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Dianne Wampler  06/02/2006 11:17:09 AM  From  DB/Inbox:  Dianne Wampler

Cable 
Text:                                                                      
                                                                           
      
UNCLAS        ISTANBUL 00956

SIPDIS
CX:
    ACTION: ECON
    INFO:   CONS PA RAO FAS MGT PMA FCS POL DCM AMB

DISSEMINATION: ECON /1
CHARGE: PROG

VZCZCAYO975
PP RUEHAK
DE RUEHIT #0956/01 1530809
ZNR UUUUU ZZH
P 020809Z JUN 06
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 5097
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY
INFO RUEHAK/AMEMBASSY ANKARA PRIORITY 5166
RUEHDA/AMCONSUL ADANA PRIORITY 2221

UNCLAS SECTION 01 OF 02 ISTANBUL 000956 
 
SIPDIS 
 
STATE FOR EUR/SE AND EB/IFD 
TREASURY FOR INTERNATIONAL AFFAIRS - CPLANTIER 
 
E.O. 12958: N/A 
TAGS: EFIN ECON EINV TU
SUBJECT: REAL ESTATE BOOM IN ISTANBUL GOING THROUGH THE ROOF 
 
REF: ISTANBUL 00798 
 
¶1. (U) Summary: Real estate in Istanbul is flourishing, as 
property prices have on average doubled in the past two 
years.  A confluence of demographic, economic, financial, and 
structural forces have come together to make owning housing 
increasingly desirable.  The most important of these is the 
fall in interest rates following the 2001 financial crisis. 
In response to increased demand, the price of real estate in 
Istanbul since 2004 has skyrocketed.  Before the recent 
interest rate increases and concomitant suspension in demand, 
market analysts expected this appreciation to continue at a 
pace of at least 10% per year through 2010, with prices in 
some areas increasing much more dramatically.  End Summary. 
 
---------------------------- 
A Story of Increasing Demand 
---------------------------- 
 
¶2. (U) After 1999, demand for real estate began to take off 
in Istanbul.  Following the Kocaeli earthquake that killed 
over 17,000, people began looking for earthquake-resistant 
construction.  At the same time, Istanbul,s population also 
continued to grow steadily, increasing the need in housing 
stock.  The Association of Real Estate Investment Companies 
(GYODER) estimates the number of households in Istanbul will 
increase from 2.9 million in 2005 to 4.1 million in 2015, 
resulting in a need for 1.2 million new dwellings simply from 
population growth.  Finally, approximately 200,000 houses 
will be needed to replace naturally ageing structures. 
 
¶3. (U) Simultaneously, life-style changes are also 
contributing to increasing housing demand -- children are 
moving out of parental dwellings in search of their own 
abode, and car ownership is increasing the distance that 
families can commute.  The Turkish word for home is  Ev;, 
the word for getting married is  Evlenmek.,  This shared 
root reflects how housing is a cultural value for Turkish 
people, and that those who can are jumping into the market. 
 
¶4. (U) Economic changes, however, are perhaps the most 
significant factor in rising real-estate demand.  First, 
Turkey suffered a severe economic crisis in 2001, depressing 
housing prices and halting new construction.  The ensuing 
economic recovery and reforms instituted by the GOT, however, 
created a virtuous cycle of declining inflation and declining 
interest rates.  Cash investments thus became less lucrative 
and real estate relatively more attractive, leading to a 
resurgence in the market. 
 
¶5. (U) Second, changes in bank requirements for housing loans 
(reftel) are also giving more Istanbul residents access to 
financing.  By the end of 2005 housing loans averaged $35,000 
and totaled approximately $9 billion, representing 2.5% of 
GDP.  Money is flowing into the sector, spurring heightened 
demand for existing housing and driving new construction. 
 
------------------------ 
Tremors To the Good News 
------------------------ 
 
¶6. (U) Since mid-May 2006, however, market volatility has 
slightly discolored this rosy picture, leading to an increase 
in interest rates.  Prior to the turbulence, banks charged 
around 1.07% per month (corresponding to an annual compounded 
rate of around 14% ); at the end of May, banks are charging 
around 1.30% per month.  Until this turbulence settles, 
demand may be dampened as higher interest rates discourage 
potential investors. 
 
------------------ 
Still Room to Grow 
------------------ 
 
¶7. (U) Nevertheless, there remains great upward potential in 
Istanbul,s real estate market.  Current bank-provided 
housing finance can only be used for legal structures.  Yet 
GOYER estimates that 52% of housing in Istanbul was built 
without permits.  This limits the number of properties for 
which a bank housing loan can be used, placing further upward 
pressure on prices.  New construction, however, is now 
generally carried out with permits, thereby qualifying for 
bank housing loans.  This change in practice is also 
contributing to an expanded pool of available housing that 
prospective home-owners can purchase through financing, 
adding to the real estate boom. 
 
¶8. (U) In addition, financing options are evolving. 
Legislation modernizing the mortgage market is expected to 
soon be passed by Parliament (reftel).  Yasar Buyukcetin, 
Chairman of RealtyWorld in Turkey, predicts a  perfect 
mortgage system, will be in place within one and half years. 
 If this happens, even more prospective home-owners will have 
access to capital and invest in real estate, so long as 
interest rates remain affordable.  Experts see these forces 
causing the upward trend to continue at least through 2010, 
if not 2015. 
 
----------------------- 
The Scaffolding Removed 
----------------------- 
 
¶9. (U) Looking forward, market experts foresee real estate 
prices continuing to rise, though perhaps with smaller annual 
increases, especially following the recent interest rate 
increases.  Fatima Umut, a city planner by training and head 
of Research and Investment for Remax Inc. in Turkey, 
estimates that growth in property prices and in property 
registrations should be around 10% per annum for the coming 
years.  She cautions, however, that prices in some places 
have already soared as a consequence of the hype and market 
revaluations. 
 
¶10. (U) Housing remains accessible, however, to only the 
relatively affluent.  Market analysts predict the next stage 
in real estate development will come from housing destined 
for the middle and lower economic echelons.  This will be 
possible once the mortgage market comes in line with 
international standards.  Real estate developers see this 
segment as having the most growth potential, with the market 
for luxurious residences gradually becoming saturated. 
 
¶11. (SBU) Comment: This is a time of immense change in 
Istanbul,s housing market.  So long as the recent increase 
in interest rates does not dampen the market too much, prices 
are expected to keep rising dramatically.  At the same time, 
such a surge in prices brings with it the risk of greater 
social and economic disparity.  If those at the lower end of 
the economic spectrum are left behind, it could cause growing 
friction between the new housing haves and have-nots.  End 
Comment. 
JONES