We hear a lot about the Turkish property market now, whereas during the overseas property boom of the early-mid noughties, Turkey was a fringe market that you didn't hear anywhere near as much about. So what's changed?
When it comes to the increased exposure and positivity about Turkish property, it is less about what has changed about and within Turkey, and more about how changes elsewhere have allowed what was already in Turkey to shine more brightly. Here are some of the differences between investing in Turkish property during the boom and today.
Rapid economic growth
The Turkish economy grew at an average of around 6% between 2000 and 2008 before recession struck in 2009, and no one made a fuss because during that period many economies were growing as fast as Turkey, and many were growing faster.
The economy grew 11% year on year in the first half of 2010. This obviously made the headlines, and also made Turkey one of the fastest growing economies in the world.
However, the International Monetary Fund's prediction for the year as a whole is a growth of 7.5%. Between 2003 and 2007 that would not have attracted much attention, but now, with the EU growing 2% year on year in Q2, and its fastest growing economies at around the 5% mark, and most of the developed world struggling to break the 3% barrier, the prediction made headline news.
Solid banking system and high liquidity
The economy crashed at the beginning of the noughties and the banking system almost collapsed. This led to many of the banking reforms made by western governments in the last 2-3 years being made in Turkey way back then. Because of that, and the immaturity of the Turkish mortgage market, the banking system was barely touched by the international crisis.
Turkey is now enjoying high liquidity and free flowing credit. This is obviously making it one of the countries standing out in a credit starved Europe and world.
Stability reigning supreme
When foreigners were first allowed to buy Turkish property in 2002, the country was still recovering from a major economic crash, suffering from high inflation, and stuck with a well earned reputation of a boom and bust, volatile economy.
The ruling AK (Freedom and Justice) Party of Prime Minister Recep Tayyip Erdogan was elected in 2002, and the slow and gradual reforms Turkey had been seeing since the 1980 began to be accelerated. Since taking power Erdogan and the AK party have completely turned the Turkish economy around, including:
- Increasing Central Bank reserves from $26.5 billion to $72.5 billion
- Reducing public debt from 74% of GDP to 39% of GDP
- Reducing debt to the IMF from $23.5 billion to $7 billion in 2009
- Reducing inflation from 34.9% to 5.7% the lowest level in 39 years.
Erdogan's reputation for sound fiscal management, combined with the current fiscal stability of Turkey, has all but freed Turkey from its bad reputation, and investor confidence in Turkey is currently running very high.
During the boom Turkey's budget deficit of 4.5% was average to high, and this was not a positive thing in Turkey's favour. But because of the EU sovereign debt crisis, which blew up because of fears that Greece, with a 12%+ budget deficit could not pay its debts, highlighting the high deficits run up by Portugal, Ireland, Italy, Spain and even the UK, Turkey's 4.5% and falling deficit is another reason why it is being viewed as one of the best investment choices in present day Europe.
In fact, during the boom speculation had almost completely overtaken common sense, and property buyers would rarely look into a country in so much detail as to know its budget deficit, especially if they were being lured with the promise of double digit rental yields and capital growth.
Now they are looking closely, and Turkey, with high economic growth, low interest rates, readily available finance and low but stable property prices, is standing out as the safest, and most promising country in Europe, and one of the safest and most promising in the world. Not a lot has changed in Turkey; the competition has just gotten a lot thinner.