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Emlak Rises to Record as Realty Tax Hit Minimal: Istanbul Mover

Emlak Konut Gayrimenkul Yatirim Ortakligi AS (EKGYO) rose to a record on bets the Turkish real estate investment trust is set to bypass the impact of an increase in value-added tax announced this month.

The shares advanced 5.6 percent to 3.42 liras at the close in Istanbul, the highest on a closing basis since December 2010, when the stock started trading on the Istanbul Stock Exchange. The number of shares traded was more than three times the stock’s three-month daily average volume.

Turkey introduced a value-added tax legislation on Jan. 1 that is based on a property’s appraisal value rather than its size. About 95 percent of Emlak Konut’s total available land- bank portfolio would continue to be subject to a 1 percent VAT, the lowest rate under the previous regime, as new rules apply to construction permits issued this year, according to Ak Investment.

“The tax increase will not hurt the company at all,” Bertug Tuzun, an Istanbul-based analyst at Ak Investment, said in a phone interview today. “Pre-sales performance from ongoing projects will probably increase in the short-term” as customers “rush to buy new homes” with the minimal tax, he said.

The new legislation raised VAT on sales of homes appraised at less than 1,000 liras ($560) per square meter to 8 percent, from 1 percent. Properties valued at more than that amount would be charged 18 percent. That replaced a size-based system, which imposed an 18 percent levy on homes larger than 150 square meters and a 1 percent tax on smaller properties.

Emlak Konut fell 5.8 percent over two days to Jan. 3, the biggest two-day drop since May 25, and led declines on the ISE National Reits Index.

“With investors selling first and thinking later, we expect the stock to put an end to the performance lag that we’ve been seeing,” Tuzun said.

The company reported net income of 158.9 million liras ($89.7 million) in the third quarter last year, swinging from a loss of 9.9 million liras in the same period a year earlier, according to data compiled by Bloomberg.

To contact the reporter on this story: Taylan Bilgic in Istanbul at tbilgic2@bloomberg.net

To contact the editor responsible for this story: Alaa Shahine at asalha@bloomberg.net

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