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Buying Property in Turkey -- Part 2

I recently warned that buying real estate in Turkey was a big mistake. I gave several reasons, only to be told that one of my readers was going ahead with a purchase because he had been advised by a ďreputableĒ London firm.

All I can say is that I hope he had second thoughts. But let me underline that previous recommendation to steer clear of a junk market.

Several things have been coming together recently to add to the standard disasters in Turkey. We all know that the country has serious internal strife: not the place one should move to or invest in. There are wars on both sides of the country, and religious intolerance is on the rise. But never mind all that, let us look at more general aspects that affect the country.

Turkey is regarded as an emerging market. That type of economy is in deep trouble because of a convergence of financial changes that are taking place in the international markets. I refer to low interest rates that have led governments to borrow heavily in the international markets, which usually means, getting US dollars.

The other problem is that the bond markets are turning round, and interest rates are on the rise.

I have always maintained that in property the way to borrow is to take up a loan when interest rates are falling. If they are high then property has to be cheaper, and if the rates are falling then your payments on any loan are set to fall too.

If, on the other hand, you borrow when interest rates are low, you are borrowing when everyone else is doing so, and that is always bad news, and it means that interest rates can only go up, which means the future outlook for your loans is that payments can only get worse.

Itís really no different for governments. If you borrow when rates are low, how are you going to cope when they rise?

The other important point is: you should try and borrow in the same currency as the one you get paid in to guard against currency moves against you.

When you are borrowing in dollars you are borrowing money denominated in a reserve currency. If you are the Turkey government, you are paying back in a weak currency. One small change in the market rates and you will get crucified.
Letís put some figures on this.

The Turkish lira has fallen about 20% against the US dollar so far this year. The chart is frightening. Four years ago you would get only 2.5 lira to the US$. Now you get 4.5. That is a hell of a currency crash.

Inflation there is running at 11%, which is pretty steep, and heading higher. Now look at the interest rate. It has just jumped from 13.5% to 16.5%. What is that going to do for mortgages? And what is that going to do for the property market which is dependent on borrowed money? Property prices are crashing.

Are things about to get better? On the contrary, they are about to get worse. The government plan is to borrow even more. And as the currency collapses those loans rise in value against the collapsing lira.

If you couldnít run the country without borrowing, how are you going to cope when you have to pay higher interest as well as paying back the loan, and still keep running the country? And how are you going to cope when the interest rates rise even more? And if that isnít enough bad news, what happens to your loan when the dollar gains more in value against your own currency? You now not only have an increased interest rate to cope with but you have to pay back more money because you now need more of your local currency to purchase the dollars.

President Trump did warn anyone whoíd listen that he was going to look after number one, and that meant the USA. Thatís what heís doing. The US needs higher rates, so they are going to get them, and if that hurts other countries that have over-borrowed, too bad.

Interest rates have started to rise. It looks as though they will rise further. As the dollar rises and interest rates follow, so weaker currencies will fall. Already Argentina is collapsing. The Turkish currency is following. That will wipe out value in real estate.

Turkey is heading for a full blown economic crisis. THIS IS NOT THE PLACE TO INVEST. It is the place where you are guaranteed to lose money.

As I did warn earlier, if you buy real estate in a country then you are investing in that country. Would you invest in a risky company? Of course not, so why invest in a weak country? It will take your money with you as it tanks.

If some so-called reputable company tries to convince you that buying in these dumps is a good idea, take that advice for what it is: the company is talking its book. They need to sell you something to keep their business functioning so they will talk it up.

Donít invest in Turkey or any of these marginal countries. You will regret it.

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