Turkey's residential property market turns up trumps

In these times, it is challenging to identify good property investments. After more than a decade of price appreciation, most property markets suffer from oversupply, high prices and the effect of rising interest rates. Hence Turkey stands out.

Residential prices in Turkey rose after relaxation of foreign ownership restrictions in 2005. Buyers (mainly Britons, Germans and Greeks) poured $10.4 billion (Dh38.17 billion) into the property market in 2002 to 2007 and prices increased at 7 per cent annually over the past five years.

Why the boom? Turkey is picking up as a popular tourist destination and it received 27 million tourists in 2008, from 25 million in 2007, a 10 per cent increase. Beautiful sandy beaches, warm weather and rich history are key attractions. Turkey has some of the best coastline in Europe, especially in the country's southwestern corner where the Mediterranean and Aegean Seas meet and is also excellent for golf, diving, mountaineering (mainly in Anatolia), rafting and skydiving. The country has developed world class resorts that are quite popular with Europeans. As a result, demand for short-term accommodation in popular resorts such as Marmaris, Fetiyhe, Dalyan, Kalkan, Altinkum, Bodrum, Belek and Alanya has jumped.

Another driver is access - citizens of countries that allow Turks to own property in their country can acquire property in Turkey. Citizens of most EU countries, the US, Canada and some countries in Asia, Latin America and Africa can freely purchase properties in Turkey.

Also, the cost of living is a fraction of that in most developed countries. Plus serious crime is low in Turkey. The location of Turkey, within a few hours flying time from most European and Middle Eastern countries is another draw.

Healthy economy

Economic growth has also helped with the GDP expanding at an average of 7.2 per cent in 2002-2006 and GDP per capita rising from $3,560 in 2002 to $9,630 in 2007. Unemployment and the budget deficit dropped and the perennial runaway inflation was finally brought down.

But the best part is that Turkey has some of the cheapest property prices in Europe at Dh526 per square foot of prime city centre property as compared with UK (Dh8,375), France (Dh4,100), Greece (Dh2,653), Spain (Dh1,900), Portugal (Dh976) and even Croatia (Dh1,085) and Ukraine (Dh1,226).

Rentals are taxed at rates from 15 per cent to 35 per cent. Capital gains are tax-exempt provided the holding period is longer than four years and normal tax rates apply if held for less than four years. Transaction costs are reasonable with total round-trip costs at approx 9.5 per cent. The rental market generally favours tenants.

Foreigners can buy up to 10 per cent of property and land in officially zoned areas which include cities, towns and resorts and they can buy property and land in rural areas. In April 2008, sections of legislation (law 5444) concerning purchase of rural properties by foreign companies was invalidated and issue of title deeds to foreigners was frozen. This was lifted in May 2008 but some damage was done and prices fell, especially in the south.

A 10 per cent to 25 per cent deposit is made on signing the purchase contract. Permission for sale from the local authorities takes six to eight weeks. Next is the transfer of title of deed (Tapu) at the local Land Registry Office. A solicitor for conveyancing is not a legal requirement, but is highly recommended.

Downside

The downside? Turkey is classed as "low transparent" by Jones Lang LaSalle in its latest report, behind Dubai, Saudi Arabia, Oman, Kuwait and Romania. The political situation has always been fluid. Unexpected and adverse legal changes have happened and can be a damper.

The positives include tourism which will continue to be a key driver. Low price is another plus. Also, Turkey is big and creates an internal demand, which will be spurred by a 2008 law that will facilitate mortgages at affordable rates for the first time in the country, fuelling demand and propelling home ownership from the current 4.5 per cent to 12 per cent by 2015.

Binod Shankar is a Chartered Accountant and CFA Charter holder and has spent several years working at senior levels at several of Dubai's largest property developers analysing, among other things, local and global property markets. This article does not constitute investment advice.

Foreigners can buy up to 10 per cent of property and land in officially zoned areas which include cities, towns and resorts and they can buy ... in rural areas."