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Overseas Property,
Overseas Mortgages
By Mark Nichols
Jul 11, 2008 - 11:46:11 AM
Turkey has been a favourite haunt for holidaying Brits for many years but with the recent change in property law Turkey is now a viable location for Brits who want to invest abroad. The tourist industry in Turkey is a growing business, 19 million people visited Turkey in 2006 and it is expected that more that 25 million will visit in 2007. This combined with the growth of the Turkish economy has meant that many foreign investors have gained confidence in Turkey and have become attracted by the country’s potential. In fact, after successfully hosting a number of high profile events such as the UEFA cup and the Formula 1 Grand Prix, the tourist industry looks set to grow and grow which, in turn, will attract even more people to the area. So, it seems that the first ever mortgage law for Turkey approved in Turkish courts couldn’t have come at a better time. This law allows easier access to property in Turkey for both residents and non residents; mortgage lenders can now offer variable–rate mortgages for property buyers and, most importantly, this law now allows lending to non residents. Although plans to change the mortgage law have been discussed for a number of years the law was only ratified this February which took many lenders by surprise. In fact, the Turkish government appointed the Capital Markets Board to establish the legal framework for the mortgage business way back in mid-2004. The sudden enactment of this law means that there’s a delay in lenders bringing specialised products to the market as they weren’t ready for the change. Initial discussions within the sector predict that products will have a 75% LTV and will contain some mandatory life and property insurance. While the ability to provide mortgages is recent, the Turkish banking system itself is quite sophisticated. Internet banking is common and it is possible to apply for a personal loan via text message, answer ten questions and have the loan approved in minutes. With this extension to the mortgage sector many believe the mortgage market will swell which will fuel competition between banks and heighten the already booming property market. Despite all the positives there are still a number of factors investors need to take into consideration before planning their Turkish property. The base rate is considerably higher than the UK and currently stands at 22.5%, down from its 2002 high of 62%. The Central Bank of Republic of Turkey currently states that inflation is running at 10.16%. Also, Turkey has suffered from a quality housing shortage for decades due to overpopulation, unqualified or illegal housing and internal migration. In fact, the Mortgage Finance Gazette recently quoted that 60% of the housing stock is built illegally without a proper license, whilst at least 40% needs renewal. These factors could cause difficulties when it comes to investment. However, there is still a keen rise in the number of UK citizens who own Turkish property. The Turkish embassy has quoted that at the end of December 2006 there were 17,433 UK citizens who own Turkish property: a rise of 24% from July of the same year and a sharp rise from just 3,000 Brits in 2003. As investors begin to descend on Turkey and demand for housing increases, the economy will strengthen and there will be a further focus on creating quality homes to match the demand. This will result in more new homes being built (especially as more people want properties built after the 1999 Izmit earthquake as they have requirements to be earthquake proofed). This increased demand for better quality housing will of course result in a rise in property prices – but many believe the new investment opportunities in Turkey will still prove popular. So where is the best place to buy in Turkey? Recent research by Obelisk International, a major American real estate company, quoted the Bodrum peninsula in Turkey as the top investment location for 2007. Property prices in Bodrum are already on the rise but this location is proving one of the most popular in Turkey. The mortgage market in Turkey has gone through many difficulties and was badly hit in 2006 with the fluctuation of the Federal Reserve’s interest rates which meant many investors pulling out of emerging markets. In fact, May 2006 saw the Turkish Lira sink by 30% in value in just a month but 2007 could hold a brighter future for the Turkish economy.
For now the Mortgage Law is very new so its effects on the sector, and indeed the country, can’t yet be seen. As people become used to the new system, lenders will introduce more products and the demand for quality housing from investors and its own residents will increase. The products for Turkey allow for up to 75% loan to value, with a term of up to 20 years. Rates available vary from 7.2% in euros and 8% in Sterling all product currently are full status and full repayment only, the mortgage market in Turkey will develop further. In fact, Turkey could prove to be a delight for investors.
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