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PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
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DE RUEHIT #0373/01 1930841
ZNR UUUUU ZZH
P 110841Z JUL 08
FM AMCONSUL ISTANBUL
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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 
 
--------------------------------------------- --------------- 
Economic Conditions Dragging Down a Solid Housing Market 
--------------------------------------------- --------------- 
 
¶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). 
 
-------------------------------------------- 
Wanted: FDI in Turkish Real Estate 
-------------------------------------------- 
 
¶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. 
 
--------------------------------------------- --------- 
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. 
 
------------- 
Comment 
------------- 
 
¶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