Real estate in Turkey

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.
Most of this has been in second homes, but the harbinger of change has been the arrival of the large property companies and hedge funds. In 2005, the Dutch group, Corio, bought a 46.9% stake in the Akmerkez shopping center for €148 million. Then, United Arab Emirates-based Dubai Holding announced plans to cooperate with Istanbul municipality to build a pair of skyscrapers for shops, offices, flats and hotels in a $500 million investment.
Next, the municipality's 50% share in the massive Istanbul Cevahir mall was sold to Saint Martin’s/the Kuwait Investment Authority in November 2006 for $375 million + 18% VAT. Since then, the other 50% has been valued at the same amount. And now bidders are queuing up for prestige developments such as the Profilo Shopping Centre in Mecidiyekoy, Istanbul. Others have been visiting contractors and developers saying they have up to $500 million available for good projects in Turkey.
This competition for projects has led some major investors to open offices here. Examples include Arcapita of Bahrain, Emaar of Dubai, and Merrill Lynch via a local joint venture, Krea. This last has just bid for 100% of the Neo shopping centre in Eskisehir.
Investors are attracted by the return on investment being higher in Turkey than in Europe. In western Europe, yields are 5-6% for prime shopping centers and office buildings but in Turkey rates have been well above this. That said, as PriceWaterhouseCoopers writes in its Emerging Trends in Real Estate Europe released in 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."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, forecast residential property prices in Istanbul would 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 prospects of the launch of mortgages spur 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," Ferhunde Özgüler, head of international relations at Tuyap, said in 2006.
Since then, 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 the south-western jewel of Bodrum, the real estate market has been strong, driven by locals and foreigners alike.
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 2006, 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.
Along Turkey’s south-western coasts, 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.
Some tour operators have offered "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.
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.
Despite this, the second home market has recently been under challenge. Negative publicity about legal rights in Turkey and strong marketing of the EU’s new entrants, Bulgaria and Romania, have reduced investor interest.
In parallel, in Istanbul, a plethora of new residential projects have come to the market at the same time, leading to considerable pressure on prices. The prices of second-hand houses have been particularly hit. "The balloon has burst," said Salim Tasci of Tasci Emlak in February 2007, arguing that there were real opportunities in the market. It is these on which the larger investors who recently entered the market have been concentrating.
David Tonge contributed this article to "ABC's Investor Guide to Turkey" in February 2007
http://www.ibsresearch.com/node/113