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 “reputable” 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.
It’s 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.
Let’s 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 couldn’t 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 isn’t 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 who’d listen that he was going
to look after number one, and that meant the USA. That’s what
he’s 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.
Don’t invest in Turkey or any of these marginal countries. You
will regret it.