Magazine article The Middle East

Turkish Property Boom Fuelled by Foreign Cash: As It Prepares for Admission to the European Union, Turkey Is Opening Up to Foreign Property Buyers. Jon Gorvett Reports from Istanbul on How the Country's Financial Sector Is Gearing Up to Provide Mortgages

Magazine article The Middle East

Turkish Property Boom Fuelled by Foreign Cash: As It Prepares for Admission to the European Union, Turkey Is Opening Up to Foreign Property Buyers. Jon Gorvett Reports from Istanbul on How the Country's Financial Sector Is Gearing Up to Provide Mortgages

Article excerpt

ON TURKEY'S AEGEAN AND MEDITERRANEAN coasts, something is stirring. While long famous for its package holiday resorts and awesome ancient cities, these regions are now more alive with foreign languages and cultures than ever before. The reason is that Turkey has become the latest focus for overseas property buyers--mainly from Germany, Britain and Ireland--all of whom are keen to purchase their own private place in the sun.

This new influx of foreigners has been matched in recent months with a surge in interest in the property market from Turks themselves. In response to the new trend, the government is advancing fast with plans to introduce a new mortgage system that many analysts say could revolutionise the country's housing market and bring an enormous boost to the economy as a whole.

The reason is that until now, most Turks have either rented or bought their flats and houses outright--frequently with generous help from family and friends--while others have been fortunate to inherit property. Mortgages have barely existed in any form, with banks reluctant to lend out money on such a long-term basis.

"The legal system [for mortgages] has long been in place," says Murat Ergin of Istanbul's Kuzeybati Real Estate agency, "but the Turkish banking system has been short of long-term funds and cannot securitise money borrowed on this basis."

In the past, interest rates have been phenomenal, with the maximum repayment term for a loan averaging around five years--at a 2% per month borrowing rate.

This has been enough to shut almost everyone out of the property market except for companies and individuals with major capital behind them. Now though, if the government has its way, this year will see the introduction of a mortgage system based on that in use in the United States. Mortgage lending companies will offer loans that can be paid back over 10, 20 or even 40 years, and at rates that make them comparable with rents.

COMMERCIAL BOOM?

This could have a revolutionary effect not only on the housing market, as many ordinary Turks join it, but on the rest of the economy as well.

"Already owned land and property could start coming into the system," says Tolga Kotan, of Finans Invest. "The money could then be used to finance commercial activity."

The capitalisation of existing housing assets would release large amounts of money into the economy, as Turks use their properties as security against loans.

One other effect of this is likely to be a surge in demand for property, with a corresponding boost in real estate prices dependent on the nature of this demand and how building supply responds. While Turkey has a large and well established construction sector, prices for ordinary dwellings and commercial property may remain relatively stable and prices for exclusive and unusual properties could accelerate.

This might be welcome news for many of those foreigners--and Turks--who have been investing in recent years in older and more select properties. In Istanbul, districts such as Galata and Beyoglu, which have large numbers of well-built, but often semi-derelict late 19th century and early 20th century properties, have already seen a major jump in prices. Although at present these are somewhat detached from actual demand due to distortions in the local housing market, in future, similarly high prices could become more realistic and widespread.

COASTAL ATTRACTION

Yet the really big property market is on the coast. From Alanya round to Canakkale, demand for apartments, houses and land has been rising, particularly from foreigners. Germans top the list of new purchasers, with British and Irish buyers not far behind. Attracted by comparatively low prices--villas from 50,000 [pounds sterling]-100,000 [pounds sterling]--a warm climate and friendly locals, long familiar with visitors from northern climes, the Mediterranean and Aegean coasts have become a magnet for European buyers. …

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