Turkey: Jet to Let Guide to Turkey

Why invest in Turkey?

Turkey has recently become a hotspot destination for jet-to-let property investors, particularly among those buyers from the UK. As an emerging investor market, Turkey provides excellent value for money at a fraction of the cost of properties in traditional European markets, such as Spain and France.

Turkey is surrounded by the Aegean, Black, Mediterranean and Marmara seas and has attractive yet unspoilt coastal towns as well as resorts. The cost of living is low and travelling to Turkey is becoming easier and cheaper. With such an abundance of locations, from sea to mountains to cities, it’s not difficult to see why Turkey is fast becoming one of the most popular emerging jet-to-let destinations.

The story so far…

Turkey has a very rich history. Its territories were conquered by the Persians, the Greeks under Alexander the Great, then the Romans and the Byzantines. The establishment of the Ottoman State in the 14th century brought Turkish dominance to South-Eastern Europe, the Middle East and parts of North Africa. The Ottoman Empire was the longest surviving empire that the world has ever known.

Turkey was on the losing side in the First World War, which led to the break-up of the empire and foreign occupation. In 1923, the Turkish Republic was proclaimed and Mustafa Kemal (Atatürk) was its founder and first president.

The political situation in Turkey during the latter part of the 20th century was at best unstable. In 1950, a multi-party parliamentary democracy was established, but the government became increasingly authoritarian, leading to the army staging a coup d’état in 1960 and a further revolt in 1971. Three years later, Turkish forces invaded Cyprus in order to prevent the island’s possible unification with Greece after the failure of diplomatic efforts to resolve disputes between Turkish and Greek Cypriots.

Modern Turkey is very keen to join the European Union (EU) and wants to gain the political and economic stability that membership can bring. Turkey has recently amended some of its laws in order to conform to human rights legislation and to be more in line with Western ideas. The country is now governed by the Conservative Justice and Development Party.

Where is it?

Turkey is surrounded by the Aegean Sea to the west, Bulgaria, Greece and Sea of Marmara to the north-west, the Black Sea to the north, Georgia to the north-east, Armenia and Iran to the east and Iraq, Syria and the Mediterranean Sea to the south. The Turkish coastline is 7,200km long and the country’s total territory is 780,580km squared.

Turkey is at a point where the three continents of Asia, Africa and Europe meet. The European portion of Turkey, known as the Eastern (or Turkish) Thrace, includes only three per cent of the total area and occupies the far south-eastern part of Europe. The majority of Turkey comprises the Asian territory of Anatolia, also known as Asia Minor, and this is a large mountainous peninsula.

What is the weather like?

The country has a diverse climate with some significant differences between regions and seasons. The Mediterranean region has hot and dry summers and mild rainy winters, but the Black Sea region is cooler with the heaviest rainfall in Turkey. While the coast has milder climates, inland Turkey experiences extremes of temperatures which make it very cold in winter and almost insufferably hot in summer. The hot summers have almost no rainfall, with high daytime temperatures and cool nights. Winters are cold with heavy snow.

The language

The official language is Turkish, spoken by 90 per cent of the 69 million population. Other minority languages include Kurdish, spoken by six per cent of the population, Greek and Armenian. English and French are spoken as second languages.

Currency

Up until 31 December 2004 the Turkish Lira (TL) was the national currency. In 2005, the Turkish Lira was replaced by the new Turkish Lira (Yeni Turk Lirasi or YTL), at an exchange rate of one new Lira to 1,000,000 old. The YTL is divided into 100 Kurus.

Politics

Turkey is a secular parliamentary republic, founded on the principle of the division of powers into legislative, executive and judiciary. The main parties are the right-wing Conservative Justice and Development Party (AKP) and left-wing social-democratic Republican People’s Party (CHP). The current President of Turkey is Ahmet Necdet Sezer, appointed in 2000 and the Prime Minister is Recep Tayyip Erdogan, elected in 2000.

Turkey has 81 administrative provinces and seven geographical regions.

A rocky road to European accession?

Turkey is a potential candidate to join the EU and has implemented a number of reforms in order to achieve closer integration with the EU. This included the abolition of the death penalty, reforms on human rights and greater freedom of speech. In response, the European Commission opened negotiations with Turkey in October 2005 on the country’s possible membership. It will take some years to reach a conclusion on whether Turkey will actually join, or whether it will instead be granted a special trading status.

Economy

The Turkish economy has been noted for its numerous booms and busts over the years. However, the country has recently achieved macro-economic stability and inflation is now at a 30-year low.

The industrial sector was responsible for almost 30 per cent of Turkey’s gross domestic product (GDP) in 2005. The country’s major industries are textiles and clothing, but the automotive, metalworking, chemicals and pharmaceutical sectors are developing. The service sector is also continually expanding and now accounts for 58 per cent of GDP, largely due to tourism.

Despite the recent optimistic signs, Turkey continues to face many economic challenges that include a thriving black economy and unequal distribution of wealth. The complex legal system and high levels of bureaucracy also pose a burden.

In addition, the labour market is still far from being efficient and the spread of employment opportunities across the country is uneven, being focused mostly in the tourist areas and the cities.

Economic growth

Last year, the economy grew by 7.4 per cent and GDP per capita was €7,000. The European Commission forecasts a further 5.2 per cent growth in 2006. Forecasts for 2006 and 2007 also look good. Any fall in inflation will allow for a cut in interest rates and this will have a positive knock-on effect on both investment and consumer spending.

Inflation

Inflation fell to 7.7 per cent in 2005. This is remarkable when you consider that inflation averaged over 70 per cent between 1993 and 2001!

The Turkish Central Bank predicts that inflation will keep falling over the next 18 months despite a recent rise in energy costs. The government’s inflation target is five per cent for this year and three per cent in 2007, although inflation in March 2006 is presently 8.2 per cent.

The dramatic fall in inflation and re-issue of the currency are a major success story for Turkey’s economy and conveys an encouraging message to potential foreign investors.

Interest rates

Interest rates have remained high over the last 20 years, hitting 100 per cent in 1999. Compared to EU standards, short-term rates are still high at 13.5 per cent in March 2006. The Turkish Central Bank has announced that rates will remain at current levels during the first quarter of 2006, but are likely to fall later in the year.

Jet-to-let property investors do well to target countries in which interest rates are falling from high levels to low levels as a result of a shift in macro-economic management. This is not a reason in itself to invest in Turkey, but with other reforms in legal practices and mortgage finance, it’s an interesting consideration and provides grounds for further in-depth research.

Unemployment

Turkey has relatively high rates of unemployment, which are comparable to France and Germany. Unemployment is particularly high among the young population, reaching 22 per cent in the cities, which is highest among the less educated. Turkey has a problem with its education system, as less then 25 per cent of the workforce have completed secondary education and only ten per cent go on to get university degrees. This has serious implications for the economy and the type and quality of jobs which can be created as the skills are not present to allow for an increased diversification of the economy.

Foreign direct investment (FDI)

Turkey has attracted a growing amount of FDI, which has increased steadily and in parallel with the country’s economic growth. There was a substantial inflow in 2005 of $9.65 billion, which is an increase of 239 per cent from the year before. A number of significant obstacles remain for foreign companies, which face unnecessary bureaucracy and a very weak legal system. As a result, FDI inflows have been less than those received by more investor-friendly countries, particularly in Eastern Europe.

So, what is the catch?

Corruption
Turkey is ranked at joint 65th place in the Transparency International table for perceived corruption levels, along with Peru, Panama, Mexico and Ghana, with a score of 3.5. This would suggest that corruption is significant in this country and Turkey has already seen a decline in the perceived level of corruption from the previous year’s position at 77th.

Education
This is one key area that Turkey must improve to ensure that the country’s labour force can operate and compete internationally. Statistics show that illiteracy continues to be a major concern which has serious implications for the labour market and diversification of the economy.

Human rights
Turkey has long attracted international concern about its commitment to democracy, human rights and freedom of speech.

Social inequality
Differences between income and social classes are deepening and may become a bigger issue in the future. According to the State Institute of Statistics from 2003, 29 per cent of the population live in poverty.

Earthquakes
The probability of an earthquake in Turkey is higher than in most other jet-to-let markets because of the country’s proximity to the Ecemis fault line. As with property markets all over the world, a robust property insurance policy is a must to hedge such a risk.

The property market

The Turkish property market is in the early stages of a property boom, which has been triggered by a change in the law relating to foreign ownership. Growth was also accelerated by Turkey’s decision in October 2005 to enter into accession talks with the EU.

Turkey is benefiting from a substitution effect as property values have risen significantly in traditional investment locations such as Spain, Italy and France. Home buyers and investors have substituted cheaper properties in the Eastern Mediterranean instead of the more expensive locations, hence fuelling the property market.

Turkey is experiencing 30–40 per cent house price inflation in certain regions and is still by far the cheapest market in Europe when comparing location, size and quality. This said, there are certain disadvantages that an investor must consider, such as a lack of mortgage finance (this is presently changing) and low income of the local population.

Being clear on your investment strategy is essential in order to succeed in this exciting but possibly unpredictable investment market. As with all property investments, location is key and picking a great spot means that in years to come it should pay dividends. This will become even clearer as the mortgage market opens up and property purchase becomes an option that is more accessible to the masses.

The future prospects for Turkey look promising, especially as the Turkish market appeals to a wide range of people, not just those looking at the country as a jet-to-let destination. With the recent announcement by EasyJet of routes to Istanbul from the UK, this is a country worth keeping a close eye on as the investment story unfolds. For those with an appetite for a little risk in their portfolios, Turkey warrants a closer look.

Tourism

Turkey continues to establish itself as a hotspot tourist destination and tourism accounts for almost 20 per cent of GDP.

A new record of 21 million tourists visited Turkey in 2005, compared with 17.5 million the year before. The target for 2006 is 26 million tourists with visitor numbers expected to grow by more than ten per cent for the next decade.

Property hotspots: Cities

Ankara became the Turkish capital with the declaration of the Turkish Republic in 1923. It then had a population of 30,000 compared to over four million people today.

Rental prospects in Ankara are reasonable, and opportunities are present to let to the city’s student population and the growing number of tourists. The Altindag and Cankaya districts have a wealth of attractions that are high on many visitors’ lists of places to see, so they are worthy of consideration if you are investing in the city. Many of the university departments are in Kecioren, making this area more popular for student and staff rentals.

Istanbul, often mistaken as the capital of Turkey, is beginning to broaden its appeal to the wider jet-to-let investor market. The demand for rental property comes from the 1.5 million visitors each year and the population of over ten million people in the greater Istanbul area.

In addition to the wealth of tourist attractions, Istanbul is a thriving educational, cultural, business and commercial centre. An improved infrastructure in the city has contributed to the growth in local investment and employment opportunities. After considerable growth in 2005, Istanbul’s property market is forecast to have a strong 2006 and 2007.

The choice of properties available is not as varied in Ankara and Istanbul as on the coast and property prices are more expensive. As an example, you could find a three-bedroom apartment for €185,000. Rents average around €350–430 per week.

Property hotspots: Coastal

Bodrum on the Aegean coast is a particularly beautiful town that has become very popular with tourists and property investors. With a multitude of interesting attractions for holidaymakers, Bodrum attracts tourists from all over the world. Property represents excellent value for money and prices compare favourably with many of Turkey's international competitors. It’s not unusual to find four-bedroom villas in Bodrum on sale for under €215,000, and in more exclusive areas further down the peninsula, such as Yalikayak, prices can be closer to €300,000. A two-bedroom off-plan apartment can be bought for under €100,000.

Bodrum is very accessible with summer charter flights from major UK airports including Manchester, Cardiff and Birmingham, as well as London. The demand for property is particularly high during the summer months, making it a very viable jet-to-let rental prospect.

It’s worth bearing in mind that the rental season in Turkey runs from June through to the end of October.

Marmaris is a popular tourist destination and centre of activity for those that enjoy yachting, benefiting from the revenue that comes with spending power of the boating fraternity. The town has grown into a substantial year-round resort with a wealth of bars and clubs and plenty of water sports activities. Despite these developments, Marmaris has managed to retain its charm and natural beauty.

Kusadasi is on the Aegean Sea in Western Turkey. The town is one of the country’s top holiday hotspots, with dazzling sandy beaches, clear blue sea and great holiday amenities. The low-cost flights to Izmir and quick transfers to Kusadasi have helped to make the area more accessible and have brought further investment. Property prices in Kusadasi are cheaper than in other Turkish resorts and you can find a three-bedroom villa for around €100,000. A two-bedroom off-plan apartment currently costs in the region of €80,000, making this a popular and relatively cheap location.

Antalya, on Turkey’s Southern Mediterranean coast, is an attractive resort, known as Turkey’s very own capital of tourism. Antalya combines a historical charm with good modern facilities and its own airport. The resort’s increasing popularity means that the demand for quality property is growing fast. A two-bedroom villa will cost in the region of €120,000 and the average price for a more spacious three-bedroom villa is about €190,000.

Side is on a peninsula flanked by two beaches and perfectly combines old- and new-world charm. Side has extensive tourist accommodation, shops, bars and restaurants and has become one of Turkey’s most popular resorts. There are various types of property on offer and a modern three-bedroom villa can be found for €170,000.

Property hotspots: Ski

Skiing may not immediately spring to mind when you think of investing in Turkey, but there are plenty of skiing centres scattered across the country. These include Uludag, south of Istanbul, Kartalkaya and Palandoken, the coldest and highest of all of Turkey’s ski areas. Although the facilities are not as well developed as facilities in France or Italy, skiing in Turkey is becoming more popular.

The buying process

The buying process in Turkey is straightforward and the sale of property to overseas buyers depends on the concept of reciprocity. The UK and the Republic of Turkey have full reciprocity regarding property acquisition, as do other EU countries.

Foreigners can own up to a maximum of 2.5 hectares (25,000metre squared) of land and property. Upon application, the Council of Ministers may increase this to a maximum of 30 hectares (300,000 metre squared) providing that this doesn’t exceed a total of 0.5 per cent of the land area of the district in question. Foreigners are not allowed to buy property in the military and security zones of Turkey.

It cannot be overstated how important it is to instruct an independent local English-speaking lawyer. The many checks and searches that need to be conducted on a property must be done by a professional lawyer in order to reduce your risk and safeguard your interests.

After your offer is confirmed, your lawyer will draw up a preliminary contract. This is signed in the notary’s office and upon signing it the buyer is required to pay a deposit of ten per cent of the purchase price. Next, both buyer and seller apply to the TAPU (Title Deeds) Office in order to proceed with the transfer of the title deed.

The title deeds searches include checks to ensure that the property is not in a military or security zone. This is just a formality, but, unfortunately for a jet-to-let investor, it can take up to three months.

When all searches have been satisfactorily completed, the buyer (or a lawyer acting with a Power of Attorney) and the seller sign the final contract in the Land Registry Office. The buyer pays the remaining balance to the seller. The buyer or his lawyer then attends a public notary office in order to confirm the transfer of the title deeds.

All of the final fees and taxes are paid on the receipt of the deeds.

Transaction costs

When purchasing a property in Turkey you need to allow for the following transaction costs:

• Initial Purchase Tax: 1.5 per cent of the declared purchase price.
• Legal fees: these are typically between £150 to £500. Allow £100 extra for translation costs.
• Land registration fees: approximately £450.
• Public notary’s fees: approximately £90.
• Utility connection fee: approximately £200 to £350, depending on the type of property and location.
• Estate agents’ fees (fixed): three per cent of the purchase price. Costs are normally split between the buyer and seller.

These expenses can amount to around five to six per cent of the purchase price.

Annual costs

• Annual property tax rates for different types of properties are:
• Land – 0.3 per cent
• Buildings – 0.2 per cent
• Residential buildings – 0.1 per cent
• Fields – 0.1 per cent
Rates are twice as high in some metropolitan areas. New properties are exempt from this tax for five years.

• Earthquake insurance: depends on the property price and location (but it’s required by law).

• If property is bought in a complex, there is an average maintenance charge of £170 to £750 depending on the property’s size and location.

Taxes

Taxation in Turkey is relatively straightforward. Below we have outlined the major taxation rules.

Income Tax
Income Tax rates 2006:

Tax Annual tax base (YTL)
15% Up to 7,000
20% 7,001–18,000
27% 18,001–40,000
35% Above 40,001

Corporation Tax
The tax rate applicable to corporations in Turkey is 30 per cent. The government proposes to reduce Turkey’s Corporation Tax rate to 20 per cent in 2006, although this has not yet been approved.

Capital Gains Tax
In general, capital gains in Turkey, whether for an individual or for a company, is added to Income Tax. On the sale of property, individuals are exempt from this tax, provided that the property has been owned for more than five years prior to sale.

Summary

Strengths

• Political democracy.
• Improving economic management.
• Growing tourist market and demand for second homes, retirement homes and rentals.
• Good beaches.
• Beautiful scenery.
• Huge variety of property and locations available.
• Relatively cheap coastal properties.
• No restrictions on foreign ownership.
• Cultural and business centre of Istanbul.
• Low property transaction costs.
• Low cost of living.
• Labour costs low for renovation projects.

Weaknesses

• Competition from hotel industry for rentals.
• High unemployment and the rigidity of the labour market and increasing competition from China.
• High levels of corruption.
• High inflation.
• Low-value economy.
• Poorly educated workforce.

Opportunities

• Potential EU member.
• Emerging property market with growing demand.
• Liberalisation of financial services and greater access to mortgage finance will boost the market.
• Low-cost airline routes announced by EasyJet.
• Increasing popularity with holidaymakers and some retirees.

Threats

• Relatively underdeveloped economy.
• Possible overheating of the property market in some areas.
• In an earthquake zone.

Facts at a glance

Geography

Population (estimate): 69.6 million
Language: The official language is Turkish, spoken by more than 90% of population. Other languages include Kurdish, Armenian, Greek and Arabic
Ethnic groups: 80% Turkish and 20% Kurdish community
Local currency: New Turkish Lira divided into 100 Kurus

Political system

Political structure: Secular parliamentary republic
President: Ahmet Necdet Sezer
Prime Minister: Recep Tayyip Erdogan
Main parties: Justice and Development Party (AKP), Republican People’s Party (CHP)

Economy

Unemployment rate in 2005: 10.3%
Unemployment rate, March 2006: 11.2%
Inflation rate in 2005: 7.7%
Inflation rate, February 2006: 8.2%
Interest rate, March 2006: 13.5%
GDP growth in 2005: 7.4%
GDP growth forecast for 2006: 5.2%
GDP per capita: (income €7,000 per person) in 2005

Taxation

Income Tax: 15–35%
Capital Gains Tax: Treated as income
Corporation Tax: 30%

Corruption statistics

Corruption rate: 3.5
Corruption rank: 65th

Industry and technology

Major industries: Textiles and apparel, Mining, Construction, Tourism

The Turkish property market - Hotspots

Coastal: Ankara and Istanbul
Cities: Bodrum, Marmaris, Kusadasi, Antalya and Side
Ski: Uludag

Property taxes (transactions)

Initial Purchase Tax: 1.5%
Solicitors’ fees: £150–500 plus £100 translation costs
Land registration fees: Approximately £450
Notary fees: £90
Utility connection fee: Approximately £200–350
Estate agents’ fees: 3%
Total fees: 5–6%

Property taxes (annual)

Annual Property Tax: 0.3–0.6%
Earthquake insurance: Varies (required by law)
Community fees: £170–750

Mortgage

Mortgage availability: Mortgages have not been available to foreign buyers, but this is rapidly changing

Investor resources

Embassies

British Embassy in Turkey
Sehit Ersan Caddesi 46/A
Cankaya 06680, Ankara
Tel: +90 312 455 3344
Fax: +90 312 455 3356
Website: www.britishembassy.gov.uk/servlet/Front?pagename=Open
Market/Xcelerate/ShowPage&c=Page&cid=1053446559682

Turkish Embassy in the UK
43 Belgrave Square
London SW1X 8PA
Tel: 020 7393 0202
Fax: 020 7393 0066
Website: http://turkey.embassyhomepage.com

Useful websites

Bank of Turkey
www.tcmb.gov.tr

The Statistical Institute of Turkey
www.die.gov.tr/ENGLISH/index.html

Tourism in Turkey
www.turkeytourism.com

Turkish Economy
www.turkisheconomy.org.uk

© Lawpack Publishing 2006

“The Jet–to–Let Bible”, Dominic Farrell
Reproduced with the permission of Lawpack Publishing.

Further information on this topic can be found in “The Jet-to-Let Bible”, by Dominic Farrell, ISBN 1 905261 11 X

For information and advice on investing overseas, contact Bewarethesharks.com on +44 (0) 151 482 5525 or visit www.bewarethesharks.com
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