Turkey: Price History

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Turkey’s property market has taken off strongly

Housing prices continued to rise strongly in Turkey in 2006, following very sharp rises in 2005.Exactly how much house prices have risen is hard to tell, as Turkey publishes no official house price statistics, nor do any private organizations of realtors publish statistics (Turkey is relatively ill-served by international realtors).

The Turkish real estate market has been buzzing since the EU summit in December 2004, which held out hope of Turkish accession to the EU. Hopes have faded, but foreign buying interest has continued unabated.With many new developments in progress along the coastline, the attractions of Turkey’s marvelous seashore and relatively low costs are seen to be unbeatable, once the initial fears have been overcome.In 2006, real estate purchases by foreign investors exceeded US$2.5 million, having doubled in the past two years, and increased five times in four years.

A significant boost was given to the market by Law No 5444, adopted in December 2005, which amends Article 35 of Law No 2892, and allows foreign real persons or companies to buy up to 25,000 sq. m. of real estate for residence or business purposes, which can be increased up to 30 hectares by the Council of Ministers. The new system introduced is much smoother than its predecessor. However, there are certain limitations: foreigners cannot buy lands of strategic importance, of religious or cultural importance, and must obey standard planning restrictions. But essentially property purchases are open to foreigners, on the basis of reciprocity, i.e., Turkish people must be entitled to purchase real property in the country of the foreign national buying property.

Domestic market vibrant too

In addition, the domestic market is extremely vibrant.Domestic housing loans have risen from 2% of GDP two years ago, to 14.4% of GDP by end-December 2006.The engine behind the increased borrowing was a significant decline in interest rates until mid-2006 (when an upward blip in inflation caused a rate tightening).

The long-delayed mortgage law, which is expected to be introduced in 2007, will put further energy into the market.The main obstacle to the implementation of the mortgage law is the present high interest rates, which are associated with the fact that 2007 is an election year, and with global worries about inflation.

The government is taking the ‘Spanish route’ to prosperity, deliberately encouraging large numbers of foreigners to settle in Turkey.It sees such a foreign influx as a major contributor to Turkey’s economy, and as a solution to Turkey’s persistent current account deficit problems.

The construction sector is also extremely vibrant.Since 2005, the construction sector has seen growth of 21.2% annually, according to a recent (2007) report by AK Securities. This growth is driven by private, not state, spending.

Construction is concentrated on three types of buildings, AK Securities notes:

• Villas of 300 sq. m. and up, worth US$750,000 to US$1.5 million
• High incomes downtown residential high rise apartments of 70 sq m. to 400 sq. m., priced at around US$3,000 per sq. m.
• Mass housing projects, priced at US$700 per sq. m. to US$2,000 per sq. m.

The increasingly stylish Istanbul

High quality ‘residence’ projects geared toward middle-to-high income level buyers are a significant growth sector, as exemplified by the stylish new residences of Kanyon in Istanbul’s Levent neighbourhood, and the restoration of the 19^th century Rizzo and Kamondo buildings in the Beyoglu district. Each of these projects has sold out, at prices for individual units in the millions of dollars.

The US$200 million Kanyon project is a typical modern super-luxury ‘shielded lifestyle’ project, with an entirely self-contained neighbourhood. You could be anywhere, and need have no contact with the real Istanbul for weeks on end, if you choose.Perhaps more significant is what has taken place with the Rizzo and Kamondo buildings.

The Rizzo was a derelict 1890s Art Nouveau building in ruins; refurbished, a garden apartment sells for US$1 million and can rent for US$4,500 a month. The Kamondo has been empty for 25 years, and is in process of a complete renovation to a simulacrum of its original condition, complete with the publication of a history of the building –and is already sold out.The example of these successful renovations is propelling renovations elsewhere in this increasingly stylish, wealth, cultured and history-conscious city(see IHT 5 December 2006).

Economic reforms

Turkey has long had a history of economic instability, which only began to be resolved when the present government was elected.Successive governments overspent the national budgets, causing runaway inflation and a series of foreign exchange crises, which discouraged foreign investment.

Now that time seems past.Budget deficits are under control, inflation is low, and the inflow of tourist and property revenues look set to balance the current account deficit.

The Islamist-based Justice and Development Party, which won a landslide victory in November 2002, is more akin to Germany’s Christian Democrats than to some of its more radical cousins.Yet ironically, in view of the popular Western perception of Islamist politicians, it was an Islamist government which has resolved so many of Turkey’s long-standing economic problems.

Prime Minister Recep Tayyip Erdogan comes from a poor background, attended Koranic school, and as mayor of Istanbul in the 1990s he banned alcohol from municipal buildings.

But he also improved services, and has identified EU entry as his government’s key priority, presiding over reforms to the court system and increasing the area of freedom of speech, long restricted my military influence.

Most importantly, the new government presided over dramatically better management of the economy. For decades, Turkey has suffered annual inflation of 25% to 106% per annum.Runaway inflation was successfully brought down under Justice and Development Party rule to manageable levels – from a decade’s old double-digit levels to a more acceptable 8.6% in 2004, and 8.2% in 2005.The better management of the economy is an achievement required considerably political willpower and probity to resist the multiple pressures pulling the government to overspend.By achieving that, the government unleashed an unexpected economic boom.

Inflation has unexpectedly picked up to 10.5% in Q3 2006, due to the rise in oil prices and various supply shocks.But the authorities will have no truck with renewed inflation, and a tightening of interest rates by 4% in June, and a further 0.25% tightening in July, is expected to squeeze the higher inflation out of the system.

The interest rate hikes have somewhat restrained GDP growth. Turkey has recently experienced a strong economic performance – a 5.8% growth in 2003, 8.9% in 2004 and 7.4% growth last year. Because of the tightening of interest rates, GDP growth to the third quarter of 2006 was a restrained 5.9%, and the full year figure is likely to come in lower.

Some of Turkey’s economic growth was partly propelled by euphoria about EU entry. The optimism has since been dampened by doubts expressed by EU countries such as France and Austria.A number of recent events, such as the introduction of a new anti-terror bill intended to limit free speech, and a military crackdown, have provided ammunition for the EU doubters.Analysts expect EU accession negotiations to be difficult and slow.

Nevertheless, the attractions of the Turkish coast, its food, its natural beauty and its low costs, have sufficiently embedded themselves in the minds of Western Europeans that, whether EU membership materializes or not, there is no stopping Turkey’s upward momentum now.

Turkey - more data and information

• Turkish house prices, rents, and letting income - real data!
• How expensive are houses in Turkey, compared to the rest of Europe?
• How much rent can be earned from Turkish property, compared to the rest of Europe?

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