A new wave of wealthy investors from the Middle East and Russia is increasingly eyeing luxury developments in bustling Istanbul, lured by a relaxation in property laws, relatively cheap prices and a thriving economy.
At the Varyap Meridian complex, 92 percent of 1,200 apartments on sale have been snapped up three months before the development is fully open, 7 percent of them by foreign buyers.
“Istanbul is becoming a second London for the Arab world,” said Erdinç Varlıbaş, chief executive of Varyap, the developer of Varyap Meridian.
A revision to Turkish property laws, announced in May, abolishes a reciprocity rule that only allowed investors from countries where Turkish nationals could buy real estate to buy property in Turkey. The bill also allows the government to double the amount of land foreigners can buy in Turkey to 600,000 square meters, although for now a limit of 300,000 square meters remains.
Turkish property prices marked the third-fastest growth in the world in the year to June, behind Brazil and Austria, surging more than 10 percent and outpacing Russia and Hong Kong, according to the Knight Frank Global House Price Index.
Rising prices and the prospect of relaxed rules for foreigners are fueling lofty ambitions in Turkish property circles for Istanbul to match the rapid rise of other newly fashionable property hubs such as Moscow, where prime real estate prices now rival London and New York.
Turkey’s Association of Real Estate Investment Companies (GYODER) forecasts that property sales to foreigners could nearly double to $4 billion in 2013, from $2.5 billion last year as a result of the changes, which will open up the market to buyers from the Gulf, Russia and Central Asia. Annual purchases could reach $10 billion in the medium term, says the group’s chairman, Işık Gökkaya.
Investment funds are far more cautious. While they say Turkish property is attractive, prices are rising fast, raising the risk of a bubble in the luxury sector. Rental yields on luxury flats are a modest 3-4 percent although analysts do not expect a sharp drop in prices because low leveraging would allow owners to sit on assets if prices started to fall, limiting firesales.
In Istanbul the average asking price for a luxury apartment more than doubled to just over $4,500 per square meter at the end of 2011, from over $2,000 in 2004, according to data from property firm Colliers International Turkey.
While Turkey is often seen as a safe haven in the region, its proximity to strife-torn Syria poses risks while global economic uncertainty is making investors wary of riskier emerging markets.
“I see some level of market demand especially because of the troubles in the Middle East, but the levels expected, I’m not sure they’re reachable,” said Kerim Cin, managing partner of Colliers International in Turkey. Cin said the change to the law would enable foreigners to mop up any oversupply at the top end of the market.
BofA Merrill Lynch analysts reversed their long-held negative stance on Turkish real estate in August, saying lower interest rates and demand for new projects would help lift the sector over the next 12 months.
Oil-rich investors from the Gulf and Russia, who already flock to seaside resorts near the city of Antalya on the Mediterranean coast, are seen as most likely to take advantage of the new law to buy property on the coast.