Articles

Large players mean yield compression in Turkish real estate

Turkey has so been able to ride out the sub-prime crisis. True, some of the US banks pursuing deals here have had to withdraw and true too that some of the buzz has gone from the market. But yields had compressed dramatically in the two years to autumn 2007, with many professionals arguing that the market had become overheated.

Part of the reason for Turkey’s relative impunity is the embryonic state of its mortgage market. Despite many promises, as of mid-February 2008, the government had still not enacted a new law formalising mortgages: current housing loans are basically medium-term consumer credit.

But another reason is the underlying demographics of Turkey. The country has a population of 71 million, according to the new series released by the Turkish Statistics Institute, rising by around 1.5% per year and expected to reach 90 million by 2026. It has one of the most vigorous economies in Europe and the OECD, with GDP growth forecast to grow 4.5-5% per year through the next decade. And it is a magnet for foreign investment. This has been running at around $20 billion per year in 2006 and 2007, and, with major privatisations on the agenda, the prospects for 2008 are good.

This investment has been buoyed by high interest rates, falling inflation and political stability after last year’s general and presidential elections. It has led to a shortage of good quality office accommodation in the Levent-Maslak business axis of Istanbul, while the demographics of population growth, internal migration to the cities and falling family sizes are driving demand for housing.

Real estate attracts the serious investors

The boom started in 2005, when foreigners invested some $3-4 billion in real estate in Turkey - $1.8 billion of this being recorded by the Central Bank, more coming in when foreign purchases were limited because of a gap in the law, and all being subject to the traditional under-reporting of house purchase prices. In 2006, investments rose further: in the first 11months of 2006, the inflow recorded by the Central Bank was a net $2.8 billion.

Foreigners join the real estate boom in Turkey

It's a boom time for foreigners buying property in Turkey. In Istanbul, Britons, Egyptians, Germans and Greeks are scouring the streets of Beyoğlu and the banks of the Bosphorus. In Didim on the Aegean, so many English-speaking people have bought houses that electricity bills now have an English translation. In Alanya on the southern coast, Germans are setting up their own bars and shops. And in Turkey's jewel of Bodrum, the real estate market is booming, driven by locals and foreigners alike.