First, let’s talk about the elephant in the room. Foreign investors are very worried about the new authoritarian streak that Turkey has developed since the April 16 referendum, which gives President Recep Tayyip Erdogan the power to rule the country until 2027.
That’s a long, long time and it basically means Erdogan is now a ruler of Turkey for possibly the rest of his life. He is already the longest serving leader of a major country and will remain in power for another 10 years at least.
He has already started persecuting his adversaries in politics, media and business. While supporters of Erdogan are happy with the development, most foreign investors have become very wary about putting their money into the country.
It is easy to see why. While home prices have risen across Turkey, what investors want most is political stability and for democratic principles to prevail. Turkey has gone in the other direction and even the European Union is concerned. The European Commission has put Turkey’s membership of the EU on hold.
Aran Hawker, a property developer in Istanbul, says there is a lot of fear among his wealthy clients that their assets will be seized by Erdogan’s administration. He says in an interview with the Financial Times, “My clients are looking actively in the EU, particularly in Portugal, where the golden visa programme [providing residency to anyone spending more than €500,000 on property] provides them with an insurance policy if life gets too dangerous, or unbearable, at home.”
Still, local buyers continue to prop up the property market in Turkey. The Turkish economy has done very well lately and there is a rising middle class in that country with high disposable incomes. Home prices in Istanbul have already gone up by 12 percent in 2017, despite everything.
The economy faces serious problems. The Turkish currency Lira has fallen in value and inflation has been on the rise. Buyers are worried that the much vaunted economic growth in Turkey has slowed down considerably.
A number of new luxury properties that were built recently in Istanbul remain unsold because of lack of buyers. Developers have been struggling to find buyers. Inflation has taken its toll, as has the fall in the Lira.
Ali Ağaoğlu, a top real estate magnate in Turkey and a loyalist of Erdogan said that there was soon going to be a wave of bankruptcies in the industry. He said that real estate developers were under a lot of stress because of lower demand and rising cost of construction.
Erdoğan has chosen to stimulate the economy by focusing on the industry rather than on the real estate market. Banks are under a lot of pressure from the government to recover bad loans made out to home owners. Because of the increasing number of foreclosures, there is today a glut of new homes on the market. Not a happy sign by any means.