Buying Property in Turkey — Part 2

I recently warned that buying real estate in Turkey was a big mistake. I gave several reasons, only to be told that one of my readers was going ahead with a purchase because he had been advised by a “reputable” London firm.

All I can say is that I hope he had second thoughts. But let me underline that previous recommendation to steer clear of a junk market.

Several things have been coming together recently to add to the standard disasters in Turkey. We all know that the country has serious internal strife: not the place one should move to or invest in. There are wars on both sides of the country, and religious intolerance is on the rise. But never mind all that, let us look at more general aspects that affect the country.

Turkey is regarded as an emerging market. That type of economy is in deep trouble because of a convergence of financial changes that are taking place in the international markets. I refer to low interest rates that have led governments to borrow heavily in the international markets, which usually means, getting US dollars.

The other problem is that the bond markets are turning round, and interest rates are on the rise.

When you are borrowing in dollars you are borrowing money denominated in a reserve currency. If you are the Turkey government, you are paying back in a weak currency. One small change in the market rates and you will get crucified. Let’s put some figures on this.

The Turkish lira has fallen about 20% against the US dollar so far this year. The chart is frightening. Four years ago you would get only 2.5 lira to the US$. Now you get 4.5. That is a hell of a currency crash.

Inflation there is running at 11%, which is pretty steep, and heading higher. Now look at the interest rate. It has just jumped from 13.5% to 16.5%. What is that going to do for mortgages? And what is that going to do for the property market which is dependent on borrowed money? Property prices are crashing.

Are things about to get better? On the contrary, they are about to get worse. The government plan is to borrow even more. And as the currency collapses those loans rise in value against the collapsing lira.

Interest rates have started to rise. It looks as though they will rise further. As the dollar rises and interest rates follow, so weaker currencies will fall. Already Argentina is collapsing. The Turkish currency is following. That will wipe out value in real estate.

Turkey is heading for a full blown economic crisis. THIS IS NOT THE PLACE TO INVEST. It is the place where you are guaranteed to lose money.

As I did warn earlier, if you buy real estate in a country then you are investing in that country. Would you invest in a risky company? Of course not, so why invest in a weak country? It will take your money with you as it tanks.

If some so-called reputable company tries to convince you that buying in these dumps is a good idea, take that advice for what it is: the company is talking its book. They need to sell you something to keep their business functioning so they will talk it up.

Don’t invest in Turkey or any of these marginal countries. You will regret it.

2 thoughts on “

    • Hello Simon,
      I have written copiously about buying holiday homes and about Turkey in particular. I don’t think I can add to what I’ve already said.
      Here are some page references:
      http://www.property.org.uk/unique/blogs/Buying-Real-Estate-in-Turkey.html
      http://www.property.org.uk/unique/blogs/Buying-Real-Estate-in-Turkey-2.html
      http://www.property.org.uk/unique/blogs/turkey3.html

      I could do a simple 10 reasons why you should not invest in Turkey.
      1 Why do you want to buy a holiday home? They take forever to sell again when you finally realise it was an uneconomic decision to buy in the first place.
      2 Why not invest your money and use the dividend to rent a holiday home when you want it without the worry of maintenance, depreciation, and taxes. Example: say you have £100,000. Buy two cheap buy-to-lets in the UK and rent each for £500 a month. Say the profit is £400 a month, total income £800 a month, or £9,600 p.a. That equals just under 10% ROI. Alternatively, invest in a company that invests in rentals. That will give you a better return. Can you not rent a holiday home for £10k in any one year? You can rent for the whole year for much less than that in Turkey.
      3 Buying a holiday home in a foreign country = investing in that country. Would you invest in a badly run company that was going bankrupt? If not, why invest in a badly run country that is going bankrupt? Erdogan is incompetent, has sacked competent guys and replaced them with place-men. He has said he will renege on foreign loans, so the country cannot borrow.
      4 The turkish lira had lost 40% of its value in a year last time I looked. The economy is on the rocks. Foreign loans cannot be serviced. Investing in such a situation is IMHO sheer madness.
      5 Inflation is rampant so the value of your property will decrease by the month.
      6 Politically the country adjoins Syria, one of the most unstable countries on the planet. There is ongoing disruption with the Kurds, and Turkey is at odds with Russia, and more recently, with the US, ostensibly over hostages, but there are more long term problems.
      7 Not sure how good your Turkish is, but when a country is sliding into chaos it doesn’t pay to speak the ‘wrong’ language. If you have problems, which you will, how are you going to deal with police and courts?
      8 The president is long on xenophobia. How well do you expect to get on with your neighbours when foreigners are being blamed for the country’s woes?
      9 You may love Turkey, but when you want to sell, you have to convince others that Turkey is a great place to invest in. Any ideas how you are going to do that bearing in mind all the negatives. You may not mind the obvious problems, but most people will take one look at the country and it’s future, and walk away. Selling at anything approaching what you might consider a reasonable price is not going to be possible in the foreseeable future.
      10 One usually invests in something that is on the way up not something on the way down.

      I suspect from your original question that you have done no research on the country. I find it hard to believe that anyone who knows anything about Turkey would even consider for two seconds investing in the place. Think Zimbabwe, think Venezuela…
      If you really want to invest in a fabulous holiday home, I’ll sell you one in Portugal. You can see the property here:
      http://www.property.org.uk/portugal/algarve-rentals/casadoarao.html
      john

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