When foreign capital flows to Turkey began to slow down after 2015, Ankara came up with the idea of citizenship perks. A regulation published in the Official Gazette in January stipulated that foreign nationals who make an investment of at least $2 million in Turkey or buy a home worth at least $1 million and keep it for at least three years would be awarded Turkish citizenship without any other conditions. The regulation covered also those who create at least 100 new jobs or deposit at least $3 million in banks in Turkey for at least three years or purchase government bonds worth at least $3 million and keep them for at least three years.
Since then, the greatest impact of the citizenship benefit seems to have been on realty sales. If foreigners continue to buy at the same pace by the end of 2017, Turkey may well close the year with a record in this sector.
According to Ministry of Economy figures, home purchases accounted for half of foreign direct investment (FDI) in Turkey in the January-September period. In the first nine months of 2016, Turkey had attracted slightly more than $9 billion in FDI, including $2.9 billion that went to real estate, which represented 32.6% of the total. In the same period this year, the total worth of FDI fell to about $7.3 billion, but realty purchases rose to $3.68 billion or about 50.2% of the total, marking the first time that real estate purchases have outstripped other FDI.
The real estate sector may have a reason to celebrate, but the overall outlook for foreign investments is far from rosy. The statistics speak of a roughly 40% decline in non-realty FDI — from about $6 billion in the first nine months of 2016 to $3.66 billion in the same period this year.
Moreover, the overall trend in FDI flows is clearly deteriorating. Turkey had attracted $13.6 billion in FDI in 2012, $12.9 billion in 2013, $12.8 billion in 2014, $17.5 billion in 2015 and $12.8 billion in 2016. The $7.3 billion figure for the January-September period is an omen that the year-end total could be the worst in the past six years.
On the bright side, real estate purchases by foreigners have been on the rise — $2.6 billion in 2012, $3 billion in 2013, $4.3 billion in 2014, $4.2 billion in 2015 and $3.9 billion last year. Based on the average quarterly figure for the January-September period, this year’s total could break a record by reaching about $5 billion.
The factors driving this upward trend include the depreciation of the Turkish lira, which has made Turkish homes cheaper, mounting turmoil in Middle Eastern countries, whose citizens figure high on the list of foreign buyers, and Turkey’s appeal to Middle Easterners as a Muslim country that is relatively more stable and liberal. Nationals of Iraq, Syria, Iran, Kuwait and Saudi Arabia figure prominently among the foreign homebuyers.
According to official data, foreigners bought 2,677 homes in Turkey in October, a 71% increase from the same month last year. The sales in the first 10 months stood at 17,918, a 21.3% increase from the same period in 2016. Saudis topped the list in October, purchasing 528 homes, followed by Iraqis with 344, Azerbaijanis with 278, Kuwaitis with 154 and Russians with 125.
Tamer Ozyurt, the head of a major homebuilding company, believes that growing instability in the Middle East is an important factor driving the foreign interest. “The more calm and stability deteriorates in the Gulf, the more Turkey becomes attractive as a safe region,” Ozyurt told Anatolia news agency. Altan Elmas, the president of an association of developers, said he expected that November and December would turn up even higher sale numbers.
Mujdat Guler, the chief executive of Nova Holding, a company that acts as an intermediary in home sales to foreigners, told Al-Monitor that Saudis were now buying entire apartment blocks and even entering big housing projects as builders. “Saudis have a big potential. They are buying abnormally at the moment. The domestic turbulence in Saudi Arabia will lead to a significant capital flow into the realty sector and other [economic] fields in Turkey,” he said.
According to Guler, home sales to foreigners would hit $5 billion by year-end. He regretted that Turkey had little to offer to buyers “above the middle-income level” and was thus missing out on higher turnovers. “Our prices are very low. If we can target the high-income level, real estate sales to foreigners in Turkey could spike to between $10 billion and $20 billion per year.”
Underscoring cultural dimensions, he said, “[Muslim] buyers are able to live here as if in their own countries — with mosques, calls to prayer and everything. Moreover, those who buy homes in Dubai, for instance, cannot become citizens, but in Turkey, they can. This is a big advantage for us.”
In light of these figures and projections, the year-end prospect is more or less clear. Turkey appears headed for an all-time record in real estate sales to foreigners, but could end up with the lowest inflow of non-realty FDI in the past six years.