VZCZCXRO4444
PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHIT #0373/01 1930841
ZNR UUUUU ZZH
P 110841Z JUL 08
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 8303
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHDA/AMCONSUL ADANA 2364
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHEHAAA/WHITE HOUSE WASHDC
RUEKJCS/SECDEF WASHDC
RUEUITH/ODC ANKARA TU
RHEHNSC/NSC WASHDC
UNCLAS SECTION 01 OF 02 ISTANBUL 000373
SIPDIS
E.O. 12958: N/A
TAGS: EAID ECON ENIV PGOV PHUM PREF SOCI
SUBJECT: TURKEY,S HOUSING MARKET BRACES FOR 2008
REF: A. ANKARA 1045
B. 07 ANKARA 432
C. ANKARA 723
D. ANKARA 699
ISTANBUL 00000373 001.2 OF 002
1. (U) Summary: Attendees in Istanbul at the annual meeting
of the Association of Real Estate Investment Companies
(GYODER) were pessimistic about the housing market in Turkey.
Both external and internal problems have doused the red-hot
Istanbul real estate market to a degree where even some
optimists are calling 2008 a "lost year" for Turkey.
According to some of the speakers, the timing of the real
estate slowdown was unfortunate, since it came just as the
mortgage industry was about to "take off" in Turkey. End
Summary
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Economic Conditions Dragging Down a Solid Housing Market
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2. According to the speakers at the annual meeting of the
Association of Real Estate Investment Companies (GYODER) held
last month in Istanbul, the real estate market will face a
downturn in Turkey this year. The speakers pointed to mostly
external problems, primarily the sub-prime lending crisis and
increased energy costs, as the cause of
Turkey's economic woes. Bulent Gultekin from the University
of Pennsylvania Wharton School criticized the U.S. for
exporting inflation to the rest of the world, which he cited
as a major factor for the increasing energy costs. Gultekin
stated the U.S. housing crisis will eventually hit the
Turkish real estate market, yet the Turkish economy is more
stable today and can better weather the storm compared to the
last economic crisis in 2001. Gultekin did caution that
Turkey faces "huge uncertainties ahead".
3. Many observers noted the strengths of the real estate
market in Turkey, yet even the optimists agreed the current
crisis will drag down the growing market. Professor Vefa
Tarhan from Loyola University in Chicago was upbeat about the
future prospects for Turkey, yet he called 2008 a "lost year"
and thinks the problems will likely continue until 2010.
Akin Tuzun, head of Citibank's Turkish Equity Research Group,
provided evidence of a slowdown of foreign investments to
Turkey; however, portfolio investments were hit hardest while
long-term real estate investments only dipped. Tuzun stated
the appetite for real estate investment appeared strong; yet
rising inflation and interest rates will push home ownership
outside the reach of many Turkish families. Nearly all the
participants at the GYODER conference cited rising interest
rates as the primary culprit as inflation returns to double
digits for the first time since 2004 (reftel A).
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Wanted: FDI in Turkish Real Estate
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4. Foreign investments into Turkish real estate are lagging,
compared to other sectors. According to Tuzun, FDI real
estate investment in Turkey today comprises only 17 percent
of total FDI investment, compared to over 80 percent in 2003.
While the total dollar amount has nudged up since 2003, the
growth of capital FDI in Turkey, namely privatization, has
greatly outperformed real estate. Tuzun noted Turkey lags
well behind other European nations for FDI in real estate.
In 2007, Turkish real estate attracted about 3 billion USD of
FDI. Tuzun said this is less than one-half of one percent of
its GDP, a very low amount compared to Greece, Spain,
Portugal and other European countries. Tuzun thinks that
total FDI in real estate should increase since Turkey needs
to bring in more money to correct its balance of payments.
According to Tuzun, real estate, along with other long term
FDI is a preferred form of investment since it cannot easily
flee the country. In contrast, short-term portfolio
investments can quickly be withdrawn, possibly exacerbating
an economic crisis.
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Bad Timing for Mortgage Industry in Turkey
--------------------------------------------- ---------
5. Most observers lamented the timing of the current
economic slowdown, occurring just when Turkey's mortgage
industry was maturing. Terhan stated mortgages were now
becoming available for many Turks, allowing thousands to
ISTANBUL 00000373 002.2 OF 002
achieve home ownership. Terhan noted the real estate sector
was about "ready to take off," until the recent crisis
occurred. According to Turkish Housing Expert Haluk Sur, home
mortgages were nearly non-existent in 2001, slowly grew until
2004, and then shot up rapidly in 2005 and 2006. Despite the
dramatic increase of mortgages, Turkey still falls short,
according to Sur. Consumer home mortgages only account for
four percent of Turkey's GDP, compared to over 50 percent in
the US and about 40 percent in European countries.
6. Sur points out the drop in interest rates was a
significant reason for the growth of the mortgage industry.
Few Turks financed their homes in 2001 when interest rates
were at 66 percent; however rates less than 12 percent
attracted many home buyers in 2005 and since then rates
generally have stayed below 20 percent. These rates were
relatively low, yet they do deter home buyers from taking out
long term loans, opting instead for contracts of no more than
six years' term, according to the Banks Association of
Turkey. Alexander Batchvarov from Merrill Lynch said
additional mortgage products should be introduced to Turkey,
allowing a greater slice of the public to gain home ownership
through borrowing. Home loans make up less than half of all
consumer loans in Turkey, according to the Banks Association.
In contrast, home loans make up the lion's share of consumer
debt in the U.S.
7. Legal reforms have also recently assisted the mortgage
industry. The Mortgage Law (reftel B) which is now gradually
being implemented, provides stronger legal framework for
those wanting to purchase land on terms other than cash up
front. Moreover, according to press reports, parliament is
currently drafting a bill to allow primary mortgage lenders
to sell their mortgages, thus creating a secondary mortgage
market.
8. Parliament passed a law July 3 permitting the purchase of
real estate by foreigners in response to two constitutional
court rulings which prohibited foreigners from purchasing
land in Turkey (reftels C & D). The new law allows foreigners
to own up to 10 percent of the total land in a sub-provincial
administrative unit of varying sizes. Foreign citizens and
companies, however, will still be restricted from owning land
in areas protected for security, environmental, cultural, or
religious reasons. Opposition Republican People's Party
(CHP) deputies, who led the charge to overturn previous laws
that eased restrictions on foreign ownership of land, have
criticized the current law; a sign they may bring the matter
again to the courts.
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Comment
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9. (SBU) Double digit inflation and mortgage interest rates
over 20 percent will stifle the Turkish real estate market,
ending the impressive gains made over the past few years. The
timing of this slowdown will hit the mortgage industry just
as it is beginning to mature. Recent legal reforms will not
likely adequately offset the negative economic realities
facing the housing market.
WIENER