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Property in Turkey Tipped As Prime Investment, A Critical Analysis on the Turkish Property Market

Since the black February in 2001, when Turkish Lira devalued against hard currencies by 45% overnight following some aggression by MPs in the Turkish parliament, in truth due to a tired and unsustainable Turkish Lira pegged against USD, Turkish economy and Turkish property market in tandem, have been outperforming expectations and turning things around.

Turkey’s credit note went down the drain in 2001 with the currency crush, which saw foreign company balance sheets wiping half their asset values when reported back to their parent currencies such as USD, Euro, GBP, etc. For at least 5 years thereafter, foreign direct investment was just too cautious to come in. That is till mid 2000’s when foreign investors, corporate and individual, saw things were changing. So, what exactly happened?

It could be argued that the major change has been single party rule since 2002, when current ruling AK Party took power. Since then Turkey had always been riddled with coalition governments, which found it far too difficult to implement lasting fiscal and monetary policies. AK Party managed to do just that. Since 2002, a set of fiscal and monetary policies implemented by well-trained and capable economists have managed to reduce Turkish bank interest rates from around 25% per annum to now around 6% (as of December 2011), inflation that was previously running in excess of 90% per annum now targets 5% for early 2012. Favourable and stable economy has been fostering international trade relations and exports, Turkish exports reached an all time high in 2010, driven by Germany, US, UK and Middle East. Turkish currency is no longer pegged against hard currencies, however, has been rather stable since 2006, which signals strength of economy and a positive investment climate. These are the changes in brief in macro-economic factors. Now, let us have a closer look at property in Turkey from a foreign investment viewpoint.

When analysing the Turkish property market and construction industry, one major point to note is that over 95% of real estate in Turkey output is absorbed by the Turkish domestic market. This is in sharp contrast to what happened in Spain since 2003, that is over-supply due to foreign property buyers which appeared as though there was no end in sight, clearly a fundamentally Ankara Yös kursu wrong assumption that turned out to be!

Over 60% of Turkey’s population is currently under the age of 32. In addition, major cities like Istanbul, Antalya, Izmir, Bursa and Ankara drew a huge number of urban migration in the 70’s and 80’s. The population of Istanbul in 1970 count was around 4 million, now the city easily accommodates over 15 million. Similar growth rates apply in other major cities. This coupled with changing lifestyles of Turkish people (that is single occupancy rates on the increase as opposed to extended family structures) and increasing wealth, meant that available housing was simply not adequate and suitable. This led to a huge gap in demand and supply. In addition, during 2007, Turkish government announced its plans for major urbanization projects, that is moving people out of shanty houses formed around major city orbits into structured and sustainable accommodation again on the suburbs of cities but with facilities and proper commuter lines. This led to plenty of incentives being given to large developers and public partnerships to purchase land and build residences. With the availability of housing finance and extended payment terms, masses of Turks are now moving into newly developing towns around major cities. This is a major market in the Turkey property sector that provides around 80% of all new builds in the market. Some of these are currently offered to foreign investors as low entry level properties in Istanbul and other major cities. We will analyse their investment value later on in this article.

Now let us look at coastal Turkey property developments. This is the segment of Turkish property market that most foreign buyers are more familiar with due to the fact that majority are second home buyers in Turkey, that is Turkish holiday home buyers. Foreign ownership in Turkey property first became possible in 2003, when the government lifted the ban on foreign nationals buying property in Turkey. At first, and given that there was already a well known Spanish market absorbing most European purchases, the main incentive for foreign buyers was cost advantage. Turkish properties were as cheap as one third of their Spanish counterparts. Foreign buyers came in search of a cheap place in the sun. The era that led up to 2007 was mainly a cost driven era. Toward the end of 2007, credit squeeze hit global economies. Most real estate markets were heavily hit, however, Turkey was not. The main reason Turkey was saved is simple, Turkish real estate market was a ‘cash’ market and not credit backed. Developers built as they sold and not on promises of future sales orders. This meant that the global slow down caught Turkey with very little surplus stock of real estate except for in a few isolated areas such as Alanya. As a result sharp price offs and heavy reductions to offload excess stock did not take place in Turkey. Prices were maintained and there was no market value loss.

 

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