Turkish property investment
Turkey is a transcontinental country that bridges Asia and Europe. Its capital city is Ankara, whilst the largest city is Istanbul. With a population of approximately 80 million as at 2017, and a high proportion of that being young and upwardly mobile, Turkey is an ideal country for investors who want to take advantage of a fast-developing real estate industry.
In the last two decades, the Turkish real estate sector has grown tremendously. While there has been a general decline in the real estate business in Europe, Americas and many parts of the world, 2017 figures from Knight Frank showed Turkey ranked sixth in the world in terms of its annual price growth index, with a year-on-year increase of more than 11%, head of Australia and India.
Istanbul has been touted by PWC and Deloitte Consulting to be the most attractive city for real estate investment in Europe while Turkey overall is ranked 3rd most lucrative country for investment in real estate globally. The increase and appetite for foreign investors in real estate has been motivated by the potential of Turkey’s EU membership. This has accelerated holiday home owners and investors around the world to purchase properties in Turkey.
More important is also the legislative amendments that have been done to several laws including the property title registry law, the mortgage law, residency and the redrafting of tax laws which all directly affect how overseas investors can buy and develop properties in Turkey. These amendments have stimulated the competitiveness of the Turkish real estate sector.
Stable economy and dynamic population
Dynamic demographic factors and good economic figures have enabled Turkey to increasingly become the choice for foreign investors interested in setting up businesses and purchasing real estate. There has been an increase in demand for homes and offices in the recent years as more global companies and foreigners demand commercial and residential real estate.
With a stable economy, investor confidence in the real estate sector has tremendously increased. Turkey has internationalised and institutionalised the sector while it has also put in place transparency and high quality standards in property transactions in anticipation of joining the EU.
With a GDP of USD 851 billion in 2017, and 60% of the population under 40 years old, Turkey has become a major target for foreign direct investment.
Banks and mortgage firms have also increased lending, with over 100 billion being disbursed in 2018. Turkey also attracted one of the highest numbers of tourists in 2018, with almost 46 million tourists visiting, making the country the sixth most popular destination on the planet. The high number of tourists indicates the high potential that Turkey has in the holiday home purchase and rentals segments. This is attributed to the fact all these tourists will need somewhere to stay whether homes or hotels.
Turkey is an economic regional hub providing ultra modern shopping centres, and easy access to over 1.5 billion people who come for trade and other services in the country. This has increased the demand for infrastructure and facilities in the country.
SWOT Analysis for Turkey Real Estate
|- Turkey is the leading investment country in Europe for GDP growth projections. |
- Strong financial and banking regulations.
- Construction companies with global reputation.
- Access to mortgage facilities.
- Government adding more buyer incentives each year.
- Strong domestic demand for real estate
|- Acquiring land is difficult and obtaining construction permits is not straight forward. |
- High number of old type of housing which cannot qualify for mortgage facilities.
|- High internal demand for residential housing and commercial space. |
- Urban regeneration projects in major cities are creating opportunities for new housing.
- Regulations on earthquake and natural disasters have increased the need for quality construction.
- Increased tourists inflow and investors have made opportunities for office space and residential property.
|- Earthquakes are a common feature in some parts of Turkey hence may scare away investors. |
- The sector still is volatile compared to mature real estate markets such as the UK and US.
- A devalued currency is putting pressure on the economy.
Economic outlook of Turkey
Turkey has shown a tremendous growth in its GDP since the last decade. Between 2002 and 2016 it has shown a GDP growth of about 4%pa on average (see graph).
From a meagre USD 3,500 in 2002, the per capita income has increased to USD 27,500 in 2017. This shows that the country is on an upward trend, as fortunes for its citizens improve.
The global credit crunch that impacted the world's markets and economies in 2009 also affected Turkey, slowing down the growth since there was a decline in foreign investments and earnings. However, this did not hold back the country for long, and the Turkish economy achieved a growth rate of 9.2% and 8.5% in the years 2010 and 2011 respectively. The last couple of years have seen a slowing of growth, due in part to a devaluing of the currency. In 2017 the economy grew by 7.4%, while 2018 saw growth of 2.6%.
Some of the factors that have allowed the Turkish economy to remain stable include sound financial and structural policies that have been put into place as the country joins other European countries in the EU roundtable. This has increased efficiency, transparency and adherence to high standards of practice. Strong monetary policies by the Turkish central bank have also played a major role in stabilising inflation and also putting in place macro economic balances.
The Turkish Government has also embraced strict fiscal discipline bringing down budget deficit from a high 17% in 2001 to 1.8% in 2019. Foreign trade has also been a key instrument for the Turkish Government to grow the economy. Restrictions on imports have been uplifted while foreign exchange transactions were liberalised. This has tremendously increased Turkish exports to USD$168 billion in 2018, a huge leap from the from USD$36 billion in 2002.
OECD 2012 - 2017 Economic growth forecast
Foreign direct investments have also played a key role in uplifting the Turkish economy. Demographic factors including a younger population, highly learned labour force, tax incentives and a large domestic market have all made the Turkish economy to reach where it is today. The amount direct foreign investments by 2018 increased to USD 168 billion; this is a strong indication of investor confidence in Turkey.
Tourism has also been a big source for foreign earnings. Turkey boasts of a high number of tourists and has been attracting one of the highest tourists in the world. Natural beauties, reserved and unique historical attractions and a warm hospitality industry have all increased the appetite for tourism. In 2018, 46 million tourists visited the country realising foreign income in excess of USD$30 billion.
Privatisation and Turkish business abroad have also played a big role in improving the Turkish economic turnaround.
Legal and political structure
Turkey is a republic founded on secular, democratic and pluralistic laws. It was established in 1923 and first adopted its constitution in 1924, and its current constitution was adopted in 1982. Before 2018 the country ran under a parliamentary system, but following a referendum, the country's politics now take place within a presidential system. Under the presidential system, the President of Turkey is the head of government and the head of state, with powers to issue executive decrees, appoint judges and heads of state institutions.
Turkey's political system is based on power separation. The Council of Ministers exercises executive power, while legislative power is vested in the Grand National Assembly of Turkey. The judiciary is independent of these institutions.
Why would you invest in real estate in Turkey?
Booming economy – Over USD 850billion GDP in 2017, annual real GDP growth projections in excess of 5%, 20th largest economy in the world with exports reaching USD168 billion makes Turkey the ideal country to invest in real estate.
Youthful and dynamic population: Turkey has a population of about 80 million with over 60% being under 40. The younger generation are well placed to set up businesses and support the expansion of Turkish economy. In addition, changing customs and traditions in the country mean that younger people are leaving parental homes earlier and setting up on their own, creating a domestic demand for property and increasing the need for quality accommodation and housing. The Turkish central real estate association has estimated that there is a shortfall of around 2.5 million properties in Turkey.
Low taxes and incentives: Turkey offers incentives on various areas while has reduced corporate tax from 33% to 20%.
Large Domestic market: Turkey has a very big market locally because of the growing population of educated, wealthy professionals. Tourist arrivals reached 46 million in 2018. This creates an ideal investment opportunity for real estate developers.
Good infrastructure: a well developed air, land and sea transport, advanced energy sector and highly developed technological infrastructure in transportation and communication puts Turkey well ahead of other emerging as the place to invest safely and profitably.
Citizenship by investment in Turkey
In 2018, the government announced it was lowering the threshold for obtaining Turkish citizenship by investment. Now, buyers can gain Turkish citizenship with a $250,000 purchase of Turkish property, making the initiative one of the most affordable in the world.
Since the initiative was launched, thousands of buyers have applied for Turkish citizenship following real estate purchases. For more information, see our blog post on gaining citizenship through real estate investment.
Benchmarking Turkey to France, UK, Russia, Greece and US
Comparing Turkey to other developed and emerging countries can give you an in depth analysis on why it is the ideal investment destination for real estate developers and individual overseas property buyers. UK, US, France, Russia and Greece are some of the countries that compete with Turkey for investment opportunities.
In the finance and banking sector, Turkey has one of the strongest banking regulations while Greece has the least. It is ahead of France and Russia and only slightly below the UK in terms of finance and banking regulations and skilled workforce. This brings higher investor confidence and supports foreign direct investment. The fact that Turkey imposes no restrictions on funds flows to and from Turkey helps money-flows a great deal easier and safer. Turkey also has the best banking sector and finance manpower skills compared to the BRICS (Brazil, Russia, India, China and South Africa). The majority of the population being the youth, they are well trained in various sectors and have strong technical skills.
Turkey also leads in Globalisation, Flexibility and Adaptability compared to US, Russia, France and Greece. It has opened its doors for other countries to invest which in turn has enabled it get more foreign capital and direct investments. Attitudes toward globalisation are international trade are more viable than countries benchmarked to.
Setting up a business and registering title to real estate in Turkey (see graph above) are also the easiest when compared to US, Russia, UK and Greece. The New Turkish Commercial Code (New TCC) has made it easy to register a company and start a business. The New TCC Code No. 6102 adopts a corporate approach that meets international standards. With only a single shareholder, you can now register a joint stock company or limited liability company. The New TCC also eliminates the need for foreigners to secure minority shareholders before having their companies to be registered. You can also register your company in one single day and it becomes a legal entity provide you apply with all the documents to the trade registry office.
It is clear that investing in Turkey real estate stands to be more lucrative than in US, France, Greece, Russia and other EU countries. The Republic of Turkey has made all efforts to make it as simple as possible for real estate investors to participate and support the growth of the country. You are likely to generate higher return on investment in Turkey than any other country in the EU and most other countries globally.