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Turkey: Turkey

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

Turkey is exceptionally popular and has one of the highest concentrations of UK buyers outside Spain or France, not to mention a tourism market which is increasing by over 25% each year. More than 3,000 British families are based in the town of Bodrum alone, and cheap flights are making the country an easy place to have a second home. There will be few potential buyers from the UK who have not given Turkey at least a fleeting thought.

In return, the government of Turkey has also been considering property rights for foreigners. In recent months sales have been technically suspended while a new property law was drafted. This law was passed in January 2006, and confirmed the right of foreigners to buy property under 2.5 hectares in size for personal use or business.

Is this a good place to buy?

If this was just about choosing a nice place to build a second home, Turkey would be high on the list. The climate; the Mediterranean life-style; wonderful food, beaches and hospitality all make it easy to make a case for buying here. However, it is also about investment and choosing a property which might increase in value. Does Turkey belong on this second list?

The answer is yes, and for reasons that have more to do with hard-headed finance than with sun and sand. The housing market in Turkey has lagged behind Europe and the difficulty of obtaining mortgages has meant that prices have stayed artificially low. There are signs that this is about to change: Turkey is getting richer and house prices should grow with the increasing wealth of the country. The Turkish economy grew by 9.9% in 2004 alone, the highest recorded growth that year within an OECD (Organisation for Economic Co-operation and Development) country.

After some years of dispute, the EU has also now decided to allow the Turkish accession negotiations to move ahead. Bringing the Turkish legal system and economy up to the strict standards required by the EU is expected to take at least a decade. Realising that accession will wait until around 2015 has dampened some of the wilder optimism of local property agents, but there is no doubt that the required legal and financial services reforms will help to place the market on a sounder footing.

The best results for the real estate sector lie in better mortgage provision. The government is committed to strengthening the mortgage market, an important step because short loan terms and high interest rates mean that at the moment only 3% of housing finance in Turkey currently stems from bank mortgage credits.

More than 60% of real estate purchases are funded through inheritance or savings. This sets a limit on how far prices can rise before they simply become unaffordable and the market stultifies. Lower interest rates will make mortgages more affordable and cause house prices to head upwards.

Mortgage take-up is already increasing at a rate of knots. In the first nine months of 2005 housing loans accounted for about 7% of total bank loans: in 2004 the figure was only 3.4%. Best of all, financial analysts think 2006 could be the year when new laws are passed which allow foreigners to take out a mortgage. Rising prices could effect second homes as well as standard properties.

This happy picture is also supported by demographics. According to an article in FDI Magazine (‘Housing Ambition’ Metin Demirsar) the maths are as follows: Turkey’s population stands at 72 million, with 59% of the population aged less than 29 years old. 55% of the available housing stock is in shanty towns, and at least 40% is ready to be renewed. This adds up to huge domestic demand for housing, quite apart from the market for holiday homes.

Price history

Price increases diverge across the country. The government does not release authoritative statistics, but prices in popular tourist areas on the coast are believed to have risen by 30% in 2004. Despite this, at the time of writing, one bedroom apartments at the coast are available from £15,000 ($25,000) with two-bedroom properties from £25,000 ($42,000).

More pages

Page 1: Guide to the Risk and Opportunity Ratings
Page 2: Which type of property should you go for?
Page 3: Mortgages

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