Interest-free property funding legislation enters into force

Turkey's new regulation governing the interest-free funding market for housing and car sales took effect as it was published in the Official Gazette on March 7.

The Turkish Parliament approved the legislation last week, clearing the way for a possible boom in a system that has already drawn around 300,000 customers keen to avoid sky-high interest rates.

The so-called "savings financing system" has been used in Turkey since 1991, but a lack of official scrutiny of the creditors has so far kept some borrowers away.

Housing sales and a construction boom have helped drive economic growth in recent years, but sales have declined since September 2020, when interest rates were ramped up to tackle double-digit inflation.

Mortgages covered only 15 percent of all property purchases in January, compared with 57 percent last July.

With the new regulation in place, and with Turkey's benchmark interest rate at 17 percent, the highest of any advanced or developing economy, the savings financing system loosely based on Islamic financing principles is expected to attract a wave of new customers.

Under the cooperative system, customers agree to make payments for a number of years totaling the amount they wish to borrow, plus a 7 percent to 10 percent additional cost that is not strictly considered as the interest.

They then receive their target amount halfway through the period - or earlier if they win one of the lotteries held by the creditors - and buy a property.

Hasan Dursun, 30, bought a home after receiving funding three and a half years ago.

"I recommended this to three or four people who had been considering it but were concerned. Now that there is state protection, they can see that it will be guaranteed," he...