We could talk on all day about the strengths of the Turkish package, strong stable economy, strong banking system, strong political system, rapidly growing economy, rapidly growing population, massive tourism growth and on an on with facts, figures and dates to support it all. The trouble is, the people who take this in unquestioningly are the people who already believe in Turkey, and from a property perspective, people who have already bought or are currently buying property in Turkey.
We are not gonna win over any new fans like this, because those who are in need of convincing see it as a biased one sided view because it is omitting to discuss the negatives. To increase the number of people considering buying property in Turkey we need to give the plus points without skipping over the negative ones. So here is a true article on the pros and cons of buying property in Turkey – all the gory bits as it were.
To keep the non-believers reading we will start with the negatives, although in the spirit of honesty we admit to it also being because we want you to go away with the positives in your head.
Buying a Property in Turkey – The Cons:
Different Culture Not All Good:
Turkey is famous for its cultural range and depth as it sits straddling three continents all with vastly different cultural backgrounds, Asia, the Middle East and Europe. However, saying it in such a positive way could be seen as skimming over the vast difference between the Muslim culture and that of the west.
If the Turkish government employed a totally moderate Muslim interpretation then this different needn’t be in the cons section, but the truth is they don’t. Turkey has come on leaps and bounds in its reforms made to seek EU accession, but it still has a long way to go, especially in the areas of press freedom and women’s rights.
Journalists are regularly arrested in Turkey, and an entire newspapers’ staff has just resigned because it signed a deal with the authorities over what news it would publish.
As for the treatment of women Turkey has really come a long way, in fact at the central government level and outwardly women have equal rights in Turkey. But many employers pay women less and regularly turn a blind eye to their mistreatment in the workplace. Likewise police will often turn a blind eye to domestic violence, which is still common in Turkey where women are beaten because their husband or their family decides their actions have brought shame on their family – in the worst case the women are murdered and such things are accepted in society.
Turkey being a developing country is hailed as a good thing under its emerging market context; infrastructure development bringing economic growth etc, but it is also a negative. Sure, the resorts and beach areas are all perfectly presented, but if you find yourself having to travel off the beaten track for one reason or another you will oftem find poor quality roads, immense traffic congestion and the like.
Although it has just fallen below 10% (Turkstat put unemployment at 9.9% in April 2011), Turkish unemployment is still too high, and the youth unemployment especially at 17.9%.
Poverty is also part of this, and you will see a lot of poverty off the beaten track in Turkey. Although unemployment has now fallen below 10% and the country is growing more affluent, unemployment is still too high and especially youth unemployment at over 15%. According to the CIA World Factbook over 17% of the Turkish population lives below the poverty line. Going hand in hand with poverty is opportunistic crime, mostly this is nothing too dastardly just unauthorised tour guides and such like in the main touristic areas, but again, if you go off the beaten track…
The Foreigner Feeling:
It is difficult to give this one a heading that sums it up other than the above, lame as it may seem. This is basically a point about how foreigners are treat very differently from locals in Turkey; higher property prices, higher rents and higher prices of everything they can get away with. A foreigner can pay £20 for a meal that a Turk would get for around £3.
EU Accession Problems
So far all of the above cons have been about living or holidaying in Turkey, but purchasing a property anywhere can certainly be looked upon as an investment, and that has its own set of cons. Germany and Austria are actively against Turkey’s accession, as was France before Hollande replaced Sarkozy as president of the country, although we aren’t yet sure of exactly where Hollande stands on Turkey’s possible place in the EU.
Sarkozy made no secret of the fact that he believed Turkey to be culturally incompatible with the EU and said as much, fuelling complaints that religion was at the heart of Germany, Austria and France’s objections. However, religion and culture beside Turkey’s biggest hurdle will be its failure to recognise and open borders to EU member Cyprus.
Currently the EU is looking very shaky indeed as several member states fight for their financial survival and talk of disbanding, or breaking up the monetary union has even been heard.
So, EU accession may not be the must it once was, but many people still see it as the only real sign of economic and social stability, and others seek it for the freedom of visa requirements, either way Turkey’s problems with gaining access to the union are certainly a consideration in the cons box for foreign investors.
Border with Iraq
Turkey has a border with Iraq, but this is not as simple as it sounds. Where southern Turkey meets northern Iraq there is what can be called a buffer-zone. Southern Turkey is dominated by Kurdish residents, likewise northern Iraq is also a Kurdish territory. The Kurds want this zone to be Kurdistan and are fighting for such an outcome. This often leads to violence in Turkey and Iraq and Turkey is actively working for a peaceful solution.
Buying a Property in Turkey – The Pros:
Stability and Growth in All the Right Places
I am sick of covering all this seperately when it all goes the same way anyway. In Turkey all the metrics in the calculation of investment potential are going the right way.
The economy is growing strongly, with 8.2% growth in 2010 and 6.6% last year making it the fastest growing economy in Europe, although growth is expected to slow this year this is as much by design as anything else.
Unemployment is falling, from 14.1% in 2009, to 12% in 2010 and under 10% in 2011 according to official data.
The population is growing rapidly in numbers and affluence, especially in the cities which provide the best job opportunities and are therefor attracting large migration from rural areas.
The banking sector is stable and strong. For example, European commercial property investment is currently in the doldrums as banks have further restricted lending on property because of the Basel III reform program increasing capital reserves that must be held against property. Meanwhile Turkish bank reserves are already above the new threshold thanks to the reforms the AK Party made in the wake of the 2001 financial crisis.
The mortgage market is growing at 20 – 25% per year according to the Turkish Central Bank.
Political Stability: the AK Party was re-elected for its third term in the middle of last year, and in each victory it has secured a bigger majority than it held. This shows and is because the Turkish people are incredibly happy with the way their country is being run. This makes Turkey a politically stable country.
Fiscal Stability: Turkey let its standby agreement with the IMF lapse in 2009 and is expected to have paid all its debts to the IMF by 2013. Turkish public debt is currently running at around 40% (45% in 2009, 41% in 2010) of GDP, the limit to meet the Maastricht Criteria is 60% and the EU average is about 80%. And Turkey’s budget deficit is around 2% of GDP. This makes Turkey one of the most fiscally stable countries in Europe, although it must bring down its current account deficit.
Remember in point one of the cons we talked about the differences between Turkish and western cultures. Well, the AK Party has made serious reforms since taking office, mostly as they strive towards EU accession. The reforms culminated last year in the signing of a new constitution last year, which effectively eradicates the military’s remaining power in government, and includes a lot more on equal rights for women and such like
Like one of the problems in the cons section is the developing status of the country leading to things like bad roads and unlit streets. At the same time the Turkish government is spending billions of Lira, pounds and dollars of bringing the infrastructure in the country up to scratch. This program will only intensify as Turkey is now a candidate for the 2020 Olympic Games, – especially in Istanbul.
Low Property Prices:
Despite recent growth, Turkish property prices are still among the lowest in Europe. Most foreigners go for newly built properties that are of a very good quality, therein combining high quality properties with low prices gives fantastic value for money.
Low Rate Mortgages Available
Around the world (and espeially in Europe) lending on property has come to a near standstill. But in Turkey lending on property is no more restricted than it was before the crash. One difference is that interest rates have been continuouasly lowered and you can now borrow very cheaply to buy Turkish property.
Strong Rental Yields
Low property prices combined with the population growing in numbers and affluence, as well as growing tourism is leading to some very good yields on Turkish property. According to the Global Property Guide 6% is the average net yield in Istanbul residential property, and agents of holiday homes report similar yields on holiday lets.
Steady Price Growth
According to Gyoder Turkish property prices are growing at around 6-8% per year. This figure would have been a negative factor during the boom, but now we know it is much better to have slow and steady growth that is sustainble, rather than scintiillating growth inflating a bubble that will inevitably pop.
EU Accession Looks to be Getting Back on Track
Turkey’s EU accession process has been among the slowest in history. Since its application was accepted in 2005 it has opened only 14 of the 35 negotiation chapters and closed just 1. For the past several years the process has been near-completely frozen, with French President Nikolas Sarkozy completely against an EU with Turkey in it.
But now, France has a new President and all EU members have supported a new “Positive Agenda” that will see the EU and Turkey work together to create working groups (seven at first) each focussing on one chapter and helping to bring Turkish legislation more in line with that of the EU. Of course, 8 chapters are blocked because Turkey refuses to open its ports to Cyprus, and we still don’t know if Hollande will remove France’s veto of 5 blocked by Sarkozy, but there is certainly renewed hope and enthusiasm that Turkey can indeed become a member of the EU.
As you can see, Turkey has a lot of work to do before it will be as safe a place to invest in as the likes of France or Italy for example. That said, Turkey’s investment prowess lies in the fact that it is a developing country very early in its emergence cycle. Such countries have growth almost worked into their DNA as their population’s grow in affluence and number, so for all that growth you have to take a little bit of the rough with the smooth. In that vain Turkey stands out as one of the safest and most stable developing countries to invest in.
The BRIC economies have spent a decade at the curve of global economic growth, and now new markets are tipped to take over, the MINT and CIVETS groupings are two of the most popular. Turkey puts the T in both of them (Mexico, Indonesia, Nigeria and Turkey and Columbia, Indonesia, Vietname, Ecuador, Turkey and South Africa). Looking at Nigeria or Vietnam we can see that Turkey has the same growth potential, but is a much more stable and safe place to invest.
For almost every con there is a pro. We have given you them so that you can decide. Answer in the comments… Have we won you over?