Turkey
Land value capture in Turkey
Several land value capture instruments are used in the country (Table 2.55). Developer obligations are in-kind obligations negotiated in Plan Notes or planning agreements. Land readjustment is frequently used to restructure property patterns in public and private projects. Local governments adopt infrastructure levy to recoup part of the costs of new public infrastructure, notably roads and sewage and water utilities. The national government makes moderate use of strategic land management, resorting to partnerships with private developers. Charges for development rights have been created in 2020 and are still to be adopted on a regular basis.
Enabling framework
Turkey is a unitary state with three levels of government: the national level, 81 provinces and 1 391 municipal-level entities (OECD/UCLG, 2019, p. 523[1]). Municipalities are arranged in three categories: Metropolitan Municipalities, City Municipalities and Town Municipalities. The 18 292 villages (köy), despite of their small size, are constitutionally recognized as self-governments.
The planning system is centralised, as the central administration has tutelage over local governments. The Ministry of Environment, Urbanisation and Climate Change prepares and approves Territorial Plans at the regional and provincial level. However, municipalities are responsible for Land Development Plans, which consist of Master Development Plans and Implementation Plans, which are then approved by municipal councils. Municipalities above 10 000 inhabitants must prepare their own Local Development Plans. Master Development Plans provide detailed guidelines, while Implementation Plans set the conditions for permitted developments at plot scale.
The national and local governments create the legal framework of land value capture.
Developer obligations
Developers are subject to obligations to obtain approval for new development or densification. The obligations consist of in-kind payments or, more rarely, in cash. They are designed to compensate the cost of stronger use of public infrastructure and services resulting from development. Local governments frequently implement the obligations and receive the revenues.
The obligations are consolidated in a planning document called Plan Notes. Local governments determine whether it is feasible to extend public service networks, road infrastructure and public space. As such, Plan Notes contain provisions regarding the payment of road and infrastructure costs and the acquisition of social and technical infrastructure areas in specific areas, for example in urban renewal areas.
The obligations are determined according to Plan Notes or planning agreements, which are private law instruments. According to the conditions set in the agreements, developers provide on-site public space and infrastructure. These agreements are more common for large development projects.
Infrastructure levy
Landowners can be charged a fee if they are adjacent public infrastructure works, namely road construction or expansion, sewer and water facilities, from which they benefit. The infrastructure includes roads, sewage and drinking water facilities. The instrument exists in its current form since 1981. Municipalities make frequent use of this instrument and collect the revenues.
Landowners whose land is located adjacent to the roads where the infrastructure passes through are charged as well. The charge must be paid in cash and cannot exceed 2% of the tax value of a land or building. The charge seeks to recoup part of the costs of the public infrastructure, even if it falls below its potential of value capture.
The procedures and principles for the implementation of the contributions are set in a regulation prepared by the Ministry of Interior (Article 94 of Law 2464/1981).The latest version of the regulation dates from April 14, 2021 (“Expenditures of The Law No 2464 on Municipal Revenues Implementation of the Provisions Regarding Contribution Shares Related Regulation”).
Land readjustment
Land readjustment is an important tool to restructure land property in the country, commonly used for urban expansion or renewal, brownfield regeneration and farmland consolidation. It was first introduced in the 19th century, and the current legislation dates from 1985. The instrument is frequently used in the framework of implementation plans.
The national government, local governments or private landowners can initiate land readjustment projects. The Housing Development Administration of Turkey (TOKI) can adopt land readjustment in areas of illegal housing and urban renewal.
In private-led land readjustment projects, 100% of the area’s landowners must give their consent. Landowners bear all the costs. Municipalities are in charge of the land transactions, and, if necessary, they conduct expropriations, in the form of Title 18 of Land Development Law 3194 and its regulation.
Participation is compulsory for projects with a public purpose or led by a public entity. No compensation is due to landowners if the public entity acquires less than 45% of the land plot. Beyond 45% of the area, the public entity must pay a financial compensation to landowners, based on the actual value of land. Public entities refrain from having to request more than 45% of surface area from a given landowner, to avoid the costs of paying compensation.
A share of 45% of the readjustment area is reserved for public improvement such as: green spaces, parks, roads and parking space, administrative buildings and services facilities – from which landowners will benefit.
After readjustment, landowners receive plots located on or as close as possible to their original land. Plot reallocation is proportional to the surface area of the original holdings. They may receive jointly owned plots, according to their shares to a same parcel, which engenders complex property rights disputes. For this reason, land readjustment is more successful in newly developed or relatively homogenous areas, but more difficult in built-up areas.
Landowners cannot exchange reallocated plots for cash. Third party investors cannot receive readjusted plots in return for eventual investments made in the project.
Implementation is challenging due to inadequate legal frameworks, low levels of technical administrative capacities, low quality of land registries and resistance by landowners. It is common that the urban plots produced through land readjustment are not serviced. The lack of infrastructure provision and the allocation of jointly owned plots have fostered a negative perception of land readjustment.
Strategic land management
The priorities of strategic land management are to provide land for real estate development, facilitate controlled urban growth or renewal and capture capital gains. The national government makes strategic acquisitions and collects the revenues from leasing and sales. The instrument is frequently used.
The government acquires greenfield land zoned for large residential projects, called Mass Housing Area. or located in areas in need for development. Acquisition occurs through transfers from another public entity or expropriations. The acquired land is typically rezoned before being sold or leased. Sales occur through public tenders involving other criteria beyond the sales price.
Acquired land is developed in partnership with private developers, through the Revenue Share Model. The Housing Development Administration of Turkey (TOKI) opens public procedures to select developers to build high-end housing units on well-located public land. Developers finance the projects and bear the risks of transactions costs, development costs, construction permits and property rights issues. Developers sell the units in the market and transfer a share of revenues to the government. The developer that offers the highest share from the sales of housing units is the winner. This share is typically around 35-50%. By receiving a share of the housing sales, the government recovers the land value gains.
The Revenue Share Model is profitable to both the public and private sectors. A critique made is that private profits are higher than the public gains accrued and that the land valorisation generated in the neighbourhood is not captured. The housing projects are considered disconnected from spatial planning decisions.
The government holds significant amounts of land to lease. The ground rent is 4% of the land value, being readjusted periodically. No exemptions or discounts to payment are admitted. Leases are typically 10 years but can be longer if the land is used for energy production, transmission or distribution, or for touristic facilities.
The obstacles to adoption of strategic land management are inadequate or nonexistent legal frameworks, the lack of administrative capacities and the lack of financing for land acquisition. Leaseholders consider the grounds rents unfeasible. Lastly, sometimes lease contracts are signed for purposes that are incompatible with the ones delineated in local land use plans.
Charges for development rights
Developers that benefit from a planning decision that alters land use or increases building density can be charged a fee. The instrument entered the legal system in 2020. Therefore, the national, metropolitan and local governments rarely use the instrument and collect the revenues.
The charge is paid in cash. The charge is calculated according to the criteria of surface area, location and property value. Property value is estimated using official appraisals, tax declarations and historic sale prices (Article 11 of Law 2942). Landowners or developers will pay the charge at the first sale of the property or at the building permit stage at the latest. If the real estate is not sold, the increase in value will not be taxed.
Implementation is challenging because the legal framework is absent or inadequate and public entities lack sufficient administrative capacity.
References
[3] OECD (2022), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 13 January 2022).
[8] OECD (2021), “Subnational government structure and finance”, OECD Regional Statistics (database), https://doi.org/10.1787/05fb4b56-en (accessed on 25 November 2021).
[2] OECD (2017), Land-use Planning Systems in the OECD: Country Fact Sheets, OECD Regional Development Studies, OECD Publishing, Paris, https://doi.org/10.1787/9789264268579-en.
[1] OECD/UCLG (2019), 2019 Report of the World Observatory on Subnational Government Finance and Investment - Country Profiles, OECD/UCLG.