by the economic crisis occurred, the units of the first phase were being
delivered to customers.
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29
Yeni Umut Evleri Project: Kurtkoy (near Cekmekoy in the map), Dort Mevsim Evleri Project: Riva (above
Beykoz in the map), Istanbul-Istanbul Project: Kemerburgaz
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Cooperative companies are also very active in Sweden working different from Turkey. The
main difference is the fact that the cooperatives in Sweden are staying active in also the
process of property management where as the cooperatives in Turkey get completely out of
the process after delivering the units to their future owners.
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As a result of unstable economic conditions, the developers mostly focus on using their own
equities and prefer to be cautious about using financial instruments.
By the earthquake and economic crisis, the real estate market in Turkey shifts to customer
focused market thus, the real estate customer is more knowledge than ever before about the
point that the purchase of real estate is an important investment decision.
The environment of the development process is like the environment of developing a new
product but with a major difference, there is not a special way to test the performance of the
subject property. Thats why the developer should perform detailed analysis while deciding
on the features (Location, target market, features of subject property) of the project.
In the Turkish market, the decision of investment is key point for the developer thus,
In order to make a proper investment decision (also to pursue others especially the
financial players), the developer needs a feasibility study. The developer should
search, gather information, make analysis and perform projections for the feasibility
study. Feasibility is mostly based on a conceptual design and a cost model, mostly
cost/m of gross floor area.
Analyzing the information gathered by market research, the developer defines his
projection of sales price and schedule in the feasibility study.
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After the decision of investment, the developer focuses on planning. The features of
the subject property, which will compete with existing and developing market, are
defined at this stage, with regard to the costs assigned in the feasibility study.
As the construction initiates, the developers focus shifts to construction project management,
where time quality and budget appears to be the items to be controlled. The main objective of
the developer is the coordination of efforts. By the completion and formal opening of the
subject property, the development process ends where as the property management process
initiates.
From the beginning of the process till the end, the developer should observe the project from
the perspective of each participant. Especially, successful developers should be able to
examine the feasibility study from the perspective of financial players.
The key point that a developer should be aware of is that performing the activities of
searching, gathering information, analyzing and planning does not guarantee the success of
the process, but minimize the risk associated with investment. The success of a real estate
development project is much more related to fitting the demand in the market.
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10. REFERENCES
Literature:
1. Berens Gayle, Mike E. Miles and Marc A. Weiss; 2001. Real Estate Development:
Principles and process. Third Edition. Washington, D.C.
2. Peiser B. Richard and Anne B. FREJ; 2003. Professional Real Estate Development:
The ULI Guide to the Business. Second Edition. Washington, D.C.
3. Hasol Ertkin A., 2001. Gayrimenkulde Planlama Dnemi Yayoruz. GYODER
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stanbul, sf. 16-19
4. Rose Jonathan, May 2002. Principal of Jonathan Rose and Companies. Professional
Real Estate Development: The ULI Guide to the Business, Sf. 44, Second Edition.
Washington, D.C.
5. Tokol Tuncer; 1998. Pazarlama Aratrmas. BURSA
6. Blair P. John and G. Vincent Barrett; 1988. How to Conduct and Analyze Real Estate
Market and Feasibility Studies. New York.
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Turkey 2003
8. SAINDA L.; 2001. Value in The Real Estate Development Process; The Architects
Contribution. Yksek Lisans Tezi, ODT Fen Bilimleri Enstits, Ankara
9. TAPINAR A.; 2001. Stratejik Planlamada Proje Ynetimi Uygulamas. Makro
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retileri. stanbul
Reports
1. TEB Yatirim (TEB Investment Comp.) The analysis of the GYO sector
2. Colliers Resco -2005 Real Estate Market Review Issue
Web Sites:
www.toki.gov.tr
www.kiptas.com.tr
www.gyoder.org.tr
www.gayrimenkulzirvesi.com
www.yapikredikoray.com
www.aliihsanbayir.com
www.unesco.org
www.colliers.com
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