Property Investment Case Study: Turkey (TPI-TU-001)
Introduction:
Turkey enjoys a stunning location at the eastern end of the Mediterranean. A long, scenic coastline, excellent weather, friendly people and value for money have made the country a favourite package holiday destination for over 20 years. More recently, the prospect of EU membership, although still at least a decade away, has made the country one of the Mediterranean�s hottest emerging property markets. Government figures reveal that over $1.3 billion was invested by foreigners in the Turkish property market last year, with investors attracted by low property prices and the potential for capital growth as the country enters into EU accession negotiations later this year. The country's booming property market is coupled with an improving economic outlook. Prudent economic leadership from the mildly-Islamic, pro-European government of Tayyip Erdogan, elected with a rare parliamentary majority in 2002, has helped the economy recover from a deep recession. An on-going raft of economic reforms continues to boost investor confidence and improve economic performance.
Location:
Despite some large-scale investment in the domestic housing market in cities such as Istanbul, most foreign interest has been concentrated on the country's beautiful southern coast, roughly between Izmir in the west and Alanya in the east. Backed for much of its distance by pine-forested mountains, with dramatic scenery and some good beaches, the coast has a string of popular resort areas, such as Altinkum, Bodrum, Marmaris, Fethiye, Side and Alanya, which are experiencing unprecedented levels of development and rapidly rising property prices. On the down side, some of this building activity is low quality and poorly regulated, detrimentally affecting the desirability and investment potential in some areas.
The Ministry of Culture and Tourism has designated a series of Tourism Development Areas along the coast, where state land is being sold to developers as part of a series of master plans. The government will be making considerable infrastructure investment in these areas and they promise good potential returns. Dalaman, on the western Mediterranean coast, is one such area to watch.
Economy:
Turkey has a dynamic mixed economy with strong industrial and commercial sectors, alongside a largely traditional agricultural sector, which still employs 36% of the country's workforce. Despite having a vigorous and rapidly growing private sector, the state maintains an important role in many areas of the economy, and inefficient public firms are a major drain on the national purse. The country�s main industries and exports are textiles and clothing.
Backed by the IMF, the AK Partisi government has guided the Turkish economy out of its worst recession since the Second World War. Fiscal belt tightening and economic reform have cut the government deficit. Inflation has been brought down from a galloping 70% to 11.4% in 2004. Industrial production in the third quarter of last year was up 6.8% compared to 2003 and GDP grew by 4.5 %.
Traditionally an agricultural region, raising citrus crops and vegetables for the domestic market and export, the local economy along the south coast is now dominated by tourism. Fishing remains an important economic activity in some areas, while forestry and animal husbandry are significant in the coastal mountains.
Property Market:
The coastal property market is dominated by new developments, sold off-plan by developers and agents or upon completion. There is also a significant amount of older re-sale stock in some resorts, although these may have been built for the domestic market and may not meet recently introduced, EU standard, building regulations.
Despite rapid increases over the last 3 years, prices everywhere on the coast are still well below levels in the more established Mediterranean markets. Expect to pay upwards of £130,000 for a 4-bedroom villa with pool in the more upmarket resorts, such as Kalkan or Gocek, where the rental potential is best.
Prices are generally lower in the package resorts of Fethiye and Altinkum due to a greater supply of new properties and a generally lower build quality. However, price increases have still been over 20% per annum, with increases in certain emerging areas far higher. For example, land prices in Dalaman - a development area targeted for government infrastructure and tourism investment- have increased by over 150% in 2004, while property prices are up 100%.
Examples:
Xanthos Villas in Ovacik, Fethiye
3 bedroom villa, 130m2, private garden & pool.
Phase 1 (March 2003), £98,000
Phase 2 (March 2004), £128,00
Phase 3 (current), £158,00
Source: Lagoon Estates, lagoonestates@superonline.com
Land prices, 500m2 plots, Dalaman
2004: £6,000
2005:£20,000
Source: Falcon Estates, info@falconestates.com
Attractions:
Turkey's south-west coast boasts excellent beaches at Altinkum, Sarigerme (Dalaman), Iztuzu (Dalyan), Oludeniz (Fethiye) and Patara. The area also has a string of archaeological sites, along with adventure sports such as river rafting and hiking.
There are large harbours and fully equipped marinas at Gocek, Fethiye and Marmaris, with several more planned for the Sarigerme/Dalaman area.
Transport Infrastructure:
The area is served by Dalaman airport, which has regular charter flights from UK airports during the summer season (end of April to October). Turkish Airlines also offer several daily flights year-round via Istanbul. New charter and scheduled services are planned for 2006 and the airport is currently being expanded with a new terminal.
The coastal road has been vastly improved in recent years, with on-going works to widen it in some sections.
Local Mortgage:
Turkey does not presently have a mortgage system, although thanks to more stable economic conditions this may change in the next few years.
Inflation:
11%
Economic Growth:
4.5%
Sunshine Days:
+300 (south coast)
Annual Rainfall:
500-800 mm
Temperatures:
Winter: 5-10 C
Summer: 30-35 C
Property Price Inflation:
20-100% per annum
Local Currency:
New Turkish Lira (YTL)
Cost of Living Index:
No data available
Income Tax:
22-23% on any income from the property
Property Tax:
0.3% of property value per annum (new properties are exempt for five years)
Capital Gains Tax:
No data available
Buying and Selling Costs:
3% agents commission from both the buyer and the seller. Land Registry fee £120
Rental Yields:
5%-8% rental yields are possible in the most popular resorts. However, an over-supply of rental properties is developing in some areas.
Report Compiled By:
The Property Investor Research Team - Copyright © 2005 thepropertyinvestor.
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Report ref: TPI-TU-001
Date created: 13-06-2005
