EU negotiations and Turkish property prices
Turkey started flirting with the European Union (EU) as early as in 1963, when it became an associate member of the European Economic Community (EEC). In 1987, Turkey applied for the full membership of the EU and in 2005 formal EU - Turkey negotiations commenced.
Since Turkey's official application to full membership in 1963, the route to commencement of formal negotiations and thereafter deliberations and discussions through the EU chapters leading up to full membership have been a rocky one, full of stops and starts. In the initial years of Turkey's application for membership, throughout the 90's and most part of the first decade of the new millennium, public opinion in Turkey was a positive one.
Real estate investors expected steep property price increases as positive steps were taken during EU negotiations and the contrary happened when things did not go smoothly. Foreign investors, who benefited from their property investments in the Eastern European countries prior to leading up to their EU accession naturally poised the question - would Turkish property market follow a similar pattern, how can we benefit from Turkey's expected accession to the EU?
How do the EU negotiations impact property prices in Turkey?
There have been many stops and starts to EU negotiations since Turkey’s application for full membership in 1987. Some EU members fiercely oppose Turkey's admission as a full member, whereas some seem to support it (see David Cameron of UK showing support). Most Turks now tend to be immune to news about EU negotiations. They have lost faith in the process. A recent opinion poll in Turkey indicates that almost 50% of Turks are indifferent about EU membership and some are of the opinion that Turkey is better off without. Therefore, there is no apparent momentum that would infer movement on property prices as seen in Eastern European countries leading up to full EU membership when property prices rose up due to forthcoming EU membership.
The same can be said about the way foreign investors view Turkey. We have seen a steady increase in foreign investors acquiring residential and commercial real estate in Turkey since 2007. This has certainly fuelled property prices in Turkey, especially in larger cities such as Istanbul. The trend corresponds with economic slow-down in the EU zone and the US post 2008 credit crunch. It could therefore be argued that property prices and foreign direct investment in Turkey has been increasing despite EU and for the fact that Turkey is being seen as a safe haven for investment as a result of being out of the Euro zone.
In conclusion, what draws investors to Turkey and pushes up the prices is not linked at all to EU negotiations but to Turkey’s economic expansion and stable growth. It could be argued that Turkey’s appeal as a viable investment destination has now outgrown the expectations of EU membership.
What has been the effect of the more authoritarian measures of the Erdogan government been on investment ?
This is a paradox in itself. On the home front some segments of Turkish society are unhappy about the apparent authoritarian ways of Erdogan government as evidenced by the recent Gezi Park demonstrations. However, the Erdogan government is exceptionally pro foreign direct investment. The rate of privatisation has never been as high as under the Erdogan government.
It is the Erdogan government again that opened the way to foreign nationals being able to purchase real estate in Turkey. That was not the case earlier. And in May 2012, the same government abolished the reciprocity law allowing Middle Eastern nationals and ex-Soviet nationals to buy real estate in Turkey; they could not do so before.
There are many incentives given to foreign investors to acquire land and commercial real estate in Turkey. Therefore, although the Erdogan government’s authoritarian measures may have deterred some individual 'lifestyle' buyers, on the whole the government’s initiatives have had a direct positive impact on the level of foreign direct investment and real estate acquisitions by institutional foreign investors. These more than outweigh the individual cases which may have been put off.
Who is investing in Turkey, where and why?
There is a mixed bunch of foreign investor profiles for Turkey.
If we analyse these under two main segments as ‘lifestyle buyers’ and ‘investors’ then the following trend emerges: Lifestyle buyers are generally European buyers. British, German, Scandinavian and Russians lead the charts. Lifestyle buyers tend to acquire holiday homes and permanent homes on the Mediterranean and Aegean coasts of Turkey, most popular areas being Antalya, Fethiye, Bodrum and similar seaside resorts.
Buyers are motivated by still affordable prices, lower cost of living, 300 days of sunshine and proximity to home as well as of course an easier pace of life. Investors tend to have a broader catch; we see investors from the US, Russia, Middle East, Europe - individual and institutional investors; there is significant investment from Middle Eastern countries particularly from Kuwait, U.A.E, Saudi Arabia.
These investors tend to favour larger cities such as Istanbul and Bursa. Investment levels vary from a number of residential buy to lets to larger investments in shopping malls, hotels and development projects. They are motivated by Turkey's economic expansionand easy investment framework, where investors can put money in and out of Turkey without restrictions - almost an investment haven profile.
Being outside the Euro zone seems to help since banking regulations are not as stringent in terms of reporting of investors’ affairs. There are certainly tax advantages. Turkey being a hub between East and West also encourages investors. Energy pipelines passing through Turkey, proximity to Europe yet being outside, extremely strong relations with some of the oil and energy rich countries along its borders are all contributory factors for Turkey’s emergence as a major investment hub.
Does Turkey's relationship with the EU matter?
Turkey’s relations with the EU matter less and less these days. Compared to say 15 years ago, when EU really mattered for Turks and there was a serious desire to join the EU, nowadays the average Turk is almost indifferent. With economic trouble in Greece, Italy, Spain and Portugal, most Turks breathe a sigh of relief that Turkey is not part of the EU.
On the other hand, Turkey’s business volume, which was very much EU indexed up until 5-6 years ago, is also shifting now. Volume of trade with non-EU countries, including the Middle East, Russia, China and US is on the increase. There is a movement toward a more balanced and less single-source dependent business model in Turkey.
The EU zone is still Turkey’s number one import/export partner, however, with reducing share of business. On the other hand, Turkey now has a significant cultural and social impact on the Middle East and former Soviet countries, including some energy rich ones such as Azerbaijan. Turkish soap operas and pop charts are the most rated programs in these countries, in other words Turkey has become and exporter of ‘culture’ to these countries, including neighbouring Greece. Turkey is increasing its sphere of influence in all directions.
Is Turkey now looking east, west (EU) or inward?
In order to answer whether Turkey is looking east, west or inwards, it is important to understand the mosaic of Turkey. Turkey is a very colourful mix of identities, cultures and social structures. It can easily be identify itself with southern Europe, with countries like Greece, Italy, Spain, yet at the same time it can identify itself with the Middle East. Furthermore, a Turk can easily converse with an Azeri or an Uzbek in their mother tongue. In other words, to try to place Turkey with the east or the west (the EU zone) would be a simplification of what Turkey is. Turkey, culturally, socially, racially is a bit of everything, it is like a ‘continent’ rather than a more homogeneous ‘country’.
To sum up the query whether EU negotiations have an impact on Turkey real estate market, Turkey is not looking west, or east, definitely not inwards, Turkey is looking at all directions because that is in fact the essence of Turkey. As its sphere of influence grows in all directions together with its prosperity, the EU becomes less and less significant. Savvy real estate investors are more than aware of this. They know just too well not to compare say Bulgaria or Romania to Turkey.