Should homeowners pay the price for Turkey’s black economy?

It is obvious that the housing industry is facing problems. The unmeasured increases in estate taxes in some places have already added to these problems.

An official real estate market value marking commission, which has three members from the central government and two members from local administrations as a majority, has increased market values for property, as it does so once in every four years. Objections have come from many places. 

There are many towns, where the market value increase had been raised three or fourfold. Especially in Istanbul, justified objections came from homeowners in many districts, who have filed lawsuits. For example, the market value increase in a neighborhood in the district of Beşiktaş has increased by 4.2 fold when compared to 2014 before it increased 3.8 fold according to an automatic revaluation in 2017. So, taxes have increased by 3.8 times the previous. In short, a 1,000 Turkish lira property tax for a year will jump to 3,800 liras.

However, in fact, the cumulative inflation in 3.5 years since 2014, when the last adjustment was made, became 25 percent. In the Beşiktaş district, where the highest increase was made, the increase in the square meter price of housing also does not support this increase in market value. Istanbul Real Estate Valuation & Consulting Director Ahmet Büyükduman says that in Beşiktaş, where middle income groups live, the current construction stock did not show changes for the past 10 years. No noteworthy zoning changes have been made and no transportation investment that could change the relative location of the district within the city have materialized but the average price per square meter of apartments increased 73 percent in the last 4 years. The total increase in the past 10 years stood at 231 percent.

A silent agreement that the municipalities and central government “join their powers” emerges exactly at this point, over the official market values. As real estate transaction taxes are calculated over these market values, the income to the central government increases. The municipalities’ income also rises as annual property taxes are based on these market values. This situation does not annoy the central government, because the news over the unmeasured increases comes from municipalities where “White Turks” live.

 Many of these municipalities are where main opposition Republican People’s Party (CHP) voters reside. Here lies the main problem: All sides come to a silent understanding about the lack of tax reform. The government does not want to annoy its voters with a reform but it also does not object to the increases which flow to central budget and bring income. If asked; it spares an agreement that says “the official market values are even way under the real market price.” In this case, should homeowners pay the price for the black economy and the absence of a tax reform which cannot be brought in by a politician?

It is known that the official market values are still way under the real values in the property market despite the hikes. Land registrations and transactions should be done over the real market prices under normal conditions. There must even be terms of payment over the banks. For these reasons, a reform which includes a transition process is needed. Either the buyers or the sellers should pay taxes for increases in value in line with the “market conditions.”

Politicians, both the central and local, only watch all these. Everybody complains of black economy but nobody is mentioning reform. On the contrary, they want to benefit from this. According to the studies of Prof. Hakan Yılmaz from the Political Science Faculty in Ankara University, 61 percent of municipalities’ income comes from the income shares, which are from the central budget. Some 36.1 percent of their revenues are from their own. The share of the property taxes is 8.4 percent.  The shares of the municipality income that came from the central government are limited. An intention to spend more lies behind the municipalities’ bid to increase market values three or four fold. 

Local elections will be held in 2019. It is time to pay the cost for high spending up until now as there will be more spending for “showcase” works on the eve of the upcoming elections. Every construction means tender and “sharing” for local administrations which abuse power. It means creation of “election support” from the sidelines, especially in a system that they do not account for. 

It should be a civic duty to object to all unmeasured tax increases by a non-transparent, unaccountable structure.