Nicholas Birch in Istanbul -

Up to 60% rent increases in parts of Istanbul over the last two years and international bidders offering nearly $20,000 per square metre for prime Istanbul land at an auction last month - there's no denying the unprecedented euphoria that has overtaken Turkey's real estate market. Where opinions differ is on the causes of this boom.

"A paradise for Western investors," read a headline in the daily Milliyet recently, echoing a widespread conviction.

There's some truth to it. Foreign investments in real estate rose by nearly 100% last year to $2bn. While 2005 saw the arrival of giant developers like the Dutch Corio and Multi Corporation, last year brought GE Real Estate Europe and Merrill Lynch Global Principal Investments (GPI).

Such is the weight of Western interest that yields on Turkish shopping centres are down from 10% a year ago to under 7% today, says Bob Addison, who heads the newly opened Turkish office of Robertsons, one of Europe's leading shopping centre asset managers. "That's barely any more than UK yields 18 months ago," Addison says.

Head of Krea Real Estate, GPI's partner in Turkey, Hakan Kodal plans $1bn of investments in the next three years. But that doesn't stop him thinking that all the talk of Western involvement needs to be taken with a pinch of salt.

Outside a handful of serious investors, "there's a lot of talk and not much action," he says.

In part that's because of a severe shortage of products on the market. But the lack of transparency also puts some foreign investors off. "Local developers tend to see investors as geese that can be driven wherever they want," Kodal told the daily Radikal recently.

Local buyers

For Ali Riza Incekara, research chief with brokers Raymond James, a major and largely overlooked factor behind the real estate boom is Turkish investors.

"Real estate in Istanbul has never lost value long term," Incekara notes. "But what we're seeing now is businesses selling their banking or industrial assets – which are losing out to China – and investing in real estate."

Take Zorlu Holding, which earned $2.4bn off the October 2006 sale of Denizbank. On March 8, Zorlu paid $800m for a 96,300-square-metre plot in Zincirlikuyu, central Istanbul. The group is planning further investments on Turkey's tourist-haunt, the Aegean coast.

Fiba Holding might be less successful in the big bids, offering $300m less than Zorlu in March, but it too is known to be keen to invest some of the $2.8bn earned off its sale of a 46% of Finansbank in the real estate sector.

With Turkey's new mortgage law expected to revolutionise Turkey's underdeveloped house loans market, even media giant Dogan Holding has stepped in, joining forces with Deutsche Bank last October to offer mortgages to Turkish customers.

But it's not just Turkish investors who are getting involved. Flush with oil money and attracted as always by the interest-free nature of real estate investment, Gulf investors are just as active in Turkey as their Western counterparts, maybe more so when it comes to development.

The best known case is Sama Dubai, which paid a massive $840m for 40,000 square metres of central Istanbul land on March 21, having been beaten by Zorlu at the earlier auction.

Sama hopes to go ahead with the construction of two 300-metre high skyscrapers that are the first stage of planned investments in Istanbul worth $5bn.

Much less controversial is the ongoing partnership between Turkish jewellery exporter Atasay and Emaar Group, the Middle East's largest developer by market value, to construct $700m-worth of luxury villas in Istanbul's northwestern suburbs.

If the project is a success, Emaar hopes to invest up to $10bn in Turkey over the next five years.

With $30bn-plus of current account deficit, Turkey can't afford to allow such investments to dry up, says Alim Telci, a strategist with brokers Ak Invest.

He doesn't expect it to, pointing out that "the close political ties" Turkey's current government of one-time Islamists has with the Middle East.

With interest rates still too high to attract most Turks onto their country's mortgage market, Raymond James' Ali Riza Incekara thinks the best is very much still to come. "I would say we are in the early stages of a sustained uptrend in real estate in Turkey," he says.

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