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Turkish Foreign Property Ownership Law Sparks Optimism and Fears

February 4, 2006

By Christopher Deliso

A new law giving foreigners the right to own property in Turkey is expected to launch a buying frenzy, as Europeans try to buy up prime slices of the Aegean and Mediterranean coasts, says the Oxford Business Group’s senior country editor, Anthony Skinner.

In a January 31 report, the economic analyst maintains that with late December’s law, “profit margins are expected to swell for agents and brokers alike.” Indeed, even during an acquisitions freeze imposed in July 2005, “the value of foreign-owned real estate notched a warm $1.4bn between January and November 2005.”

Foreign confidence that legislation would eventually right itself, despite protests from the opposition Republican People’s Party (CHP) and a signature campaign, seems to have been vindicated once and for all. Raymond James analyst Kerem Tezcan stated for the OBG that “we have seen the end of the story-  there is not much the opposition can do anymore.”

Of course, clear limits to what foreigners can and can’t buy have been stipulated. Military zones, resource-rich areas, national parks and so on are off-limits. However, the report notes, “while land purchases cannot initially exceed 2.5 ha, – equivalent to the size of five football fields – acquisitions can in fact be increased to 30 ha, subject to authorisation by the Council of Ministers.” On January 10 Turkish newspaper Zaman added that foreign-owned properties must be used “as private residences or workplaces.”

According to the analysts, British, Dutch, German and Greek buyers will make up the bulk of those snatching up Turkish property, though denizens of the sun-starved Nordic countries and the French will be represented as well.

But not only the Europeans are interested. James Wittering of property developer Exclusive-International reported on January 20 that wealthy investors from Dubai have “committed to an extended real estate investment program worth five billion US dollars. A spokesperson for Amberlamb the property investment specialists said “This financial commitment from Dubai is the first foreign investment offered to Turkey since an agreement with the EU was reached and is therefore seen as highly significant. It is also the first in an estimated 1.2 trillion dollars of inward investment that Turkey is attempting to attract from the Gulf States.'”

A recent example attesting to the popularity of Turkish coastal residences for foreign retirees and holiday-makers came late last month with the announcement of a 34-villa project in Bodrum by the British-Turkish consortium BraemoreGemini. According to a press release, “the numbers of reservations received by property investors and those hungry for real estate in this, the most stylish of Turkey’s resorts, has reached unprecedented levels in such a short space of time. ”

But the new law has also opened a whole set of questions regarding its effects on land management, economic development and the possible interaction between the Turks and their guests.

Visions of Swallowed-up Territory Worries Nationalists

Supporters of Turkey’s nationalist party fear that the most desirable parts of their country will be bought up by the descendents of the same Westerners who briefly divided up and occupied the same region in the aftermath of World War I. Turks are immensely proud of their homeland and safeguarding its integrity has always been paramount- and a potent political draw in a country still influenced to a great degree by military vigilance.

However, said Alanya Tourist Managers Foundation Chairman Mufit Kaptanoglu for Zaman, “foreigners have no intention of buying up the whole of Turkey piece by piece. Those voicing such arguments based on conspiracy theories.”

Indeed, another important safeguard envisioned by the legislation, says the Oxford Business Group, is that the total properties sold per province “cannot exceed 5% of the territory of any of Turkey’s 81 provinces. This restriction is to be monitored by the cabinet.”

Kaptanoglu and other representatives of the Turkish tourism industry believe that foreign real estate acquisitions will boost growth. Akdeniz Tourism Hoteliers Union President Osman Ayik adds that along with the expected boom in real estate sales, the Turkish construction sector will by necessity make gains, helping to lower unemployment.

And Reuters added on February 3 that “Turkish real estate companies expect the building and property sector to grow by more than 10 percent this year, while up to four property firms will list on the stock market.”

The race to get as much as they can before the territorial quota is reached will no doubt spur coastal real estate agents to act fast. But the greater part of inland Anatolia and Thrace is likely to remain untouched, save by those more intrepid property hunters who don’t mind trading Western-style amenities and sandy beaches for more affordable property in distinctly Turkish areas- many of which are immensely interesting and beautiful in their own right.

There is also Turkey’s long Black Sea coast in the north, which is likely to attract interest once the Aegean and Mediterranean markets become oversaturated. Istanbul, Turkey’s cultural capital, may also become popular with those expected by the prospect of living in a historic and dynamic city.

A Danger of Overdevelopment?

However, could real estate development, currently buttressed by demand and commanding prices that would have been unimaginable 15 or 20 years ago, actually harm itself in the long run?

It seems reasonable to fear that hideously bland properties, advertised enthusiastically on the internet by mostly British brokers, could turn Turkey’s most beautiful landscapes into antiseptic geriatric parks for Europe’s pensioners- thus harming the beauty and desirability of the Turkish coast. This is something that could, in the long-term, negatively affect value. The Turkish government’s attempts to keep control of the situation through zoning restrictions have long come up against opposition from the real estate lobby, for obvious reasons.

With the adoption of the new law, disclosures by companies like Braemore-Gemini – that their Bodrum project “is only the start [of] plans for the Turkish real estate market” – strike fear in the hearts of environmentalists and others concerned that whatever natural beauty and singularity wasn’t killed during the great resort proliferation of the 1980’s has not long to live now that foreigners have gotten the all-clear to buy.

Indeed, as the press release noted, “Bodrum is rapidly becoming known as the Monte Carlo of the Aegean because it is so chic and sophisticated – and its appeal has begun attracting European stars and celebrities in their droves. Many famous TV, film and sporting faces from across Europe are known to have second homes in the Bodrum region and this is increasing the international popularity of the entire Bodrum Peninsula region of Turkey.”

Then there is the question of North Cyprus, which also features its share of fine beaches. Although Turkish and foreign companies are moving aggressively to profit from properties in the north, the divided island’s legal limbo, as well as the possibility that Greek Cypriots might someday make claims on properties taken over by the Turks following the 1974 invasion, mean that caution may be in order.

Other Worries: Bird Flu and Bombings

Concerns have also been raised over whether the Turkish property market, despite the liberating new law, might be harmed by fears of bird flu. Exclusive International’s James Wittering, while admitting that his company has “a vested interest” in promoting Turkish property investment tries to put the problem in perspective by arguing that “with every potential (and actual) epidemic in history, bird flu will eventually lose its power, certainly by the time any property you could buy today has been built.”

A more pervasive problem, however, is terrorism. When Greek tourism rebounded in 2005 following an Olympic summer that was disastrous for many hoteliers, Greeks were quick to point to the July bombings in Kusadasi and Istanbul as proof that their country was a safer destination than its allegedly volatile, Muslim-inhabited neighbor to the east.

Terrorism in Turkey promises to be a less dramatic problem than freak outbursts of infectious disease, yet a more pervasive and longer-lasting one. It is also more complex, given the double existence of ethnic separatists, the Kurds, and religion-minded Islamic terrorists. The former hope to cripple the Turkish state economically to expedite the creation of one of their own, while the latter are irked by Turkey’s liberal society and the growing number of non-Muslim tourists. And there are points of convergence for both: renewed violence from Kurdish separatists has been fed directly by the universally unpopular US actions in Iraq, overwhelmingly opposed by Muslim Turks on grounds of religion.

The Kurds raise fears because unlike other ethnic secessionists elsewhere, they have never shown qualms about taking the fight from the contested lands in the east to the cities and resorts of western Turkey. The potentially al Qaeda-linked terrorists also cause concern over their specific targeting of Western interests, such as the British consulate and HSBC bank in Istanbul in November 2003.

The actions of both have the potential to damage the image – and tangible assets – of the property market in Turkey far more than bird flu.

More Long-term Factors: Social Interaction and the Role of Religion

In the end, however, social issues determined by religion and politics may also play a strong, if subtle role in determining the future for Western permanent vacationers in Turkey. While Turks are glad to profit from catering to foreign tourists, theirs is a relatively conservative society, in which values such as modesty and decorum still hold. For Turks, drunken, vomiting Briton football hooligans and peeling, red-faced Swedes dancing on barstools are more to be tolerated than appreciated. Disrespectful foreigners occasionally wind up in trouble, even violently, for their indiscretions.

Further, Turkish national pride has been wounded by the EU’s perceived disdain for the country. Many Turks believe the European club intends to keep them at arm’s length for as long as possible, if not exclude them forever. That said, why should the Turks cheerily cater to the same people who want to deal with them only when they’re being served a drink or having their beds made?

How the Turkish government will handle the sensitive issues of religion and culture has been scrutinized closely by the EU, especially by states which are openly hostile to the prospect of Turkey’s accession. But the government has repeatedly made propositions which seem, for Europeans at least, to be alarmingly fluid and confusing.

Thus for every move it makes to be more “European,” such as abolishing the death penalty, and giving the Kurds more rights, the Turkish government seems to be on the verge of taking a step backward- such as with the ultimately unsuccessful plans to illegalize adultery in 2004 and, in late 2005, to ban alcohol in city centers and resorts. For all the EU’s talk about abstract principles and governance, the fact is that nothing could drive European tourists away faster than outlawing promiscuity and inebriation.

The Turks, of course, recognized the ramifications for economics and the separation of church and state and quashed both proposals- at least for now. But the fear that at sometime in the future such restrictive ideas could emerge once again remains.

In sum, the government’s flirtations with Islam in proposing legislation are influenced by a complex phenomenon of tugging and counter-tugging from the Islamic interests, on the one hand, and the army, the liberal urban populations, the EU and market-driven business and social interests on the other. Yet considering what it’s up against, the power of the former has been continuously underestimated. Religious parties have stubbornly and continuously created obstacles for a very well established and wealthy aggregation of the political and economic interests both foreign and domestic.

It seems the role of Islam in Turkish society will only increase with the perception that Westerners seek to dishonor Muslim values, as with the recent Danish cartoons imbroglio (the Turkish government, alarming some Europeans, even aligned itself with the “real’ Islamic states last fall by lodging an official protest over the cartoons). Even more so, the role of Islam and sympathy to those the West deems terrorists will rise should the Bush Administration attack Iran or other Muslim-populated states. Property-owning Westerners could yet find themselves unwelcome in their dream homes.

This is not to say that the future for foreign property owners is dire. Western-oriented business interests such as real estate are extremely powerful in Turkey, and the more they consolidate their position by attracting global partners and clients, the more political and media influence – key factors for shaping public acceptance – they can purchase.

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