Turkey: The Biggest Construction Site On Earth: Turkey What To Expect From The Urban Regeneration Law

Turkey is a country where earthquakes are a part of our lives. The two major earthquakes --the first one in 1999, and the latter one in 2011, raised serious public concern about the reliability of the construction legislation and the players in the construction world.

Especially after the 2011 earthquake, the government decided to take firm steps towards the demolishment of illegal/risky buildings and the construction of new ones. In order to implement this idea, an urban regeneration concept was raised and a new law is legislated.

The Law on the Regeneration of Areas under Disaster Risk numbered 6306, or commonly known as the Urban Regeneration Law (the "Law")1 and the Regulation on the Implementation of the Law on the Regeneration of Areas under Disaster Risk ("Regulation")2 are the main piece of legislation regulating this matter. Both the Law and the Regulation are criticized by some public sectors on the grounds that the real intention is not to benefit the public, but rather for political and economic reasons.

In any event, the Law introduces major changes that will have very important effects on the construction and real estate sectors in Turkey. The Ministry of Environment and Urban Planning (the "Ministry") expects approximately 10,000,000 buildings nationwide to fall within the scope of the urban regeneration plan, making Turkey the biggest construction site on earth. This construction-boom will lure both national and foreign investors and will create a boost in the construction and real estate sectors in Turkey.3

The Law specifically focuses on the risk areas that are defined as areas that may cause loss of life or assets. These areas are identified by the Ministry, Housing Development Administration (the "HDA"), or municipalities, by taking the opinions of the Presidency of Management of Disaster and Emergency, and decided by the Council of Ministers upon proposal of the Ministry.

According to the Law, the buildings that are at risk are defined as "buildings within or outside risk areas that have completed their economic life, or which are scientifically and technically proven to be at risk of demolition or high damage."

First and foremost, the Law noticeably brings all authorities under one institution -- the Ministry. The Ministry is authorized to expropriate the immovable or exchange them with others; to transfer immovable property rights and zoning rights to other areas; to divide and to allocate shares forming the immovables; and to establish rights in rem on immovables located within the risk areas.

In addition to the above, as a completely new structure, the Ministry is also entitled to convert ownership into securities, provided that it is accepted by the landowners. However, the implementation of such a conversion has not yet been tested.

Who can trigger demolishment and reconstruction?

The implementation of the Law can be triggered either by the landowners or by the officials. The building owners can voluntarily authorize a licensed institution4 to conduct research to detect whether or not their building is at risk and inform the Ministry of such result.

Two-thirds of the shareholders of the immovable property may decide on the unification and division of the parcel over which the immovable property is located, the construction of a new building, and the sale of shares and re-evaluation of the immovable property. The land shares of those who do not comply with any of the aforementioned decisions will be sold to other shareholders through public auction by determining the market values of such shares. If such share sale cannot be completed, these land shares will be registered in the name of the Treasury by paying their market values to such shareholders.

Alternatively, the Ministry may also ask the building owners to have research conducted to understand whether or not the building may be classified as a property at risk. In the event that the building owners fail to do so, the Ministry or the local municipalities are entitled to perform the assessment themselves. The costs and expenses arising out of such assessment must be paid by the landowners. If the landowners fail to do so, a mortgage can be established in favor of the Ministry over the relevant property.

It should be underlined that if the Ministry deems necessary, a building that is not specified as a property at risk may also be subject to regeneration procedures for the purpose of maintaining the integrity of the enforceability of the Law.

If the owners mutually agree to vacate the building, they are given at least 60 days to demolish the building. Temporary housing or workplace and rent benefits will be provided to those who agree to vacate and demolish the building.5

The Law clearly states that if the building at risk is not demolished within the granted time period, the municipality or the Ministry may demolish such property. The relevant land registry will be notified of expenses for such eviction and/or demolition, and the land registry will establish a joint mortgage on the shares of the building owners in favor of the Ministry.

The Law foresees the establishment of a fund for matters including the property risk assessment, and demolishment and re-construction process that is referred to as the regeneration projects fund (the "Fund"). The Fund will be generated from administrative fines collected under the Environment Law, income from the properties sold under the Forestry Law, and a certain amount of the annual net profit of the Provincial Bank (İller Bankası Anonim Şirketi). Furthermore, the Fund will be used as a loan source for the building/project owners for the regeneration process.

There are various ambiguous and grey areas regarding the Law. We believe that these questions will be settled during the implementation phase.

It is likely that the Law will be subject to possible objections and annulment actions due to the restrictions imposed on the ownership rights and the granting of broad authority to the Ministry.

Nevertheless, it may be deduced that collection of the authority under one single institution (i.e. the Ministry) may benefit the acceleration of the envisaged regeneration procedures and process. The Law also states that the announcement periods and restrictions provided under Zoning Law No. 3194, and other legislation regarding zoning, shall not be applicable to zoning plans that are prepared in accordance with the Law, which is also a solid indication of the lawmaker trying to limit the formalities and to accelerate the process.

The Law will definitely benefit the construction and real estate sectors in Turkey. According to the Turkish Statistics Institute, there was an approximately 50% decline in the growth rate in the construction sector for the years 2008 and 2009, notably due to the economic crisis. However, sharp growth was experienced in 2010, with a nearly 200% increase in growth. Although the growth rate of 2011 was slightly lower than the previous year, it is likely that if the Law is enacted and the regeneration plan is promptly established, another sharp growth will be experienced in the sector.

Footnotes

1 The Law on the Regeneration of Areas under Disaster Risk numbered 6306, Official Gazette dated 31 May 2012 and numbered 28309.

2 The Regulation on the Implementation of the Law Regeneration of Areas under Disaster Risk, Official Gazette dated 4 August 2012 and numbered 28374.

3 The Urban Regeneration has been started on 5 October 2012 with the demoslishment of certain buildings in Esenler Havalimanı district in Istanbul.

4 Pursuant to the Regulation, the licensed institution are universities, civil, geology and geophysics engineering chambers and building audit firms and other institutions providing architecture and engineering services. A list of licensed institutions may be found under the website of the Ministry: http://www.csb.gov.tr/gm/altyapi/index.php?Sayfa=iller

5 The conditions for temporary housing or workplace and rent beneficts are determined under the Regulation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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