Turkey: Turkey

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

Turkey is exceptionally popular and has one of the highest concentrations of UK buyers outside Spain or France, not to mention a tourism market which is increasing by over 25% each year. More than 3,000 British families are based in the town of Bodrum alone, and cheap flights are making the country an easy place to have a second home. There will be few potential buyers from the UK who have not given Turkey at least a fleeting thought.

In return, the government of Turkey has also been considering property rights for foreigners. In recent months sales have been technically suspended while a new property law was drafted. This law was passed in January 2006, and confirmed the right of foreigners to buy property under 2.5 hectares in size for personal use or business.

Is this a good place to buy?

If this was just about choosing a nice place to build a second home, Turkey would be high on the list. The climate; the Mediterranean life-style; wonderful food, beaches and hospitality all make it easy to make a case for buying here. However, it is also about investment and choosing a property which might increase in value. Does Turkey belong on this second list?

The answer is yes, and for reasons that have more to do with hard-headed finance than with sun and sand. The housing market in Turkey has lagged behind Europe and the difficulty of obtaining mortgages has meant that prices have stayed artificially low. There are signs that this is about to change: Turkey is getting richer and house prices should grow with the increasing wealth of the country. The Turkish economy grew by 9.9% in 2004 alone, the highest recorded growth that year within an OECD (Organisation for Economic Co-operation and Development) country.

After some years of dispute, the EU has also now decided to allow the Turkish accession negotiations to move ahead. Bringing the Turkish legal system and economy up to the strict standards required by the EU is expected to take at least a decade. Realising that accession will wait until around 2015 has dampened some of the wilder optimism of local property agents, but there is no doubt that the required legal and financial services reforms will help to place the market on a sounder footing.

The best results for the real estate sector lie in better mortgage provision. The government is committed to strengthening the mortgage market, an important step because short loan terms and high interest rates mean that at the moment only 3% of housing finance in Turkey currently stems from bank mortgage credits.

More than 60% of real estate purchases are funded through inheritance or savings. This sets a limit on how far prices can rise before they simply become unaffordable and the market stultifies. Lower interest rates will make mortgages more affordable and cause house prices to head upwards.

Mortgage take-up is already increasing at a rate of knots. In the first nine months of 2005 housing loans accounted for about 7% of total bank loans: in 2004 the figure was only 3.4%. Best of all, financial analysts think 2006 could be the year when new laws are passed which allow foreigners to take out a mortgage. Rising prices could effect second homes as well as standard properties.

This happy picture is also supported by demographics. According to an article in FDI Magazine (‘Housing Ambition’ Metin Demirsar) the maths are as follows: Turkey’s population stands at 72 million, with 59% of the population aged less than 29 years old. 55% of the available housing stock is in shanty towns, and at least 40% is ready to be renewed. This adds up to huge domestic demand for housing, quite apart from the market for holiday homes.

Price history

Price increases diverge across the country. The government does not release authoritative statistics, but prices in popular tourist areas on the coast are believed to have risen by 30% in 2004. Despite this, at the time of writing, one bedroom apartments at the coast are available from £15,000 ($25,000) with two-bedroom properties from £25,000 ($42,000).

Which type of property should you go for?

Property consultants Colliers conclude that demand in urban areas is strongest for apartments. After a trend of people looking for property in suburban areas, the centre of the city is again the most popular area. Apartments are also popular on the coast, but as the majority of second homes are bought new or off-plan it is difficult to quantify whether prices are rising more quickly for villas or apartment property.

Hotspots

For all of the attractions of the coast and buyers heading for Antalya or Bodrum, the real investment opportunities in Turkey may lie close to the capital, Istanbul, and in other major cities. Residential property in Turkish cities has been identified as an outstanding opportunity in the ‘Emerging Trends in Real Estate: Europe 2006 report produced by the Urban Land Institute. With an estimated 700,000 people emigrating to the capital each year, Istanbul may be ready to boom.

Property funds based in Europe and the Gulf are also pouring money into the capital. Dubai is a particularly heavy investor, regarding Turkey as an attractive destination from the real estate boom in the United Arab Emirates. A flagship project is the twin towers project being constructed by Dubai Holdings at a cost of $500 million.

Key risks and opportunities

There is a risk in some coastal areas of over-building and a personal inspection trip is important. Some buyers warn of difficulties with unscrupulous vendors and carrying out the checks listed under ‘Purchase process’ are advised. Finally, as much as 60% of existing properties in Turkey are believed to have some irregularity with property title or planning consent. A reliable lawyer is essential.

Purchase process

After purchase terms have been agreed, the next step is to request a copy of the TAPU or title deeds. A number of checks are recommended including:

Whether the identity documents of the person presented as property owner match the name listed on the property documents.

Whether more than one person is listed as the owner, and if so, whether all owners have given formal consent to the sale.

There are no conditions attached to sale of the property and it complies with regulations, such as earthquake-proof standards.

There are no taxes or liens outstanding on the property.

The next step is to arrange for preliminary contracts to be drawn up; the contracts should include full property details, details of the deposit which should be 5 – 10% and details of the price. If the seller suggests recording a low sale price in order to reduce stamp duty be wary, as this leaves you at risk of legal action and may rebound on you when you hope to sell the property on.

Some unscrupulous sellers may specify that you are to pay their share of taxes and dues as well as your own. A good translator is a worthwhile investment. The Turkish embassy also suggests that you should list the fees being paid to professionals in order to clear yourself from any tax evasion perpetrated by them.

Finally, the contract should specify under what conditions the sale may be cancelled, how matters will be resolved in the event of a dispute and the national identity numbers of everyone involved in the sale. Another useful clause is to disclaim responsibility for any overdue taxes or charges, as these will otherwise be transferred into your name with the property. As with any transaction in a foreign language, either arranging for a bilingual contract or paying for a certified copy is a safer prospect than relying on a verbal translation. In order to make the transaction absolutely watertight, you can sign both copies before a notary public.

Having signed the contracts, the next stage is to apply to the land registry or TAPU office to arrange for title to be transferred. You will need to supply title deeds to the property and proof of identification. Turkey has some areas, military lands and protected areas where foreigners are not allowed to buy. The TAPU Office should give you the formal confirmation that your house is not listed in one of these areas. After clearance has been given, you will be given deeds of ownership – without these papers you are not deemed to have ownership.

A final step is to contact the Municipality within the first year of ownership. After filling out a simple form the tax liabilities on your property will be explained to you.

Solicitor’s fees – approximately £150 ($250).

Public notary’s fees – £60 ($100).

Initial purchase tax – 1.5% of the (declared) purchase price.

Annual purchase tax – approximately 0.5% of the (declared) purchase price .

The cost of earthquake insurance varies depending on property type and location, but is compulsory in many areas. Properties sharing communal facilities will be subject to a maintenance charge which varies from approximately £100-£500 annually

Mortgages

Although equity release or sale of an existing property remains the most popular method of funding, it is possible to take out a mortgage for a property purchase in Turkey. HSBC offers mortgages in lira or linked to a foreign currency index for up to a thirty-year term and other lenders are in the process of setting up partnerships preparatory to liberalisation of the market in early 2006.

Opportunity rating

Turkey has many of the ingredients of an excellent investment location. Prices are low and there are excellent fundamentals which make the country popular as a tourism destination and a place for holiday home buyers. Its long standing popularity with Northern Europeans means that Turkey has as good a chance as any country of becoming the New Spain.

Rating: $ $ $ $

Risk rating

Turkey presents a range of risks. Terrorism has been a problem of late and the political situation is not as stable as in more developed markets. Turkey’s accession into the EU is by no means a certainty although relations remain strong.

Rating: * * * *

© Vacation Work 2005

“Where to buy a property abroad – An investors guide”, First edition 2006 David Cox, Ray Withers, Kate Godfrey.

Reproduced with the permission of Property Frontiers.

Further information on this topic can be found in “Where to buy a property abroad – an investors guide” 1st edition, by David Cox, Ray Withers and Kate Godfrey.

This book is available from all good bookshops nationwide at a recommended retail price of £12.95 or can be ordered directly from www.aninvestorsguide.com for £10.95 including postage and handling (to UK addresses only).

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