Walking in major cities in Turkey gives you a sense of strolling around a huge construction yard, with cranes dotting the skyline and interminable roadworks.
The construction and real estate sector in Turkey that has grown so significantly since Turkish President Recep Tayyip Erdogan came to power has been a key driver of economic growth in the Mediterranean nation.
Government prioritization of construction and real estate project investments placed the industry in a vital position for GDP generation.
And as the sector exploded, it caught the attention of diverse and numerous foreign buyers.
However, changes in Turkey's economic status have led some to predict a slowdown in the real estate sector, while the prominent failure of a luxury real estate project recently has shown us that there are still uncertainties regarding the security of certain investments.
Sarot Group's “Burj Al Babas" real estate project in Bolu gained public attention thanks to the whimsical architecture of its villas, designed as Disney chateaus.
Started in 2011 and targeting investors from the Middle East, the project consists of 732 villas, two convention centers, and a shopping mall. However, while half of the villas were sold to customers from Qatar, Bahrain, and Kuwait, the project was stopped as a result of the economic crisis that Sarot Group is going through. After filing concordat that lasted five months, the company is now on the verge of bankruptcy. The project now resembles a ghost town of incomplete chateaus worth almost USD200 million.
It could be said that the ambiguous atmosphere in the Turkish economy creates both risks and advantages, so here are the main drawbacks and motivations of foreign buyers investing in Turkish properties.
Turkish Lira devaluation: cheap properties vs. economic instability
Recently, the major devaluation of the Turkish Lira has caused foreigners to invest in Turkish real estate as the lira crisis allowed them to buy high quality properties for less.
Even though the Lira crisis was a huge catastrophe for Turkish citizens, foreign investors from different counties were able to turn this disaster into an advantage. The statistics of the Turkish Statistical Institute (TÜİK) demonstrate that real estate sales for foreigners increased by 78% in 2018 compared to 2017.
The statistics also show us that the most popular destinations for foreign buyers are Istanbul, followed by Antalya, Bursa, and Trabzon.
Citizens of Iran, Kuwait, and Russia are among the top three of foreign buyers of Turkish properties.
The situation of Turkish Lira against other currencies allowed GBP, Euro, and Dollar holders to enjoy affordable living costs.
However, considering that the political and economic situation in Turkey is unstable, the future of these investments is unpredictable.
Simple procedures vs. diplomatic strains
Buying real estate in Turkey is not complex for foreigners. In many cases, it only takes a day to complete the procedures to buy a new house.
VAT discounts also make the buyer's work easier.
In 2017, Turkey introduced the Turkish Citizenship by Investment Program, allowing investors to become Turkish citizens provided they buy property worth USD1 million or more.
But this price was recently reduced to USD250,000 in an attempt to stimulate economic activity.
Additionally, in comparison to difficult years in the recent past, Turkey is now seen as a calmer country in the eyes of the foreigners, attractive for its natural landscapes and major cities.
However, Turkey occasionally suffers from diplomatic problems with other countries, notably the US, Russia, and several EU countries, and even though Turkey is able to solve these problems professionally, these issues can create a tremulous atmosphere in the country.
High rental demands vs. Housing Bubble
Due to the fact that Turkey is a populous country, rental demands are high.
As a result, particularly in cities like Istanbul and Antalya, rents are high.
This consistently high demand makes properties good investments.
However, some are concerned that these housing prices could be creating a bubble.
High demand cuts a path to poor quality projects. Even though the projects are launched as luxury, the results are often disappointing.
The Burj Al Babas project is a prime example of this. To make the project more profitable, the Burj Al Babas villas were built really close to each other.
This concept of making the most of the construction site creates privacy and comfort issues, which makes such properties far from luxury propositions.