London, 17 December 2008 TBCCI Briefing BUYING PROPERTY IN TURKEY: A LENDER’S PERSPECTIVE.

London, 17 December 2008TBCCI Briefing

BUYING PROPERTY IN TURKEY:

A LENDER’S PERSPECTIVE

INT’L DIRECT INVESTMENTS in TURKEY (in million USD)

2003 2004 2005 2006 2007 3Q/07 3Q/08

Total 1,751 2,785 10,031 20,185 22,214 17,096 12,311Net equity 7531 1,442 8,190 17,263 19,288 15,044 10,085Real Estate 998 1,343 1,841 2,922 2,926 2,052 2,226

INT’L DIRECT INVESTMENTS in TURKEY (in million USD)

FOREIGN PROPERTY BUYERS (September 2008)

Investors’ country of origin Number of properties Total square meters Number of buyers

Germany 18,996 22,824,763 16,889

UK 15,342 5,161,155 22,124

Denmark 3,631 1,177,245 4,667

Netherlands 3,365 1,712,386 4,273

Ireland 3,897 745,984 5,271

All countries 68,094 45,949,254 78,054

FOREIGNERS BUYING PROPERTY

De jure & de facto “reciprocity” Different categories exist

Eligible countries: UK, Ireland,Germany, Greece, Syria etc

Countries not qualified Romania, Czech Republic, Bulgaria etc

Other set of countries’ citizens need to reside in Turkey for a certain period before owning a propertyAustralia (5 yrs), Egypt (6 months) etc.

Equal treatment in payment of duties 1.5% from both the buyer and the seller, total 3%

INVOLVEMENT OF A LENDEREases finance requirements

Provides safeguards to both the seller and the (foreign) buyer

Streamlines the process

Might seem costlier but a big investment need to be handled with care

SAFEGUARDS FOR THE BUYER

Prudent lending practice (reasonable LTV)

Independent valuation

Proper conveyance

Legalities need to be adhered to before release of funds

Application for the military permission (both the location and the prospective buyers are checked)

SAFEGUARDS FOR THE SELLER/DEVELOPER

Enhances selling activities

Favourable credit assessment signals to a dependable/credible buyer

Expedites completion or starting of a new development

FUNDING AVAILABILITIESLending continues

Prudent lending criteria

Variable rates

Widened base rate–LIBOR gap prevents tracker mortgages

Ideally, no currency mismatch

Affordability (household budget surplus)

STAGES Pre-assessment tool (

www.isbank.co.uk/afford.html )Application Payslips, bank statements, address verification

etc.Credit reference agency checksLender’s own credit scoring platforms Decision makingConditional offer A key component: independent valuation Upon conveyance and the lender becoming the

first mortgagee, release of funds to the seller

OTHER IMPORTANT ITEMSRequirement of both earthquake &

property insuranceIsbank London lending: in line with MCOB Contracts governed by the English law Originators in Turkey lend according to

Turkish practices with contracts governed by the Turkish law

Joint applications possible

ADVICE TO THE BUYERSDon’t refrain from borrowing banks

Your own interests will be protectedYou can always ask for a smaller percentage of the

transaction

Whenever possible, bring in independent valuers of the bank before agreeing on the price

Consider operational issues for making the monthly repayments

ADVICE TO THE BUYERSAvoid currency mismatch

don’t make ill judgements on the promised lower interest rate of a currency in which you have no regular income

Remember:£/€ was 1.37 at end-2007 and only 1.10 now £/$ was 2.0 at end-2007 and only 1.55 now

RECENT MORTGAGE LAWCovered bonds , Mortgage Backed Securities

Lack of such products prevented Turkey from facing bigger difficulties in the present economic downturn

Adjustable rate mortgagesWas at the stage of implementation

Consumer InformationPre-contractual information sheet to be mandatory

BIG DOMESTIC POTENTIALHouse loans to GDP still below 5% Population growth of around1.1%