Turkey: Builders' bankruptcy risk now covered by compulsory insurance
Source: Middle East Insurance Review | Apr 2015
The Turkish government has published guidelines for insurance covering the bankruptcy risk of builders of residential properties which are sold before construction is completed. The goal is to guarantee the completion of the construction and the delivery of the residential units to buyers.
All home sales since 11 March are covered by the compulsory insurance, reported the Hurriyet newspaper. Premiums will depend on factors such as the size of the residential property and the duration of the construction project. The construction companies will have to acquire such cover before starting the sales of the properties. They will also have to pay the insurance premiums.
The insurance was made mandatory after hundreds of home buyers fell victims to insolvent building contractors. Under an auto-financing system, home buyers would make progressive payments in advance towards the purchase of residential property in accordance with the stage of completion of the property. However, on occasions, there are builders which run out of money to complete construction, leaving home buyers in the lurch.
When a builder defaults and stops construction, the insurance is triggered. Insurers will compensate home buyers for the down payments and instalments which they have paid for the property, as well as interest.