Last updated November 15th, 2019.

Turkey’s currency has plummeted since Summer 2018.  In fact, the lira decline was so dramatic that the Istanbul property market is now Asia’s cheapest in terms of U.S. dollars.

You can now buy an apartment in Istanbul for well under US$1,000 per square meter (around $90 per square foot) outside the city center. Prime, centrally properties aren’t too much more expensive.

Searching on Turkish real estate website Zingat will turn up luxury Istanbul apartments priced barely above US$1,500 per square meter. They sometimes even enjoy unblocked views of the Bosphorus and other amenities.

Home values this low are practically unheard of in any large, reasonably-developed global city like Istanbul.

 

Wealthy Middle Easterners have begun buying up luxury mansions on the Bosphorus. They consider Turkey a safe haven, but I strongly disagree.

 

Turkish Lira Crash: What Happened?

Our main problem here isn’t with Turkey’s property market itself. Real estate values in Istanbul, along with top cities across the country, hardly changed since 2017 in terms of lira.

Locals won’t notice a major difference in terms of affordability. However, the lira’s crash means foreign buyers who pay with their home currency are now seeing 50% discounts on property in Istanbul and other Turkish cities.

The lira promptly started declining in June, 2018 following tariffs imposed by the United States. It was the climax of a huge diplomatic feud between Washington and Ankara over an American pastor’s arrest.

Such a drastic move in the lira was probably more psychological than anything. Yet this event caused Turkey’s currency to fall from approximately 4.50 to the dollar to about 7.00 by August 2018.

Basically: tariffs broke open some old wounds in Turkey’s economy. The lira then proceeded to lose almost half its international purchasing power in only a few months.

 

Massive Economic Issues in Turkey

Tariffs themselves did not directly cause the lira’s decline. But they did renew existing concerns about Turkey’s economy.

First, the country suffers from a staggering amount of corporate debt. Turkish businesses now owe a whopping 70% worth of the entire country’s GDP.

 

A chart showing Turkey’s debt to GDP ratio between 2000 and 2017. It’s certainly higher now since the lira’s 2018 collapse.

 

It gets even worse once you realize most of this debt is denominated in US dollars rather than Turkish lira.

As such, the amount borrowers owe have effectively doubled in six weeks since they must pay off their debt in terms of dollars.

Second, public money is being wasted on expensive infrastructure projects. Many of them are poorly thought out while few will ever become a net gain for the economy.

Kanal Istanbul” is one example. It’s a planned 50km canal running alongside the Bospherous and is expected to cost more than US$10 billion.

The new canal has two big problems though. For starters, the Black Sea doesn’t get anywhere near enough trade to warrant its massive cost. Two, international law clearly says that transit through the Bospherous is free-of-charge, which makes a canal redundant.

Last, yet perhaps most importantly, Turkey has management problems that will not get solved anytime soon.

President Erdogan essentially made himself the country’s lifetime leader through elections that were widely decried as a sham. Although nonetheless loved by his conservative base, Erdogan seemingly doesn’t have a clue how to run an economy.

Erdogan recently appointed his son-in-law as Turkey’s finance minister. That’s either nepotism at work, or the best person for such a crucial job is conveniently the President’s relative.

 

Why You Still Shouldn’t Buy Property in Istanbul

U.S. tariffs might have triggered the lira’s crisis. Unfortunately, Turkey’s problems are immense and go far beyond recent politics.

Quite frankly, Turkey is a total economic basket case. Big structural issues are not being solved and will probably get worse before ever improving.

Istanbul’s property market suffered from oversupply way before the lira crisis too. Large scale urban housing projects were already creating a supply glut many years ago.

Plus, Turkey’s lira has always maintained its worrying trend of depreciation. Did you make the mistake of holding lira during the past 10 years? If so, you lost roughly 80% of your purchasing power.

The lira has never shown itself capable of appreciating over the long-term. I don’t believe that will change within the near future.

In summary: you shouldn’t fall into a Turkish lira value trap. Property in Istanbul might appear cheap, but the nation’s crisis is only getting started.

Don’t bet on a lira comeback. Consider buying real estate in places like Malaysia instead if you want foreign property along with currency appreciation potential.

 

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About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's an international stock trader and property investor based in Thailand, Cambodia, and several other places. Reid manages the world's first and only frontier market real estate fund and has been featured in publications such as Forbes, Property Report, the South China Morning Post, and Seeking Alpha. You can download his free investment guide by clicking here.

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