A rudimentary search on the internet for property hotspots in 2012 will throw up Turkey as a market to watch out for. The potential of the country’s real estate market is undisputed, with it topping all major property rankings. It was in the top ten fastest-growing markets in the latest Global House Price Index by Knight Frank, ranked second by Ernst and Young in the list of the most attractive property markets in Europe, whereas Istanbul came in first in the latest PricewaterhouseCoopers Emerging Trends in Real Estate Europe 2013 survey for expected investment in the property market.
The foundation of this nearly tectonic shift lies in Turkey’s evolving property laws. In 2002, the Turkish property market was first opened to foreign buyers. But they were only allowed to purchase properties in a few zones and restricted by the reciprocity clause, which meant that only nationals of countries allowing reciprocal real estate purchasing rights for Turkish citizens, such as Britain, Germany and The Netherlands, were allowed to buy properties in Turkey. In 2005, the zones were abolished, but reciprocity remained.
In May last year, the government passed a bill ending the reciprocity requirement. Since August 2012, the government has allowed nationals from 183 countries to buy property in Turkey. “The law allows investors, who were subject to reciprocity hurdle depending on their citizenship, to now acquire real estate in Turkey,” says Alp Sen, Transaction Real Estate Senior Manager, Ernst and Young Turkey. According to the Association of Real Estate and Real Estate Investment Companies (GYODER), the transaction volume created by foreign investors reached $2.64 billion (Dh9.69 billion) in 2012 and is expected to touch $3 billion in 2013. Also, figures for the first quarter of 2013 were up 89 per cent in comparison to 2012 and amounted to $720 million.
Kai Heiselmeier, License Partner with Engel & Völkers, a Turkish-based property consultancy, estimates the real estate market will show a healthy annual growth rate of 8-10 per cent. The positive outlook is shared by Tolga Han, International Vice-President of property consultancy Projebeyaz International, who believes that with an average GDP growth rate of 4.6 per cent expected over the next five years, combined with a population of 84.4 million by the end of 2023, up 14 per cent from the current 73.6 million, it is anticipated that housing demand in Turkey will grow unabated.
According to the Turkish Real Estate Sector in the Vision of 2023, published by GYODER, a further 7.56 million urban residential units will need to be added to the market between 2012 and 2023.
Foreign investors
Meanwhile, as of April 2012, the number of houses in Turkey purchased by foreign nationals was 78,571, while in the fourth quarter of the same year, real estate sales to foreigners were worth $791 million.
While the new law is undoubtedly the catalyst, there are other drivers pushing Turkey’s real estate market into what appears to be its finest hour. Some of these critical factors include significant GDP increase allowing for more disposable income that is being pumped into property; lower inflation rates compared to the past; and economic sustainability that decreased the interest rates making long-term low-cost financing facilities available for real estate investment.
“There is a demographic shift where people from the countryside are moving to bigger cities, be it in search of jobs or university students for higher studies. They need more housing units and with additional wealth comes more retail opportunity as we are seeing more polished and upbeat malls and shops,” points out Müsfik Cantekinler, Head of Transaction Advisory Services of Ernst and Young in Turkey.
“Rise in tourism; replacement of old housing stock through big-scale regeneration projects; growing central business districts; and multibillion-dollar infrastructure projects, such as the Izmit Bay Bridge, Istanbul-Izmir Highway, third bridge over Bosporus and the new airport in Istanbul are some of the other factors contributing to a thriving property market,” adds Cantekinler.
Affordable luxury
The much talked about $400-million Trump Tower promises to become a noted landmark in Istanbul, but the city’s property market is far from heading down the luxury route. “It is important to note that Turkey and more importantly Istanbul doesn’t follow the typical market laws. For instance, location still doesn’t play as important a role in determining price and returns as does the project itself — you can find a property from $1,000 to $10,000 a square metre, within kilometres of each other,” says Han.
This is why all real estate asset classes are attracting international investors’ interest. There have been acquisitions of shopping centre portfolios, development of office buildings, partnerships in hospitality projects and pre-acquisition of residential projects in the market.
“But historically, retail shopping centres are the asset class with the largest international share. Depending on the correctness of the project (right concept on the right location for the right target clientele), every project can reach success, especially in Istanbul, says Sen.
“Affordable housing is controlled and led mostly by the governmental agency TOKI, but both mid-priced and luxury projects can be very profitable for the developers. Of course, there are more mid-size projects than luxury ones, but proportionally both segments are flourishing,” adds Sen.
Gulf stimulus
Currently, 15 per cent of Projebeyaz International’s total sales come from the Middle East, but in the next three years it plans to increase this to 50 per cent. And Han is confident of this increase given that investor confidence in the Turkish market has grown significantly, particularly from the Gulf. Key locations across the country that are seeing increased interest from the region are Istanbul, Yalova, Bursa, Kusadasi and Sapanca.
“With the majority of mainland Europe facing difficulties, Gulf investors are actively redirecting sovereign wealth funds, investment funds and private equity funds into Turkish real estate, which offers a great investment proposition and high capital growth,” says Han.
This is further boosted by the close proximity to many Middle Eastern countries such as Saudi Arabia, Kuwait, Qatar and the UAE, offering an opportunity for purchases of second homes outside of the Middle East and North Africa.
