Osman Akin borrowed 3,000 liras ($1,910) from his wife’s sister and prayed until morning before squeezing into an Istanbul sports hall with others hoping to buy one of 110 new homes.
Numbered balls in four lottery machines allocate apartments built by Turkey’s Housing Development Administration, or Toki, among 2,000 low-income applicants. Since Prime Minister Recep Tayyip Erdogan revitalized the agency in 2003, it has built half a million homes, 700 schools, 100 hospitals, and a 52,000-seat stadium for one-time European soccer champion Galatasaray. The premier’s campaign speeches for June 12 elections seldom fail to mention plans for another half a million homes.
Opposition parties say Toki is a financial black box that masks the distribution of government cash to Erdogan supporters in the construction industry. The premier says that by turning Turkey into “a great construction site” he has helped hundreds of thousands of families make the leap to home ownership. That upward mobility has knock-on effects throughout Turkey’s $740 billion economy, whose record growth rates -- 8.9 percent last year -- are central to Erdogan’s bid for a third term.
“There’s clearly something red-hot happening in Turkish growth and the creation of new households is central to it,” said Tim Ash, head of emerging-market research at Royal Bank of Scotland Group Plc. “The success the government has had in building new homes has major macro consequences. It’s what’s driving the domestic boom because every new household needs white goods to put in it and a car to drive to it.”
Turkey’s population grows by about 1 million a year, and is steadily migrating into cities and dividing into smaller family units. Toki is the biggest player in a building industry meeting that demand. Construction surged 17 percent last year, helped by low borrowing costs: the central bank has held the benchmark interest rate at a record low of 6.25 percent since January.
Shares in Toki’s property development unit have been among Turkey’s best performers. Emlak Konut Gayrimenkul Yatirim Ortakligi AS has jumped 78 percent since it started trading Dec. 1 after an initial public offering. That’s the biggest gain among stocks included in the ISE 30 index of Turkey’s biggest companies, which fell 6 percent in the same period.
On the campaign trail, Erdogan -- set to keep his majority in parliament, according to opinion polls -- tells crowds in each province how many homes Toki has built there, and how many more are planned. In Cankiri in central Turkey on June 6, he promises 50-square-meter (540 square feet) apartments for young married couples. About half of Turks are aged under 26.
“As conservatives, our goal is to strengthen the family,” Erdogan said in Ankara today, announcing the establishment of a new Ministry of Family and Social Policies.
State Bank Credit
Toki takes government land at little or no cost, and auctions development rights to private constructors who must share the revenue from sales and rent-to-buy payments.
Winners of the Istanbul lottery must pay about 400 liras ($254) a month over 15 years to become outright owners of homes in the 10-storey blocks in Istanbul’s Hadimkoy suburb. They can get low-interest loans from state lender TC Ziraat Bankasi AS to meet the 10,000 lira down payment. Akin, who has three children, says he’s already paying 450 liras a month for an apartment he’s being evicted from.
Critics say Toki, which reports directly to Erdogan, allows the premier to play politics with public money. It “creates rent from valuable state land and transfers this rent to pre-selected companies,” said Aykut Erdogdu, a former Treasury official and now a parliamentary candidate for the opposition Republican People’s Party in Istanbul.
“Any Toki opening ceremony is always carried out by the prime minister, which turns it into a political vehicle,” Erdogdu said in e-mailed comments. The government hasn’t fully answered parliamentary questions on Toki’s finances, which makes it “impossible to make a full assessment of how serious the financial position is.”
Toki had debt of about 5.3 billion liras in 2009, or about 26 percent of assets, according to its website. The authority said more recent information isn’t available to the public.
The housing agency is “blameless” and its critics should produce evidence, Erdogan said at a May 29 rally in Ankara. Finances are healthy and the tender process is “entirely transparent” Mehmet Ali Kahraman, Toki’s head of strategic planning, said in an interview at its headquarters in Ankara.
Toki may consider borrowing internationally, and obtained credit ratings in 2008 as it sought alternative source of finances amid a drop in repayment rates, Kahraman said. Moody’s Investors Service rates Toki Ba2, two steps below investment grade in line with Turkey’s national rating.
“The level of ongoing support from the government is extremely high,” even if Toki’s debt isn’t guaranteed by the state, Moody’s analyst Gianfilippo Carboni said in a telephone interview. Growth over the past five years makes it “crystal clear that it has been the prime minister’s target to extend the operation of this agency.”
Erdogan isn’t the first Turkish leader to offer cheaper housing. His overhaul of Toki in 2003 involved giving it real estate previously owned by Turkiye Emlak Bankasi AS, a state-run housing bank that was liquidated in 2001 after contributing to as much as $17.5 billion of losses by government lenders.
Nor is Toki the only beneficiary of the housing boom. The ISE REITs index of real estate developers is up 21 percent this year. Turkiye Garanti Bankasi AS, a bank co-owned by Spain’s Banco Bilbao Vizcaya Argentaria, has seen home loans surge fivefold in the five years through 2010, to 7.86 billion liras.
At the lottery draw, Akin’s number doesn’t come up. He’ll be able to reclaim his deposit from the organizers.
Sara Banu Aydogdu, though, shouts out as her number is drawn and immediately calls her husband, who earns about 1,500 liras a month at a bread factory. She can’t stop smiling as others in the crowd walk by and congratulate her.
“I’ve wanted to be a homeowner for a long time,” says Aydogdu, 39 with two children, echoing the words in Toki’s promotional videos. “I never thought I’d own a house.”