Lately, I have been receiving many requests for information on the political and economic situation in Turkey, and perhaps more specifically how that is affecting the Istanbul real estate market. As there is seasonal slowness regarding Istanbul property in the winter, this becomes a little more challenging to answer at this point.
However, a few educated guesses can be made based on observation, as well as plenty of anecdotal tales from other realtors and key real estate players.
As protests grip many parts of the world, Turkey has not been immune. The rather intense protests that occurred over the summer have mostly cooled off, with periodic eruptions of smaller events surfacing from time to time. Turkey seems to be experiencing economic convulsions similar to those being experienced in most emerging market economies. The one strong point to date has been tourism. Apart from a slowdown in the early summer months of last year, growth in the sector has continued to be robust and there have not been any signs of this slowing down. Hotels are doing brisk business and there does not seem to be any sign of panic in this sector. It seems that this year will see an increase in tourist numbers, which is a trend that has been going on for a solid ten years. As there is little doubt a correlation between tourism numbers and the number of foreigners who purchase property, overall we could anticipate a continued rise in the Turkish property market by foreigners, particularly given the positive currency factor for foreigners, which I have mentioned in prior blogs.
Of course, the local property market is huge in comparison to the foreign driven market, so it would be wise to include that in the analysis. In mid-December, political and economic upheaval became the order of the day and Turkey raised interest rates in dramatic fashion shortly after. This somewhat stabilized the situation, as the markets were clearly looking for such a decisive step. According to several of the larger developers, the prospect of future higher mortgage rates unleashed a flurry of buying by locals who probably felt the need to purchase before rates became punitive. In essence, these would have been buyers who were buying property to live in and not primarily for investment. This trend can be expected to continue for a while. Eventually, if mortgage rates rise too much, this would lead to decreased demand, though it hasn’t yet shown up in the statistics. It must be remembered that Turks often squirrel away a fair bit of cash before purchasing a property, often using mortgages to supplement their buying power, and not as the majority source as in a large proportion of Western countries. Turks buying a property often will put down 50% in cash, their resistance against foreclosure is therefore relatively strong and consequently if interest rates spiral we don’t usually see the property price crash regularly seen in the Western world. So, as you can see, the property market is a complicated place and it is hard to make sweeping generalizations, as there are some quite country-specific factors that come into play. Add to this that real estate in Turkey has also been a safe haven favorite and why we predict further price rises, may not come as so much of a shock.
The long term prognosis is good, Turkey in general has fundamental reasons backing it’s ability to grow compared with Western economies and the infrastructure has and is being installed to facilitate that, Turkey should well continue to dominate the politics and economics of the region and so long as Turkey finds internal political stability it will have a reserved place at the top table with the big boys.
The short term problem that Turkey faces now is a wave of elections; municipal, presidential and general. All over the next year or so. This is unfortunate. It also happens that many other EM countries are in this election cycle and it is making the crystal ball holders a little less confident than they otherwise might be. The consensus on the street is that the AK party will prevail, though perhaps not without some loss of support. As I was discussing recently with a friend, Turkey is famed in international circles for its brinkmanship. It seems that flare for the dramatic continues to be a trait that dominates.
Oh, and then there is the whole EU-Turkey relationship. But lets save that for another day.