Foreigners join the real estate boom in Turkey

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.

The figures are striking. In 2005, according to the Central Bank, foreigners invested $1.8 billion in real estate in Turkey. But this figure includes six months when foreign purchases were impossible because of a gap in the law. And it does not allow for the traditional under-reporting of house purchase prices. The real figure may have been $3-4 billion, according to most estimates. This is equivalent to around $10 million each day, which translates into 80-100 houses or apartments every working day.

Foreigners have long been allowed to buy real estate in Turkish towns if their home countries offered the same right to Turks. In 2003, the right was extended to cover property in village areas. In July 2005, the Constitutional Court cancelled the amendment, suspending all purchases by foreigners. But in January this year, full rights were given to foreigners, backdated to the date of cancellation of the amendment and subject to a maximum of 25,000 square meters.

The main market is Istanbul. Metin Ar of Garanti Invest says that a large number of international funds are looking for commercial property, with those he had talked to earlier in the year having allocated $750 million for this.

In 2005, the Dutch group Corio bought a 46.9% stake in Akmerkez GYO - owner of the shopping center - for €148 million euros. Now United Arab Emirates-based Dubai Holding plans to build a pair of skyscrapers for shops, offices, flats and hotels in a $500 million investment.

Investors are attracted by the return on investment being higher in Turkey than in Western Europe. "(In western Europe, yields) are 5% for prime shopping centers, maybe 5-1/2, 6% for office buildings but in Turkey, you are still achieving double these rates," Feroze Bundhun, managing director of CB Richard Ellis in Turkey, recently told Reuters.

Reward tends to go with risk. As Price Waterhouse Coopers writes in its Emerging Trends in Real Estate Europe released in March 2006: "Istanbul and Moscow retain the top rankings for development prospects... These are fast-growing economies with a shortage of modern high-quality assets, but the risks have to be carefully mitigated in any project... Paris, Barcelona, and London round out the top five for development prospects."

This institutional interest is backed up the growing number of foreigners who tramp the streets looking for homes or apartments. Turyap, one of Turkey's largest real estate agencies, forecasts residential property prices in Istanbul will rise 80 to 120% in 2006, after an 85% rise in 2005, as foreign investment, the start of membership negotiations with the European Union and the launch of mortgages spurs the market. "Prices are not expensive, we are still 50 to 60% less than the Eastern European average and 80 to 90% less than the general European average," according to Ferhunde Özgüler, head of international relations at Tuyap.

Foreign Real Estate Investment In Turkey

Source: IBS

Separate factors apply along Turkey's south-western coasts. Here, foreigners started buying summerhouses in the mass tourism resorts like Side, Alanya, Didim and KusadaŞı. Many had come on package tours, liked the place and considered having a place of their own, according to The New Med, an Antalya agency specializing in serving foreigners. The process gained momentum following the 2003 legal changes to ease and extend the foreign purchase of real estate. Since then, investing in second homes has been a rising investment dynamic in both the EU and Turkey, driven both by love of sun and the fact that 100 Euros go far further in Turkey than in Europe. "We see a lot of retired Germans on pensions who are able to have a far better quality of life in Alanya than they would back home, and choose to live here most of the year," Şevket Tokuş, an Alanya hotelier and landowner, told me.

So vibrant is this market that some tour operators offer "fly and buy" options to tourists already on a package tour. The tourists are invited to stay in marketed developments for free in the hope that some will end up buying. Other developments are marketed through emphasizing activities such as sailing or, as in the case of the area of Belek in Antalya, as golf resorts, even though the hotels in the latter target Russian tourists. A host of condominiums and villas have risen along the Belek and nearby Kadriye strip. Most are completed and occupied, while some construction continues.

This market too is changing. Some early entrants have found that they did not buy the right place. Criticisms may include the resort being too empty in winter, too humid in summer, too far from cultural activities or health facilities, or lacking transport. Such purchasers tend to look around and move to a more appropriate place rather than leave the market altogether.

Indeed, in The New Med's view, all players are moving up the quality ladder: Developers are building higher quality properties with more character, hoping to decrease the sell out period. Estate agents are slowly improving standards: a draft law on real estate intermediaries sets out to tackle this problem. Indeed, the value chain is changing to benefit the players who provide value-added for the buyers.

All in all, agents say money once spent on holiday homes in traditional destinations like Spain has been redirected to Turkey. Prices in areas such as Bodrum have risen by 20% in the past six months - and this seems only the beginning.