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Turkey – where east meets west
At the beginning of last month the European Commission presented its long-awaited report on the progress of three European countries towards EU accession. Bulgaria and Romania, as expected, were given mostly positive feedback on their efforts to bring their economies and judiciaries in line with European requirements, and move smoothly on towards full EU membership by 2008. The eyes of Europe, however, were focused further east – on Turkey, a secular country of 69 million predominantly Muslim inhabitants, whose potential entry into the Union poses some of the most difficult questions faced by the organisation since its inception. Jamie Liddell travels to the eastern end of the Mediterranean to find out how good it really is.
Despite numerous obstacles and cultural differences, the likelihood is that at some point in the next two decades Turkey will achieve its ambition to become a member of the EU club. The links, both geographic and economic, between Turkey and the rest of Europe will probably prove strong enough to overcome the difficulties presented by the entry into the Union of a country with a population as large as the ten newest members combined. Perhaps as a result, or perhaps regardless, of this probable accession, European property buyers are finding themselves more and more drawn to the Turkish market with its huge potential and increasingly stable foundations. This month, The Overseas Property Professional takes a closer look at the Turkish market and examines the whys, wheres and hows of investing in this huge and beautiful land.
Straddling Europe and Asia, modern Turkey is a geographically diverse country covering some 780,000 square kilometres, a small proportion of which lies west of the Bosphorus and is thus classified as belonging to mainland Europe. Sharing land frontiers with Bulgaria and Greece in Europe and six Asian countries (Armenia, Azerbaijan, Georgia, Iran, Iraq and Syria) Turkey is bounded on three sides by the sea: the Black Sea to the north, the Aegean to the west and the Mediterranean in the south. This peninsular geography provides the country with an extensive (around 7,200 kilometres excluding numerous islands) and attractive coastline, certain parts of which have proved to be the main foci for Turkey’s current foreign buyer-driven property boom.
Turkey’s climate is generally described as temperate; however, the great diversity of the terrain – especially the distribution of mountain ranges running parallel to the coasts – leads to a variety of different climatic conditions: the coastal areas, particularly those on the Mediterranean and Aegean littorals, enjoy relatively gentle climates with hot summers and wet, mild winters the norm, whereas the interior – especially the large, central Anatolian plateau – experiences more extreme conditions, particularly hot dry summers and cold – sometimes very cold – winters. These climatic variations have resulted in the development of a great many different types of flora and fauna: over 9,000 different varieties of plant can be found in the country.
Potential for property development
As well as climatic variations, Turkey’s landscape has created a noteworthy population distribution. Most of the country’s large settlements are located on the coast (including Istanbul, the largest city in Turkey) while the Anatolian plateau, with the exception of the capital and second-largest metropolis, Ankara, is home to much of the country’s agriculture (which at the turn of this century still employed around 40 per cent of Turkey’s population) and accompanying rural population. Almost half Turkey’s inhabitants live in rural areas. The mountainous regions are relatively sparsely inhabited but their often-wonderful scenery indicates that there is potential here for property development assuming the necessary infrastructural support.
Throughout most of history, the area now known as Turkey has been extremely prominent; some argue that the first true permanent human settlements can be found on Turkish soil while the more recent influences of the Eastern Roman, Byzantine and Ottoman empires (each of which had Istanbul, formerly Constantinople, formerly Byzantium, as its capital) have been incalculable. The country has played a vital role in the development of two world religions and has an incredibly rich cultural heritage, affecting almost every field of artistic, scientific and philosophical endeavour.
Turkey joined the UN in 1945 and became a NATO member in 1952. In 1974 the country invaded Northern Cyprus to protect Turkish Cypriots (the situation continues to cause great strain in the area and presents one of the largest obstacles to the country’s EU ambitions). Modern Turkey’s society is one of the youngest in Europe (over a quarter of the population is aged under 15) and is increasingly dynamic in nature. The economy has seen significant growth in the last couple of decades, interrupted by periodic but short-lived declines. The traditional core textiles and clothing industry remains Turkey’s biggest earner, although service-sector businesses have been growing rapidly. Nevertheless, in real terms the country is substantially poorer than the EU average and unemployment and inflation rates continue to present serious obstacles to Turkey’s economic development.
While 99 per cent of the population is Muslim, the secular state guarantees freedom of religion to all its citizens and the country does not have the same problems with radical or fundamentalist Islamic organisations as those suffered by certain of its neighbours. Bomb attacks by extremists on British interests in Istanbul in November 2003 were a worrying development but have been viewed as the responsibility of externally led, Al’Qaeda-linked terrorists rather than home-grown militants; at any rate, the government was quick to crack down and so far, happily, there have been no sequels.
An established player
Although Turkey is categorised as an emerging market the country has been home to a substantial number of foreign nationals for some time. For all intents and purposes, however, it’s only during the last few years that the country has become an established player on the overseas property scene, and even more recently that its assumed its current prominence. As recently as July 2003, large areas of the country’s interior were out of bounds to foreign buyers. However, the government moved to open up the majority of the country to overseas ownership having seen the beginnings of the current boom in coastal areas bring in a substantial (and growing) amount of revenue – and also, one imagines, as another concession to the European Union.
Nevertheless, the coast continues to be where most foreign homebuying takes place. In fact, considering the great length of Turkey’s coastline there are a relatively small number of hotspots, and while the on-going boom is leading to the development of other locations four main buying areas still lead the way: the Bodrum peninsula in south-western Turkey to the north-west of the island of Rhodes; Dalaman, to the south-east; the Fethiye region some 300 kilometres south-east of Bodrum; and Kalkan, 70 kilometres south of Fethiye.
“When it comes to Turkey and Turkish property, Bodrum is the tops,” says regional property expert Peter Green. “It’s the most sophisticated, the most exclusive; it’s where the grand and the great choose to buy their Turkish summer homes. Bodrum has one of the best climates in Europe – the best, most comfortable climate in all Turkey – thanks to low humidity in the summer as a result of the gentle sea breezes wafting in. It’s probably fair to say that the waters off Bodrum are some of the finest sailing in the Mediterranean.”
Extremely cosmopolitan – the British contingent is the latest, but not the largest, component of a community which includes Germans, Dutch, Greek, French and numerous other nationalities – Bodrum is extremely attractive, and also provides a vibrant party atmosphere while remaining relatively exclusive. Driven by the foreign influx some great restaurants and superior nightspots have set up shop in the villages around beautiful old Bodrum and the lifestyle here is of a very high standard – as are the villas which have sprouted up in recent years and which dominate Bodrum’s property listings.
A fraction of the cost
Fethiye is equally cosmopolitan but, at the same time, remains a very Turkish port and commercial centre. Attractively functional, Fethiye may not have the same level of exclusivity as Bodrum but offers some fantastic homes at excellent prices, and the regions strong tourist industry ensures continued interest in the property rentals market: the nearby beaches fill each summer with Turks and foreigners alike and the Fethiye region is now a modern tourist centre to rival any in Turkey, with a nightlife to match.
The Kalkan bay south of Fethiye is the site of some of Turkey’s finest homes – Upper Kalkan is sometimes referred to as the ‘Beverly Hills of the Turkish Coast’ – based around the stunning old whitewashed houses of Kalkan proper and some of the outlying villages. The British presence here is quite strong - (in fact, the British community is growing to such an extent that prices in the area are often quoted in pounds) – drawn by the proliferation of luxury villas available at a fraction of the cost of their Spanish or Portuguese equivalents, and while the town’s prominence as a trading post has faded in recent years the foreign influx has kept the local economy buoyant.
Dalaman is a less-developed area proving attractive to foreign buyers thanks to its outstanding setting and equally attractive potential. “Dalaman is a really exciting area to be buying in right now,” enthuses Alison Thornton, Turkey sales consultant for Headlands International. “It’s up and coming; there’s little tourism right now but it will certainly come as the government is investing very heavily in, for example, the expansion of the airport, a new marina, road links and the like. The kind of appreciation we’re looking at is very substantial indeed – I’ve actually put money there personally. We as a company have never got into a place with such incredible potential so early.”
Militarily sensitive areas
Although, as has been noted, the Turkish government opened up much of the country’s interior last year, there remain restrictions on foreign ownership in several areas. The Turkish authorities have classified certain zones as ‘militarily sensitive’ and therefore prohibit foreigners from buying there.
“These military zones can be found anywhere,” Ms Thornton says, “and although they are getting fewer and fewer in number there are still quite a few of them – often in decent areas, possibly to protect local buyers although that isn’t the official reason given. Regardless, it’s vital to go through decent agents as unscrupulous vendors could sell you a property which you are legally not allowed to own.”
It’s clear that the high affordability of Turkish property is the main impulse behind the buying boom. Offering a climate very similar to southern Spain and Portugal yet with its properties available at a fraction of the price, and with none of the rampant over-development visible in those countries, Turkey’s attraction to UK buyers in particular is obvious. As investors cast their nets wider and wider in search of property profits, Turkey’s outstanding capital appreciation (a conservative 25 per cent in the Bodrum area last year) is propelling it to the forefront of the emerging markets, while high-quality construction, breathtaking architecture and the superb natural setting are factors which should ensure its continued success.
Logically this growth will not continue at such a rate forever. However, Turkey’s property market is starting at such a low level (as recently as July this year, the New Skys website featured as a ‘Property of the Week’ a development within walking distance of the centre of Bodrum which offered two-bedroom apartments for under £50,000 and one-bedroom homes for £27,000) that there is plenty of room for rapid appreciation. While it is impossible to predict how close Turkey’s market will come to the values of other Mediterranean buying locations in the long term, especially with competition from the plethora of south-eastern European emerging markets, short-term gains appear to be substantial and ongoing.
Eric Kaya, CEO of Turkey specialists Cumberland Properties, says that at the moment the main catalyst for rapid expansion and appreciation is the likelihood of formal negotiations beginning for Turkey’s EU entry. “It’s absolutely vital, there’s no doubt about it,” he says. “Recently the Financial Times ran an article saying that Turkey had cleared all the obstacles to EU accession. Directly afterwards, the Turkish stock exchange went up to its highest level; meanwhile we had more than twice the number of enquiries from investors – and I’m talking investors with years of experience, very savvy guys – that we’d normally have. I’ve seen myself that I’m having to pay 20-30 per cent more for properties for my own portfolio than I was even as recently as June and July. If Turkey gets a firm date when the EU issues its report in December, I would say that prices will rise by 50 per cent in 2005. There is a long, long way to go in this market.”
With increased accessibility to Turkey following the deregulation of the country’s airways also a factor, Kaya believes the foundations are in place for a long period of growth. Even the success of nearby fellow emerging markets should not put a dampener on the boom, he says. “Turkey has a number of unique attributes with which other new areas can’t compete,” he says. “You can’t compare it with any other buying location. Certainly not with Bulgaria; it doesn’t have Turkey’s coastline or Turkey’s climate. You can’t compare it with Croatia, either; Croatia was ‘discovered’ years ago by the Germans and the Italians and values on the coast are incredibly high, three, four times what they are in Turkey. The same issue affects all the main Mediterranean buying areas: Greece, Spain, Cyprus, they’re all many times more costly than Turkey at the moment.”
On 17 December European Union leaders will gather at a summit at which a decision will be announced regarding the fate of Turkey’s EU hopes and dreams. It is likely that a date will be set for the opening of formal accession negotiations, with the early New Year the most probable choice. Although much work remains to be done, and while EU politicians caution that accession is 15 years away at the earliest, Turkey’s path to membership seems at last to be turning the corner.
Meanwhile, the property market continues to flourish. As the market develops, rising prices in the main coastal hotspots will lead to the creation of new buying zones and the country’s dramatic levels of affordability will probably remain extremely attractive for a while to come. Assuming no major catastrophe takes place – and that the path into Europe remains smooth – the country is likely to occupy its place at the head of the European emerging markets for a long while yet – and if Kaya is anywhere near the mark with his prediction for growth in 2005, next year could well be the year of Turkish property.
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