Down and Dirty with the Property Recovery - Turkey

Turkey suffered like practically everyone else as the international financial crisis first rolled in. In fact the Turkish economy contracted by almost 5% in 2009...

Turkey is one of the hottest emerging property markets in the world right now, and not just according to me, we or us either. It is in the MINT grouping of hot emerging markets touted by analysts along with Indonesia, Nigeria and Mexico. Turkey is also in the CIVETS grouping of hot emerging markets pushed forth by HSBC CEO Michael Geoghegan, where it is again joined by Indonesia and this time by Columbia and Ecuador from Latin America, Egypt from the Middle East North Africa region and South Africa, well, from South Africa.

These groupings are thought to be the upcoming hotbeds of growth as the BRIC economies become more established and opportunities become harder to find and lower yielding. Turkey is certainly a hotbed of growth as it continues to surge forward following an exceptionally strong recovery from the recession.

Turkey suffered like practically everyone else as the international financial crisis first rolled in. In fact the Turkish economy contracted by almost 5% in 2009. But Turkey had an ace up its sleeve in the fact that its banking system had already been reformed to withstand such events during Turkey's last financial crisis of 2002.

Since the Erdogan party came to power during the downturn it had overhauled the banking system including increasing reserves and foreign exchange reserves and posting an office of the Central Bank in all branches to take daily reports. As well as that the government paid down a great deal of Turkish public debt and shored up the economy, reducing inflation. As a result of this, and the fact that and Turkey's small mortgage market, when crisis struck Turkish banks stayed firm, liquidity remained high and falling inflation left plenty of room for natural interest rate reduction.

As a result of this the Turkish recession lasted only 4 quarters, and Turkey flew out of the recession with a 6.4% year on year growth in Q4 2009. This heralded a period of massive growth for Turkey which saw it become the fastest growing economy in the world as we entered 2011. Following the 6.4% growth in Q4, the economy grew by 11.7% in Q1 2010, 10.3% in Q2 before slowing to single digit growth in the second half of the year to end with a growth rate of 8.2% for the year as a whole.

Turkey started 2011 even stronger with an 11% first quarter growth making it the fastest growing economy in the world. Its 8.8% growth in the second quarter was sufficient for it to keep this title for 1H 2011. It them stabilises at around that level with an 8.2% q3 growth, although we don't yet have figures for the final quarter or the year.

During this time the property market has also been a success story. Residential investors are of course focussed on the country's financial and cultural centre Istanbul as the largest city with the fastest growing population. Istanbul was ranked the world's fastest growing city in mid-2011 by the Brookings Institute, with GDP growth of 8% and employment growth of over 7% it beat off competition from Rio de Janeiro as well as the top cities across China and Asia.

This combination of population growth as people migrated from rural areas to find better jobs in the cities, combined with increasing employment and affluence to create increasing demand for property. And at the same time we have increasing access to credit. According to the Central Bank the Turkish mortgage market grew by 25% in 2010 and its prediction was for similar growth in 2011.

On top of all that Turkish property is still grossly undervalued. According to a recent report by the Global Property Guide Istanbul property is priced at 2,386 Euros per square metre, compared to 4,015 Euros per square meter for example in Prague, 3,585 Euros per square meter in Andorra and 5,690 Euros per sqm in Helsinki Finland. The low property prices give way to strong rental yields.

With all this going for it, it is hardly surprising that Pricewaterhousecoopers have just named Istanbul as the number one property investment destination in Europe for the second year running. We have soaring domestic demand and rapidly rising foreign investment, but surprisingly we don't have runaway price escalation. In fact, Turkish property prices have consistently grown at a rate of around 6% year on year in each monthly release of the GYODER/REIDIN index.

But then you also have the other coastal destinations which are once again becoming massively popular with holiday home buyers and fly to let investors.

According to the latest Knight Frank global house price index Turkey is now the 8th fastest growing property market in the world in terms of price growth, with prices up 7.7% in the year to end Q4 2011. All indications point to an equally strong year in Turkish property in 2012.

- Wednesday 21 March 2012

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