The real estate sector has been highly dynamic in recent years, with investor sentiment impacted both positively and negatively by a flurry of regulations, new megaprojects and the quarterly health of the economy. At the same time, the country – especially its largest city – has cemented itself as the darling of investors looking for strong returns without all the risks of a less developed market. The investments and decisions made over the next several years will shape Turkey’s urban landscape for decades to come.


The real estate market slowed down as a whole in 2012, with the GDP contribution from “real estate, renting and business activities” growing 6.6% in real terms, slower than the 7.6% and 9.3% posted in 2010 and 2011, respectively. A number of indicators, however, suggest that the market went soft only during the first half of the year and was already making a comeback by the beginning of 2013. The volume of new housing credits extended by banks dropped from TL5.2bn (€2.2bn) to TL4.8bn (€2.07bn) in the first quarter of 2012, but expanded to TL6.8bn (€2.8bn) and TL6.5bn (€2.8bn) in the second quarter and third quarter, respectively, according to the Banks Association of Turkey. Similarly, the Turkish Statistical Institute (TurkStat) reported that while house sales fell in the first quarter of 2012, they regained their previous levels quickly and finished the year at 431,485 sales, for a growth rate of 2.98%. As a leading indicator, meanwhile, the 14% growth in construction permits during 2012 showed that the market will have a health pipeline of incoming supply for the next several years. Still, most analyses, such as those from GYODER, the leading organisation of Turkish developers, anticipate a modest and gradual recovery.

In large part, housing demand will depend on consumer sentiment, which has been dampened by the weaker economy. The share of respondents to a TurkStat consumer tendency survey who anticipated a home purchase within the next 12 months dropped from 4.42% to 4.17% in 2012, signalling that the market will not pick up until consumers feel more confident in their household finances.


The residential market has continued its evolution in sophistication, particularly with regards to mortgage lending, which is becoming an increasingly popular way to finance home purchases. A decade ago, annual interest rates for housing were as high as 40%, but a stable macroeconomic policy and a healthy financial sector brought rates down quickly, hitting 20% by 2005 and 9.4% by January 2011, according to the Central Bank of Turkey. Around that time, fears of a credit bubble led the central bank to tighten credit and push rates up to nearly 15% in January 2012. This saw a reversal in 2012, with rates reaching an historic low of 9.07% as of March 2013. The falling rates have been accompanied by an increase in tenor length, with banks introducing 15- and 20-year mortgages that would have been impossible to finance a decade earlier. The proportion of mortgages with payback periods of five years or greater increased from 67.5% in 2010 to 76.3% in 2012, giving more households than ever the financial wherewithal to afford a home.

New Regulations

The market will be affected, for both good and bad, by a couple of new regulations that came into force at the end of 2012. The first is a revision to the value added tax (VAT) as it applies to sales of apartments under 150 sq metres in size, which had previously been charged a VAT rate of 1%. The new rules will change the VAT to 8% for units valued at between TL500 (€215.90) per sq metre and TL1000 (€431.80) per sq metre and 18% for units greater than TL1000 (€431.80) per sq metre, and applies to houses licensed for construction after January 1, 2013. This may actually spur an uptick in sales of units licensed prior to the rule change but the net effect on the year is expected to be negative, according to Özlem Gökçe, the chairwoman of GYODER. “Developers adopted a ‘wait-and-see’ stance between the time when the regulations were announced in May 2012 and when the ministry released the final details in January,” Gökçe told OBG. GYODER also lowered its 2013 forecast for the construction sector by 1-2% on the basis of the revised tax rates.

Law Changes

A more positive impact is expected from the much-anticipated reciprocity law for foreign ownership of property in Turkey. This regulatory change, gazetted in May 2012, removes the requirement that countries allow Turkish citizens to buy properties in their own countries before their citizens are allowed to buy Turkish properties. Prior to this amendment, the reciprocity clause had severely limited ownership of Turkish property by residents from Russia and the Gulf states, who were forced to use complex legal workarounds to purchase real estate. The ruling is expected to spark a major shift in both the location and the nationality of foreign home ownership, which had previously been dominated by UK and German citizens buying land in coastal areas such as Antalya and Muğla. Istanbul, the fourth-most popular city for foreign purchasers in Europe, will likely see a spike in interest, especially from Middle Eastern buyers looking for an urban, European experience with a Muslim flavour. “After the Arab Spring, everyone is coming here, and Arabs feel more comfortable in Istanbul given Turkey’s cultural situation,” said Abdullah Çiftçi, the chairman of Property Investors Association of Arab Countries.

Drawing Interest

GYODER has estimated that the decision could eventually boost foreign direct investment in real estate from $2.5bn to $10bn annually, which would feed demand for Turkey’s ambitious urban regeneration projects. “Turkey’s petrol is its real estate, and the government is trying to use it strategically,” Çiftçi told OBG. However, the deregulation has not yet produced the rapid increase in purchases that some observers had predicted, partly because it was not accompanied by looser restrictions on visas and residence permits for property buyers, which can hamper travel for visitors with second homes in Istanbul. The government finally addressed this in April 2013, allowing homebuyers to extend their tourist visas from three months to one year, although some had suggested a longer duration.

Foreign buyers also have distinct tastes that developers are less used to catering to. Arab buyers, according to Çiftçi, tend to prefer three- to four-bedroom homes to accommodate their larger families, which are less common in Istanbul given its density. They are expected to gravitate to the waterside districts on the European side of Istanbul, as well as the Black Sea coast and the historic city of Bursa. Çiftçi also predicted that Arab buyers, who are used to professional designers from New York or London, might not find enough suitable properties in Istanbul, although the impending urban regeneration may change this.

Cities Will Rise 

Indeed, the biggest game-changer in the real estate market is urban regeneration, which was transformed by the 2011 Van earthquake from an eventual necessity into an urgent safety matter. According to the Ministry of Urban Planning and Environment, around one-third of Turkey’s 20m homes will need to be replaced, with 2m of these in Istanbul. This offers a golden opportunity to do projects in core areas that had previously been inhospitable to development, thanks to limited land supply and the uncertain ownership status of many properties. The majority of unsafe houses are in peripheral areas like Küçükçekmece and Zeytinburnu, but even most central neighbourhoods have at least 20 to 100 damaged buildings.

As with many of the government’s most ambitious projects, it has been accompanied by accusations of overreach. Residents being evicted from unsafe homes will be barred from protesting or legally challenging their house’s demolition, and will have little say over the size or the location of the property that they will receive as their compensation.

The process will be dominated in large part by the Turkish Housing Development Authority (TOKİ), and its commercial subsidiary, Emlak Konut, which is 75%- owned by TOKİ and can purchase land from TOKİ without tender, as well as develop properties with private contractors either through revenue-sharing contracts or public-procurement models.

Haluk Sur, a board member of Emlak Konut and the chairman of Cushman & Wakefield, expected the company’s revenue to rise to as much as TL5bn-6bn (€2.16bn-2.59bn) from around TL2bn (€863,600) in 2012 over the next several years. “In the next 15 years we will need 15m housing units, with 7m from urban construction and 8m from new construction and population growth,” Sur told OBG.

Sur also added that although Emlak Konut has the ability to dominate smaller players in the market by monopolising access to TOKİ’s tenders and managing projects by itself, it tends to prefer farming out land to private firms through revenue-sharing deals. Around 80% of Emlak’s revenues come from these revenue-sharing model (RSM) projects, with the remaining 20% coming from the public procurement model, which is typically used for TOKİ’s affordable public housing initiatives. Moreover, while Emlak Konut is expected to be heavily involved in rebuilding damaged buildings in peripheral areas, its focus on large-scale projects makes it unlikely to compete with private developers for buildings in the downtown area.

Mixed Reactions

Istanbul is also home to another controversial series of renovations, this time focusing on rejuvenating dilapidated historic areas. This “preservation by renovation” process, which began with the passage of Law No. 5366 in 2005, has granted developers the right to demolish old or illegal buildings within a certain area and replace them with profitable residential, office and retail space. The process began with the neighbourhoods of Süleymaniye and Sulukule in the Fatih district, and later spread to the Tarlabaş› neighbourhood near historic Taksim Square. However, it has run into challenges from both Istanbul’s legal courts and those of public opinion. Different courts ruled in 2012 that the Sulukule project must be stopped, despite it being mostly complete, and cancelled a proposed renovation of the Fatih districts of Fener, Balat and Ayvansaray. Further district renovations have reportedly been put on hold.

Many of the displaced citizens from the urban renewal processes have been offered homes in Kayabaşı, which was named one of the five hubs of the new city, “Istanbul Metropolitan,” announced in January 2012 (see construction analysis). The district lies beyond Küçükçekmece, a full two hours by bus from the centre of the city. Istanbul’s government, however, hopes that the high rises will soon be surrounded by office parks, health campuses and other employment centres in a suburb that may house as many as 1.5m people. And while TOKİ has reserved 3% of the 65,000 planned apartments for displaced citizens, the majority of Kayabaşı’s apartments will target the middle-income and above brackets. In addition to TOKİ, Kiptaş, Onurkent, Oyakkent and Torunlar have invested in projects in Kayabaşı, which is scheduled to hold 400,000 people.

Beyond Istanbul

While Istanbul attracts wealthy foreigners and high-rise developments, investment advisors are increasingly looking to secondary cities to drive future growth. “Istanbul is a world city, but it doesn’t represent Turkey. Many of the opportunities in the construction market are in Anatolia, especially in the residential market in secondary cities,” Atila Kemal Oğuz of Tepe İnşaat told OBG. The share of home sales outside of the “big three” – Istanbul, Ankara and Izmir – rose from 56.7% to 61.4% between 2010 and 2012, according to GYODER. Moreover, 5m of the 7m homes predicted to fall under the urban regeneration plan are located outside Istanbul, offering developers a constant new source of projects. Additionally, while Istanbul and Ankara have the highest concentrations of retail space in the country, secondary cities are comparatively “under-malled”, and investors are expected to take advantage of lower land prices to develop shopping centres in these areas.


Although Istanbul slipped from first in 2012 to fourth in Pricewaterhouse Cooper’s 2013 ranking of European cities’ real estate markets, it was one of just four cities to earn a positive outlook overall, which says something about the state of global markets. Indeed, Turkey’s major investments in new city development and urban regeneration rest heavily on both its past and continued economic growth, dependencies that appear to be paying off.

At the same time, the government’s unabashed development agenda has certainly drawn its fair share of opponents, who critique various projects on environmental, urban planning and social justice grounds. The extent to which Turkey is able to promote growth and renovation in a sustainable and equitable framework will determine the legacy of its urban projects.