Turkey: Key To Bring Down The Prices Of Housing: Application Of "Golden Land Share"

Last Updated: 17 May 2017
Article by Mustafa Güneş

The Land Share; it is one of the most basic concepts in the Property Ownership Law of Houses, and this conception is found when many relationships and institutions are described. The Land Share; which is allocated to independent sections (KMK m.2/d). While "land ownership" is defined in the Law, it is described as "land share ownership and a private property related with the common places in the main real estate property" (KMK m.3/1), while "construction servitude" is defined as an easement type related to the land share (KMK m.3/2).

The Land Share, which has such a centralized significance, has a decisive influence on many subjects. For example, flat owners have the right to benefit from common areas with a proportion of land shares (KMK m.16/2); Unless otherwise provided with an agreement, flat owners will participate ratio of their land shares at common expenses (KMK m.20/1/b); Board of Property Owners convenes in regard of the number of flat owners and land shares with the absolute majority of the flat owners and decides by majority of votes (KMK m.30); The manager is assigned by the majority of the flat owners in regard both of the number and land shares (KMK m.34/4); useful innovation and additions to common areas will be decided by the majority of flat owners and land owners (KMK m.42/1); if the main real estate is expropriated, the expropriation value of each independent section is separately appraise and paid to the owner of the property owner, taking into consideration the land share and its attachments, which are linked to the expropriation value (KMK m.46/7). We can extend this list further. But the examples we talked about here are sufficient to show the central importance of the concept of "land share" in our condominium regime.

In regards of how the land shares with such a crucial role are determined, the Act stipulates that the "location and size" of each independent section will be taken as the basis and in case of violation of this rule, the courts in the case of a revision can be opened and edited in the land share and It is stated that the land share cannot be changed due to the increase or decrease in the value of the related independent sections in the future (KMK m.3/2). In practice, the flat area where each independent section is located, considering the frontage (landscape) and the "betterment" depending on these, and the gross square meters are taken into consideration, the land shares are calculated. The notable element in this system is that the value of the land easement is taken without considering any other criterion than the "location" and "size" which are the "objective" criterion for the land shares; It was clearly stated that the changes that occurred later in the value would not be a reason to change the land share. In this way, it is considered that the location and frontage of the same size and independent parts of the same amount of land share is taken to receive the share. In cases where this essence is not observed, the court changes this "imbalance" de jure.

Well then, is this an arrangement that fits the realities of economic life?

This question can be positively answered as it observes the provision of justice among flat owners of this regulation, which at first sight considers an objective equality. However, some problems experienced in practice; For example, changes in the function of the independent sections (a ground flat which is a residence converts into a working place), the changes occurred in the front line of the main real estate, changes in the landscape due to other buildings that have been demolished or reconstructed; changes in the value increase or decrease due to the newly opened or closed roads due to the transformation of the zone from the residence into the workplace  or other function from the workplace are ignored in this system. It would not be wrong to say it caused injustice in time that the law's land share regulations adopt a more static attitude and cause inequity over time because they do not observe the dynamic economic processes.

However, from the perspective of financing the issue, in fact it will also be seen that such an arrangement constitutes an obstacle to afford the housing need with more economic costs. Because, Since the current arrangement obliges the allocation of land shares in the same amount to three up to five up to certain size apartments, as well as the cost of the land in the housing production process, is equally reflected to all the housing buyers. But with a simple legal modification, if this obligation is lifted and the system of free allocation of land to the first owners or owners is adopted, the cost of the land should be reflected to some units less, so that the prices of those units can be reduced.

For instance, each apartment of a building with 100 apartments generally have 1/100 land share in current system, when open determination system runs, 99 apartments may will be assigned of 1/1000 land share even if one or a few apartments have 901/1000 land shares. So, while 99 apartments only will have 1/1000 of land share, rest land costs may be imposed on one or a few independent sections by procedure called "golden land share". This golden land share may be sold to institutional investor had sizable investment or to financial institutions given credit as collateral while using project finance.

Open determination system may be beneficial for more than one reason as:

  1. Customers with low-level purchasing power may buy house more economic;
  2. Purchasing rate of public may increase;
  3. The unfair competition by land price costs between private sector and public sector which is TOKİ may be removed by that,
  4. institutional investor may focus their invests with less type of assets at secondary market.
  5. Hypothecate as One of classic project finance models may be used less often so it goes to operation economy
  6. The assets which Real estate development and investment companies cannot keep in financial statement because of "build & sell" model's nature, may become available to keep it and make size of assets bigger.
  7. Became Specifiable of Management company which is vital to save the brand value of projects created by real estate development and investment companies and secure common interests by management pattern instead of each apartment owner's different priorities.
  8. At mixed projects, building block which is the project's center of gravity and attraction may has share land and voting power more than its space on land so this block may tip the balance on decisions.

It is possible to list more benefits. However, the reasons mentioned above are enough to show that free determination on the rate of share land and "golden land share" are worthy to discuss.

If hereby regulation runs, it is better to divide common costs not based on land shares but based on usage area. So, dividing costs derived usage at the rate of usage area provides fairness. While building administration function, operation of administration real estate shall be occurred on more professional level if the investor had golden land share affects decisions strongly.

Leading reasons of process of development and managing real estate which is the less Professional and institutional than western competitors is condominium regime and equal distribution. Execution of open determination land share and golden land share shall provide us not only institutional management in long term but also pickup in real estate and building sector in short run which incurs economic crisis.

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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