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Turkey Property Investment: A Bright Light on a Dark Night

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European Union  Europe  Turkey  France  Israel  Basel III  equity finance  Francois Hollande  Nicolas Sarkozy  foreign ownership law  property law  Stefan Fule  Turkish Property Investment 

Turkey Property Investment: A Bright Light on a Dark Night

By - Wednesday 06 June 2012

How many countries are in Europe but not in the EU, and not in the Euro? Not many, but those that aren't are currently benefiting from their lack of integration with the beleaguered bloc. The Euro is riding the debt train all the way to overstretchedville. The countries that don't have a debt problem are either heavily exposed to the debts of countries that do, or being squeezed to provide assistance to those that do, or both. In the case of providing assistance, the same goes for all EU member states.

In this respect Turkey property is sitting pretty, indeed from a property investment point of view Turkey stands out as a bright light against a very dark backdrop, because it has very little exposure to the EU debt crisis other than the fact that the EU is its biggest trade partner. But it is not just the fact that Turkey has a manageable budget deficit, a strong, stable and willing-to-lend banking system, a rapidly growing economy (although growth is to slow this year) and low exposure to the EU debt crisis that is making it stand out. There are several other things helping to push Turkey to the top of property investment short-lists.

The New Laws:

Basel III is the third annex of a series of reforms to the global banking system. Under Basel III banks have to increase their Tier 1 capital ratios by around 9% by June 2012.

Banks can do this in one or both of two ways. They can go to the market and raise additional equity finance, or they can reduce their loan portfolios, since the amount of capital they need is proportionate to the amount of risk on their books. Property lending carries a substantial capital reserve requirement so it makes eminent sense for banks to pull out of commercial property lending, or to make dramatic cuts in the amount that they are prepared to lend. And they are doing this.

Bank lending on property has been constricted and highly selective ever since the financial crisis exploded, but this is making things much worse when they should be starting to get better.

Turkish banks' capital ratios are already above the buffer, thanks to prudential regulation after the 2001 crisis. This is why Turkish banks survived the crisis unscathed and why Turkish property never suffered a credit crunch. So, now as Basel III threatens to make the credit crunch a lasting affair, Turkish banks continued to lend as normal.

The new Turkish property law: that was adopted by parliament recently is set to allow many more foreign nationals to buy property in Turkey. The new law dropped the reciprocity clause from the foreign ownership law, which had prevented nationals from 89 countries from buying property in Turkey, because Turks couldn't buy in their country. Now the government will decide which of those 89 countries will have their nationals added to the list of foreigners who can buy in Turkey. The new law also increased the amount of land foreigners can buy without special permission from 2.5 hectares to 30 hectares.

The biggest thing about the new law is that it is expected to allow Arabs to buy in Turkey, especially those from the Gulf States. Turkey's popularity in the Arab world is at an all time high, thanks to its standing up to Israel, thanks to the visa-free travel agreements and thanks to the Arab spring taking out a lot of competition when it comes to Muslim and Arab states that are safe to holiday in and safe and profitable to invest in. It is expected that the Arabs alone will add billions in revenue to the property industry each year.

Renewed Push for EU Accession

Turkey has just played host to Stefan Fule, chief of the EU enlargement commission, who came to Turkey to sign and promote the new "positive agenda". EU members backed the plan which will see at first 8 working groups set up to focus on one chapter of the EU requirements each, and give Turkey assistance in bringing its legislation in line with the EU requirements.

It is hardly a coincidence that this renewed push should come just after France replaces Nicolas Sarkozy with Francois Hollande as the new French president. Sarkozy was the biggest opponent of Turkish EU accession, arguing that it was culturally incompatible and should settle for a privileged partnership. Hollande is much more pragmatic and anyone can see that Turkey would be good for the EU right now.

Meanwhile the fact that the process is no longer stone-cold-stalled is good for Turkey, because the reforms Turkey has made for EU accession have shaped it into the country it is today, and continuing to strive for EU membership will ultimately lead to a better Turkey.

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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.

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