Turkey: To Buy or Not to Buy?
Property Wire's global markets expert Liam Bailey gives us his view on the media-hyped investment 'hotspot' Turkey. Turkey is most certainly a current property investment hotspot. It is working towards EU membership and seeing massive levels of tourism. Visitor numbers are set to hit seven million this year.
EU membership has proven to be massively beneficial to property markets, as we have seen in places like Estonia, Romania and Bulgaria. But there is a lot of opposition to Turkey’s membership within the EU most notably from France, Germany and Austria. Although talks are on-going an actual date for membership is several years away.
But the truth is Turkey's property market is growing in leaps and bounds even without EU membership.
One of the great advantages of Turkish property I have found is that despite reported price rises of between 30% and 40% over two years in popular areas prices are still relatively low. This is especially so when compared to what could be called its regional rivals; places with similar climates and attributes like Spain and Italy. You can buy a two bedroom apartment in popular Dalaman for a little over £40,000.
Another advantage Turkey has over the two mentioned above, is that it is a much larger country and the government is acting early in its boom cycle to try and prevent over development and crowding in the most popular areas.
To do this the government is offering a massive incentives package for businesses to move into under developed and impoverished areas of the country, similar to designating Special Economic Zones as was done to great success in China and then India. Another benefit of this policy is that it will improve the distribution of wealth within Turkey.
Turkey also has excellent rental yields. The Global Property Guide puts average rental yields on small apartments at 8% throughout all districts.
But for me, EU membership is necessary to be sure of Turkey's investment potential. I say this because investors have to be looking at who they are going to sell to in order to realise any growth their property has achieved.
Though Turkey's economy has seen a solid 5% to 7% annual GDP growth over the past few years, this is expected to fall to between 3% and 4% this year. The budget deficit, which fell to 1.6% last year, is expected to grow to 3% of GDP in 2008 and 2009, with inflation rising to almost 10% on the back of rising food and oil prices.
All in all the amount of disposable income available to Turkish residents is set to fall. For me to recommend investing in a country I would generally like to see internal wealth rising so that the country's residents could be looked upon as a part of a reliable exit strategy.
It is true that with Turkey's current popularity foreign investors could be looked upon for an exit strategy, but that is far from reliable. It is also true that Turkey's rising tourism will be a great boost to the economy in the next few years.
Reports also say that the Germans and Russians who have bought in the country in the last three years are starting up businesses and these will give jobs to local Turkish people who in a few years may have the disposable income to consider buying a home. This is perhaps slightly more reliable than banking on foreign buyers, given that one can assume that a percentage of the businesses should be successful and see expansion in the coming years.
EU membership would improve Turkey's economy by way of growing remittances from Turkish people working abroad. It is common trend in new EU countries for people to go abroad for work in order to secure the funds to buy a home in their own country, thus giving investors another arm of potential buyers in order to sure up their exit strategy.
To be honest, I think a wait-and-see attitude should be adopted by anyone considering a pure investment in Turkey. Wait and see which area has the highest proportion of succeeding and expanding businesses, potentially in one of the Special Economic Zones where property could be bought even more affordably. Then look to see where expanding businesses correlate with a high number of Turks going abroad for work, which of course means waiting for EU membership.
For those geared up to invest now, buying an off-plan resort unit in a popular area rarely goes wrong in a country where tourism and holiday home purchases are growing exponentially. Off-plan units can be bought for far less than the market value of the finished unit because of the potential risk involved. There is therefore an immediate growth when the development is completed and holiday home buyers offer a fairly reliable exit strategy.
However, a holiday home investment in Turkey is a totally different story. Like I said, property in Turkey is currently comparatively cheap. The climate is hot, the beaches are great and rising tourism means the 8% average rental yield can easily be exceeded on good units in the most popular areas. On top of that inheritance tax ranges from only 1% to 10% depending on the relationship between the donor and the recipient.
In closing, Turkey is perfect for holiday home investors. But those wanting to solely invest should either wait or buy off-plan resort property with a view to getting out on the immediate gain while the holiday home market remains strong.