Turkish delight

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A rendering of Emaar’s Tuscan Valley, Turkey.

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Major regional banks are busy capitalising on Turkey's thriving real estate scene - which should tell you something about its investor potential.

When Turkey's Minister of Economy, Mehmet Simsek, visited the UAE, Qatar and Kuwait to drum up GCC investor support earlier this year, he must have said something to warm the hearts of the region's banks.

Or perhaps they didn't need convincing about the country's potential; either way, it's been an extraordinary year, with the republic's two-way relationship with the Gulf blossoming beyond all expectations.

Turkey was plunged into political and economic uncertainty by a court case attempting to ban the AK Party over allegations that it had been trying to create ‘an Islamic state by stealth'. If anything, the commercial bond between Turkey and the Middle East couldn't be any more open.

Banks operating on Islamic principles in Turkey include Albaraka Türk, Bank Asya, Kuveyt Türk and Türkiye Finans, which administer about US$21.5 billion in assets. Although they represent 5% of the Turkish banking system today, the sector is tipped to double its share within the next 10 years.

But the real impetus is happening in the liquidity-flush Gulf, where all the principal banks are homing in on Turkey.

National Bank of Kuwait launched what it claimed was the first Islamic Turkey Real Estate Fund according to Islamic Shariah Principles in February. The fund, designed to achieve an expected net IRR of 18-20% per annum, is expected to operate between four and seven years.

Global's MENA Ijarah Real Estate fund, launched in July last year, recently closed and targets development and/or acquisition financing for a diversified portfolio of real estate properties in the Middle East, including Turkey.

Kuwait Finance House wants to add another 13 branches of Kuveyt Turk, in which it holds a majority stake, taking its tally to 113 by the year-end, and become one of the top 10 lenders by organic growth. With assets worth US$3.18 billion at the end of 2007, Kuveyt Turk is the third-largest Islamic bank in Turkey by assets, according to the Turkish Participation Banks Association.

Shamil Bank, a leading Bahrain-based Islamic commercial and investment bank and wholly-owned subsidiary of Ithmaar Bank, has successfully met the US$90m target for the Shamil Bosphorus Modaraba (a Sharia'a compliant Modaraba) for investment in Turkey's real estate, and it is projected to yield a 60% return on investment over three years.

Saudi Arabia's National Commercial Bank completed its acquisition of a 60% equity stake in Turkish Islamic bank Türkiye Finans for approximately US$1.08 billion this year.

Qatar Islamic Bank also aims to expand its finance institutions' network and undertaking feasibility studies in Turkey, and then there's Unicorn Investment Bank (Unicorn), which closed the capital for the Turquoise Coast Investment Company, which has been established to provide investors with opportunities in the vacation homes market on Turkey's Aegean Coast, principally around the Bodrum Peninsula.

Investment in vacation homes may prove a sound move, particularly with its favourable year-round climate, affordable cost of living and booming tourism trade - Turkey has seen 30% more arrivals from the UK this year compared with last.

It's not that the Gulf and Turkey have just woken up and spotted each other on the map - the UAE already has 21 Turkish companies, 27 trade agencies, and 244 trademarks, while Turkey has further committed US$40bn in investments to the UAE within the next five years - but the increased levels of financial real estate activity are symptomatic of just how closely the two countries are now working together.

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