This may worry some sectors but the property sector isn’t among them. The Turkish Parliament has just adopted the much-publicised bill dropping the reciprocity clause of Turkish foreign ownership laws. While the government will yet have to decide which nationalities of the 89 currently excluded will be allowed to buy property in Turkey now, we fully expect the new list to include most if not all of the previously excluded Arab states.

This is coming at a time when Turkey’s popularity in the Arab world is at an all time high, and at a time when the Arab Spring has effectively eradicated much of Turkey’s competition for Arab tourism and investment.

Arabs like to holiday and/or invest in property in Arab countries, or failing that at least in Muslim countries. Thanks to the Arab Spring the likes of Egypt and Syria are no longer safe places for the family holiday and you need additional courage to consider investing in once-hot Egyptian property. This, along with the many visa-free deals Turkey signed with Arab countries (as if with foresight) before the Arab Spring, and Turkey’s standing up to Israel, have put its popularity with Arabs at an all time high. When they are allowed to buy property it is anticipated that the new business will add billions to the Turkish property market each year.

The Turkish property market is already growing strongly. According to the latest index from the Association of Real Estate Investing Companies (GYODER), Turkish property prices grew 1.28% on the month in March, and 11.62% on the year. This represents an acceleration on February’s data when growth was 0.60% on the month and 10.42% on the year, which was in turn was an increase on January’s annual growth figure of 9.97%.

It is a shame we haven’t yet had GYODER’s data on foreign purchases in 2011, if only to compare with the data from this year next year (and see just how many new foreigners we did get). GYODER revealed last year that foreign purchases in 2010 had grown by 40% year on year, and experts believe 2011 was even stronger. Now with even more nationalities allowed to buy in Turkey we can only predict further growth.

Under the new law foreigners need special permission only if they want to buy more than 30 hectares, the previous limit for special permission was 2.5 hectares. This is also expected to increase sales and revenue flowing into the Turkish property market.

In the latest release of the Knight Frank global house price index we have Turkey as the 7th fastest growing market with 7.7% growth on the year. But looking back Turkey only comes into the index as of Q2 2010, which is after the Turkish Association of Real Estate Investment Companies (GYODER) began publishing a monthly index from January 2010.

In fact, the CNBC chart is based entirely off of a top 10 table in the sidelines of Knight Frank’s Q4 pdf, in which they rank the top 10 best performing markets on their 5 years growth. The chart ranges from Switzerland in 10th with 27.5%, to Columbia in 5th with 39.4% and China in 1st with 110.9% growth in prices over the last 5 years.

Note Columbia in particular. Columbia is in the CIVETS grouping of hot emerging markets to replace the BRIC nations, which stands for Columbia, Indonesia, Vietnam, Ecuador, Turkey and South Africa.

As you can see Turkey is also in there, and looking at the averages Turkey should be in the table around about the same position. Columbia’s 39.4% gives it 7.88% growth per year over the last 5 years on average. According to GYODER Turkish property prices grew by 15.86% between January 2010 and December 2011 (2 years), giving it an average growth rate of 7.7% per year.

However, Turkey’s absence from the Knight Frank and CNBC charts is actually somewhat of a good thing. According to CNBC the growth in these markets over the past 5 years has “[sparked] fears of an asset bubble and concerns over the impact of high household debt”. But actually, the bottom half (5-10) of the table have very reasonable growth rates of 7.88% or less, it is only when you cross into the top half of the table you have the heat.

Singapore in 4th with 50.5% isn’t even that bad at 10% per year, although we do know that it is a market that overheated with city apartments fetching record sums each week and the larger population priced out of the market. Israel in 3rd’s 54.5% doesn’t seem all that unreasonable either, but again, we know from reports that the market is overheating because of rapid price escalation in main urban centres, which may be is masked by the picture in the rest of the country, which is far more reasonable.

But then we jump into the big leagues, Hong Kong in 2nd with 93.7%, and China in 1st with 110.9%, although it has to be said that China is based solely on Beijing. That is average annual price growth of 18.74% and 22.18% respectively, whereas wage growth is nowhere near these levels. In these markets people are either taking debt at a critical mass to buy homes or are being priced out of the market.

Even in Turkey debt is rising, but the market is not overheating nor is it likely to anytime soon. The banking system, which has been near-constantly reformed since 2002, prevents it, because mortgages are lent based on the banks-own valuations of property, not on the asking price. So a borrower will be given 70% of the banks valuation on a 70% LTV loan, not 70% of whatever the asking price is. Therefore, the central bank, which has an office in every bank in the country to monitor, is effectively controlling the rate at which house prices grow at in Turkey. Thus, investors can invest in the safety of the fact that price growth will remain stable at around 7% per year over the long term.

Ever since those events, more and more people have sought to move away from high street and traditional managed pensions, and to manage their own pension fund by investing through things like Self Invested Personal Pensions in the UK, Individual Retirement Accounts (IRAs) in the US and similar products elsewhere. These allow the investor to choose his own investments and add them to his SIPP/IRA account, and receive tax-breaks and government incentives to boost their investment.

Can I Put Turkish Property into My Pension Fund?

If you have one of the accounts mentioned above, or similar, and you want to put Turkish property into it, then the answer is, yes and no. Yes, you can put Turkish property in, but no you can’t put any property you chose in.

For example, SIPPs only allow commercial property investments, but most buyers in Turkey want a holiday home. Fortunately the definition includes managed resort properties. So, this allows you to still buy a holiday home and put it in your SIPP. In the case of IRAs the net is much wider, you can buy any property in any country, but there are a whole host other rules stating things like all investments must be for the benefit of the IRA and only the IRA, things like that so you need to either research these rules carefully, or work with some one who has. The same goes for any such investment account, if you can’t become one with the rules, then work through someone who can/is.

Which Turkey Property is Good for My Pension?

It depends what you want from the investment. If you are looking for a holiday home that will make money too, then you should go for a resort property on either the Mediterranean or Aegean coast. Altinkum property is a good place to look, because it offers among the cheapest property in Turkey, making for high rental yields.

Finding one that comes with rental management is not only good because it will allow it to be invested in as part of a SIPP account, but because it also allows for a hands free investment. On top of that rental management often goes hand in hand with guaranteed rental yields, which is good for a pensions investment, because it allows for precise calculations and reduces the possibility for unpleasant surprises. Our Apollon Holiday Village comes with an optional rental management program run by travel giant Thomas Cook.

Alternatively, if you want purely an investment, that just earns but earns all the more for it, then you should focus your search on the major cities, Istanbul, Izmir and Antalya in that order. These have populations that are rising rapidly in affluence and number, causing incredible demand for property to buy and rent. With demand outstripping supply rents are rising, and with property undervalued rental yields are strong.

The truth is that there is very little to choose between them. Both have the core emerging market strengths in abundance, growing economy, growing employment, growing population, extremely high consumer confidence and consumer spending and growing tourism, all pointing to incredible demand for property to buy and rent in cities and touristic areas.

Thank fully there are some areas that separate them, well, there really had to be given that they are two vastly different countries, almost on opposite sides of the world — almost.

Brazil Upsides

World Cup 2014:

Brazil will be amidst World Cup fever as national football teams and their fans descend from the four corners of the world on Brazil to celebrate and enjoy the biggest event on the global football calendar in 2014. Going by past reports, the World Cup is a very lucrative event for economies and property markets.

In the run up to the games (starting as early as now) you have values rising as buyers and investors jostle for properties near the stadiums. This is because local authorities and governments will tend to upgrade the infrastructure in areas where the event is hosted, and also because such properties will rent out for 5 figure sums during the tournament, on top of their already strong rental potential. And then during the tournament you have the aforementioned five figure rentals.

After the games values tend not to drop back down because of the economic boost given by the games, coupled with the aforementioned infrastructural improvements and regeneration investment.

Olympics 2016:

But in Brazil values definitely won’t drop back down, because when the World Cup winds down we will already by in the build up period to the 2016 Olympics in Rio de Janeiro. Sure, the Olympics is only in the capital, but it still gives a massive boost to the entire economy of the host nation. Businesses are set up and grow in service of millions of extra visitors coming into the country, more and more jobs are created in the capital and in these businesses and the economy is boosted.

The capital may see the bulk of the property appreciation and strong rentals from the Olympics, but property markets across the country benefit from the economic growth in the months and years afterwards.

Lack of Mortgages for Foreigners

In Brazil the mortgage market is very small, and there is little or no chance of foreigners being able to get a mortgage to buy property in Brazil. This limits the market to those who either have the cash to buy outright, or who can raise finance in their own country.#

Turkey Upsides

Mortgages for Foreigners Readily Available

While Turkey will never be the easiest country for anyone to get a mortgage in, mortgages are certainly more readily available in Turkey than in Brazil, and precious little more difficult for foreigners to obtain than for residents.

Central Location – Accessibility

Turkey straddles three of the world’s most prominent continents, Europe, Asia and the Middle East, which also makes it very close to Africa. This central location makes it close and therefore easily accessible for millions of buyers.

This is a particular strong point at the moment when Russians, Chinese and Scandinavians become the biggest purchasers of overseas property in the world. It is also a plus in terms of population growth, with Turkey’s economic growth attracting people from these regions to come and live, work and study in the country.

Turkey is Having its Day

We all know about the BRIC economies, how Brazil, Russia, India and China were grouped together as the hottest emerging markets in the world. But that was over 10 years ago. Now new groupings are being named as the hottest emerging markets for the short-mid term: the CIVETS, and the MINT economies. Turkey puts the T in both of them; Columbia, Indonesia, Vietnam, Ecuador, Turkey and South Africa are the CIVETS and Mexico, Indonesia, Nigeria and Turkey are the MINT economies.

Visa Free Deals

Turkey is the driving force behind a visa-free neighbourhood in the area surrounding it (which, as covered is a big one). The program already has sixty nations signed up for visa free travel with Turkey, including Portugal, Russia, Kosovo, Albania and many more.

Turkey Downsides

Young Market

While Turkey looks shiny and new in the CIVETS and MINT groupings, it is in there because it is a young market. This means that many of the safeguards and regulations to protect investments are yet to be made. However, if you do your due-dilligence properly this needn’t be a huge problem.

Troubles with PKK

As most will know, the PKK is a Kurdish political party that is on most global terrorism lists. However, while it does sometimes launch terror attacks in Turkey, it is usually in the north, miles from any touristic locations, and they also never attack civilians (no mass carnage bombs) only police and military targets.

Conclusion

As I said, Turkey and Brazil are two markets very closely matched in terms of property investment potential. In fact, the biggest differentiating factor is in personal choice and in what you want/need from your investment.

Obviously if you are looking to get a foreign mortgage then your choice is made up for you with Turkey. Also, if you are making a holiday home investment and live in Europe, Asia or Africa, then Turkey is likely going to be the most accessible.

However, if you were to ask me to go out on a limb and choose which is the best overall, I would have to say Turkey. It has a strong stable banking system, a strong stable economy, which was the fastest growing in Europe in 2011, and property prices are growing in a much more steady way. Property prices in Turkey are currently lower on average than Brazil, and while places like Natal and Sao Paulo are seeing double digit growth, Turkish prices are growing at around 6% per year.

Growth is now expected to slow, because of the worsening economic picture outside of Turkey, as well as an intention to slow growth to a sustainable level. In its Medium-term Economic Program the government recently forecast a growth rate of around 4% this year, as it focuses on shoring up the economy and on sustainability. But the IMF predicts no such soft landing; its forecast of zero-growth this year is a far cry from the 6% it was forecasting a few months ago, which is a testament to just how volatile the global economy is right now. Anyway, experts are tending to agree that we will see a soft landing.

“A destructive decline in [economic] growth is out of the question and the rate of 4 percent mentioned in the government’s Medium-term Economic Program [OVP] is logical,” said Ercan Uygur, president of the Ankara-based Turkish Economic Association in a phone interview with Today’s Zaman.

Selim Işıklar from Info Securities Inc believes that the government’s forecast may even be surpassed because the Turkish companies operating abroad had lost out heavily in Arab countries during the Arab Spring, and would make up those losses in the year ahead.

But since the AK Party came to power it has consistently grown and bettered itself in almost every way possible to the point where, not only is it no longer one of the sickest economies in Europe, but is one of the strongest economies in the world. Here’s how.

Reforms and Stability

The AK Party won power on a wave of discontentment at the corruption and economic mismanagement and took over an economy in the aftermath of one of its frequent crashes. That crash crippled the banking system and the AK Party heavily reformed it as a result, including increasing reserve levels and posting an office of the central bank in every branch to take daily reports. That, combined with Turkey’s small mortgage market and subsequent small exposure to the sub-prime contagion meant Turkey’s banking system was able to stand firm against the financial crisis and came out of it relatively unscathed.

The AK Party had also paid down Turkish debt from 74% of GDP when it took power in 2002 to 39% of GDP in 2009, and debt to the IMF from $23.5 billion in 2002 to $7 billion in 2009 and to 5.5 billion in 2011 according to Prime Minister Erdogan. It is poignant that Turkey ended its standby arrangement with the IMF in 2010, and 2 supposedly established markets Ireland and Portugal asked for emergency IMF aid shortly after.

The AK Party also consistently lowered inflation, with a big drop from 45% in 2002 to 25.33% in 2003 and then to 8.6% in 2004, before staying between 8 and 10 per cent until 2009 when it dropped to 6.2%. Thus, when the financial crisis struck and Turkey reduced its interest rates, it wasn’t just a rapid response to stem the crisis, but a measured policy response to falling inflation. This gave investors the confidence that interest rates wouldn’t shoot back up just as quickly, or certainly more confidence than many places could offer.

Growth

In 2001 Turkish GDP contracted by 5.69%. This was preceded by a 6.77% growth in 2000 and a 6.16% growth in 2002. This kind of cycle was normal in Turkey, in fact before 2002 the economy has a crash and year long recession about once every 5 years. But that cycle is broken by the AK Party, as GDP then grows at an average annual rate of around 6% between 2002 and 2009, at which point it suffers a year long recession, but as a result of the international crisis, not an internal disaster as was the norm pre-2002.

After a yearlong recession Turkey comes out of the financial crisis one of the strongest economies in the world. The recession officially ended with a 6.4% growth in Q4 2009 before soaring into double digit growths of 11.7% and 10.3% respectively in Q1 and Q2 2010. Growth then had a soft landing at around 6% for the next 2 quarters leaving the yearend total a strong 8.2%. Growth then accelerated back into double digits, with 11% in Q1 2011 and 8.8% in Q2 Turkey was officially the fastest growing economy in the world in both Q1 and 1H 2011. Yearend figures for 2011 haven’t been released yet but we know it was a good performance in the second half as well.

Standing Out for all the Right Reasons – the Golden Boy of Europe

Lest we not forget that Turkey once stood out as the sick man of Europe, it has come to stand out for all the right reasons. During all this strong growth in Turkey the EU has suffered from abysmal growth in 2010 and narrowly avoided a double dip recession in 2011. Not to mention the sovereign debt crisis and the possibility that several EU economies including 2 of its 3 biggest would go bankrupt.

There we have Turkey with a strong stable banking system including high liquidity, a strong stable economy including growing employment, soaring exports and surging FDI and a population growing rapidly in numbers and affluence, it is easy to see why we would call Turkey the golden boy of Europe. Many economies can match Turkey on growth, but in terms of the overall package of stability and safety of investment as well as growth Turkey is set apart.

Of course, such growth pales into insignificance compared to the 30% per annum that signified a “hot” or “investment-ready” market back in the boom days, but now we all know the folly of an overheating property market, we can see this slow and steady growth as being absolutely what you want to see in an emerging property market like Turkey.

The key will be to ensure that the steady growth can be maintained once the property market is opened up to all foreigners. In other news of the last few days, the government announced that the new bill concerning the property market had been drafted and was to go up for discussion. The main thing on the bill is a proposed end to the reciprocity law, which prevents people from countries that don’t allow Turks to buy on their soil, from buying property in Turkey.

Thus, if passed the bill would mean buyers from an additional 89 countries. Many of the countries are wealthy Arab states and their citizens are already flooding into Turkey on holiday. The Arab Spring made Turkey a hot favourite for Arab and Muslim holidays, and just before it Turkish PM Erdogan had signed visa-free deals with many Arab States. Adding to this the potential for opening up the property market to Arab buyers and we could be looking at a perfect storm scenario.

The bill would also increase the amount of property foreigners can buy from 2.5 hectares to 30 hectares or more if they have plans for a specific development. The bill would also open up more of Turkey to foreign buyers as well as making it easier for them to buy.

Low Costs

We built the Diamond Villas development at just the right time, we were able to give buyers a great deal in a growing market, and the upside on the finished product was incredible in the months and years after the resort was completed and opened.

At the time Altinkum was the next upcoming market. Of course, many markets were upcoming then as Turkey’s popularity as a holiday destination really started to fly, but Altinkum was the place were we found the lowest costs. This is again allowing us to give buyers an exceptional deal on top quality properties, and with a huge potential for gains.

Space

When we were doing our market research to choose our next location, we found that many places were already being heavily developed in Turkey, especially in the coastal locations. Given the success of Diamond Villas we wanted to do something bigger and better and we needed the space to do so. This is another reason why Altinkum made the shortlist and one of the main reasons it was chosen as the site for Apollon Holiday Village.

Emerging British Favourite

Altinkum was emerging as a favourite with Brits and it has not let us down in this respect. According to data from the local tourism office, 80% of the 67,000 tourists welcomed by Altinkum in 2009 were Brits. We are unashamedly British and we know first hand that Brits prefer to buy from British developers, especially in a foreign country.