What is the approximate construction cost, which is the basis for collateral in urban transformation, and how is it determined? Why is collateral calculated based on construction cost, not on land or apartment value?

The key to understanding the collateral amount in urban transformation is knowing the amount on which the collateral is calculated. The legislation has determined the basis for collateral as “approximate construction cost.” When this concept is not properly understood, property owners may become unnecessarily anxious, thinking that collateral will be calculated based on the value of their apartments. In this article, we explain what the approximate construction cost is and its role in collateral calculation.

What is the Approximate Construction Cost?

The approximate construction cost is the estimated cost required to build a structure. This cost is not the value of the land or the market selling price after completion, but only the approximate equivalent of the construction cost. In the calculation, the construction area (m²) of the structure is multiplied by the unit cost belonging to that building class. Per-square-meter unit costs according to building classes are published annually by the Ministry of Environment, Urbanization and Climate Change with the communiqué “Approximate Unit Costs for Buildings to be Used in the Calculation of Architectural and Engineering Service Fees.”

In urban transformation, collateral is calculated based on this approximate construction cost. In risky areas, the construction area to be taken as the basis for calculation is determined according to the existing development plan or the proposed development plan (Implementation Regulation art. 13/9-a). In parcels containing risky structures, collateral is calculated based on 6% of the approximate construction cost (Implementation Regulation art. 13/9-c).

Why is Collateral Not Calculated Based on Apartment or Land Value?

The purpose of the collateral is to secure the resources needed to complete the project against the possibility of the construction being left unfinished. Therefore, linking the collateral to the construction cost is a functional preference. If the contractor leaves the work unfinished, the collateral will be converted into cash and transferred to the person who will complete the work, so it is logical for the guarantee to be indexed to the construction cost (Implementation Regulation Article 13/9-f). However, the apartment sales value is not suitable as a collateral base because it is variable according to market conditions.

Calculation Example

Let’s say a residential project with a construction area of 3,000 m² will be built on a parcel. Let the unit cost per square meter be 12,000 TL, according to the building’s class. In this case, the approximate construction cost will be 3,000 × 12,000 = 36,000,000 TL. For this project within a risky parcel, the collateral is calculated as 6% of this amount, which is 2,160,000 TL (Implementation Regulation Article 13/9-c). This amount is deposited by the contractor into the administration’s accounting unit before the building permit (Implementation Regulation Article 13/9-d).

What Happens if the Actual Construction Area Changes Later?

In risky areas, when the actual building construction area is clarified as a result of planning studies, the collateral amount is re-evaluated. If the previously provided collateral is insufficient, additional collateral is provided by the concerned party; if an excess amount was given, the surplus is refunded by the Presidency (Implementation Regulation Art. 13/9-a). This mechanism ensures that the collateral remains proportional to the actual construction volume. For the steps in the entire process, all stages of the urban transformation process and for the effect of financing choices on collateral, which model is more advantageous in urban transformation can be examined. Current communiqués can be accessed via the Ministry of Environment, Urbanization and Climate Change and the Official Gazette.

Frequently Asked Questions (FAQ)

What is the approximate cost of construction? It is the estimated cost required for the construction of a building; it is found by multiplying the construction area by the unit cost of the building class and forms the basis for the collateral (Implementation Regulation Art. 13/9-a).

Is the collateral calculated based on apartment value? No. The collateral is calculated not based on the apartment sale value or land cost, but on the approximate construction cost (Implementation Regulation Art. 13/9-a and c).

Who determines the unit costs? The approximate unit costs for construction are published annually by the Ministry of Environment, Urbanization and Climate Change via a communiqué.

What happens to the collateral if the actual construction area changes? In risky areas, once the actual construction area is finalized, insufficient collateral is supplemented, and any excess is refunded (Implementation Regulation Art. 13/9-a).

Why is Expert Legal Support Necessary?

The accurate determination of the approximate cost of construction directly affects both the collateral amount and many calculations throughout the process. Calculations based on an incorrect building class or wrong construction area can lead to insufficient or excessive collateral, resulting in administrative disputes. Urban transformation is a multi-layered process where administrative law, real estate law, and contract law intersect, and even a single procedural error can lead to significant loss of rights. Therefore, working with an expert lawyer in the field is crucial for establishing the correct basis.

As 2M Law Office (Attorney Meryem Günay), we provide services across Turkey, especially in Istanbul, where urban transformation is most intensive, including Istanbul’s priority transformation districts of Tuzla, Pendik, Kartal, Maltepe, Ümraniye, Ataşehir, Kadıköy, Sancaktepe, and Küçükçekmece, as well as the Gebze and Darıca regions of Kocaeli. As an Istanbul urban transformation lawyer and Tuzla urban transformation lawyer, we offer legal support to rights holders and contractors in collateral calculation and administrative processes.