Turkish delight

Major regional banks are busy capitalising on Turkey's thriving real estate scene - which should tell you something about its investor potential.
Turkish delight
By Dominic Ellis
Mon 15 Sep 2008 04:00 AM

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.

Growing ties• Kaizen Developments, headquartered in the UAE, recently announced it is offering international Islamic financing for its development projects in Turkey. It has negotiated an arrangement with Kuveyt Turk, which will be providing up to 90% financing. Kaizen Developments' customers can avail of financing in New Turkish Lira, US dollars and Euros.

• The UAE Ministry of Economy participated in the third Turkish-Arab Economic Forum in Istanbul in June.

• Gulf investment totalled US$103 million between January and September last year, according to the Turkey State Planning Organisation.

• Trade volume between the UAE and Turkey hit US$3.7bn in 2007, with Turkey's main exports to the UAE comprising iron and steel, textiles, clothing and accessories, while the UAE traded mainly gold and silver products.

• Internationally Sukuk - referred to in Turkey as ‘participation certificates'- is one of the fastest growing asset classes in financial industry.

• The Turkish economy grew by 6.6% in the first quarter of 2008.

Where the banks lead, the developers aren't far behind. Emaar Turkey, the country-subsidiary of Emaar Properties, has bought 73,571 sq m of prime land for mixed-use development in Istanbul with Toprak Holding as part of a US$400 million deal.

Located in the Istanbul Asian side, close to main highways, it is also in proximity to the proposed metro line that will join the rail tube tunnel under the Marmara Sea connecting Asia to Europe, which is scheduled to open in 2009.

Dr Nader Mohammed, Regional Managing Director, Emaar International, said Turkey is one of the key emerging markets and it is exploring various development options in the country.

"The new land deal will be a step forward in our efforts to build a strong development portfolio in Turkey, and introduce world-class master-planned communities in line with our projects around the world."

Emaar's expansion into Turkey is in line with its Vision 2010 to become one of the most valuable companies in the world through geographic expansion and business.

Ozan Balaban, General Manager, Emaar Turkey, said the company has already gained a strong presence in the Turkish property sector with the launch of Tuscan Valley Houses, heralded as a "pioneering master-planned neighbourhood," and claims the US$700 million project has received overwhelming investor response from international investors.

The new land will also be utilised for a project of similar appeal," he said.

Located in Buyukcekmece, one of the fastest growing and much-sought after residential locations near Istanbul, Tuscan Valley Houses - with its 555 upscale villas - replicates the master-planned residences Emaar has developed in Dubai.

Much like the Gulf, one of Turkey's major selling points is its accessibility, nestled at the foothold of Europe and close to the CIS, Middle East and North Africa, a collective market of some 1.2 billion consumers. It is also reaching out to foreign investors in the fields of energy, telecommunications and infrastructure projects.

Despite the attractiveness, there are still risks of investing in Turkey, as anywhere. The Anatolian sub-continent sits along major fault lines, and is inhabited partially by Kurdish separatists in the southeast.

A major earthquake in Izmit killed 20,000 people in 1999, and scientists predict an even more devastating quake sometime over the next 30 years for Istanbul.

Turkey has occasionally hostile relations with neighbouring Syria, and also borders on Iraq. The political fragility of its national institutions could be tested if the EU tries to up the ante in the ongoing dispute with Cyprus.

Bodrum beauty

Mohamed Marei, Director of Asset Management at Unicorn, said the Bodrum Peninsula has emerged as the most high profile coastal tourism and vacation homes destination in Turkey due to year-round pleasant weather, a peaceful atmosphere and excellent infrastructure facilities including a well-served international airport.

"This has resulted in a strong real estate market and attractive rental yields," he says.

"The development sites identified by the company are ideally situated in prime locations along the coast and target a range of buyer segments, from medium priced units to luxury homes."

Demand has been fuelled by a number of different factors, including attractive pricing relative to other Mediterranean markets, the recent introduction of mortgage products targeted at foreign buyers and growth in direct international flight routes.

Located on an unspoilt stretch of coast between the better-known Turkish resorts of Cesme and Kusadasi, Ozdere is another rising star.

Dominic Whiting, editor of the Buying in Turkey Guide, (www.buyingin.co.uk) said only a few foreign buyers have discovered the area which boasts fantastic beaches but is very laid-back even in the height of summer.

He says property prices are some of the lowest on the entire Turkish coast and it is still possible to buy a well-built new apartment with good facilities within five minutes' walk of the beach for as little as US$72,540.

Buyers memo• Property prices in Turkey are still very affordable and a one-bedroom apartment can be picked up for US$29,413 even in the popular region of Antalya.

• But remember distances in Turkey are vast - there are 56 regions - so take time deciding whether you want to plump for cities or regions.

• If you're looking to rent out your property, are you targeting the local or international market? Turkey may be a vast country of 70 million people, but the average minimum wage is little more than US$370.

• Stamp duty is levied as a percentage of the value of the document at rates ranging from 0.15% to 0.75%.

• Buildings and land owned in Turkey are subject to real estate tax for residences. (0.1%).

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