A little while ago I issued warnings about
buying real estate in Turkey. (April)
Buying-Real-Estate-in-Turkey.html
I know one gentleman insisted on buying. He bought at a very
silly point. I did warn that the lira was in dire straits. At
the moment it keeps hitting new lows. In short, the currency
is collapsing. If you've bought in Turkey you are losing
money; rather a lot of it. At the time of writing, the Turkish
lira has lost around 40% of its value against the US dollar in
the year-to-date alone.
I did mention that the Federal Reserve is raising interest
rates, and that impacts on foreign borrowings. Turkey is
having to pay more interest on the money borrowed in dollars,
and it is also having to pay more Turkish lira for those
dollars.
Not only that, but Turkey is heading into a recession, a
potential banking crisis and rampant inflation. That is in
turn going to lead to more civil unrest.
I have never advocated buying in Turkey. I think it is a very
dodgy area of the world, with civil war to the south and
problems to the north and east, it is right in the middle of a
messy part of the world to start with.
Jonathan Compton, writing for Money Week has this to say about
the situation.
First: You have the president, Erdogan, who is clearly an
egomaniac who is intent on playing his own games with the
country. "So far he has removed any competent official who
questioned his policies from the central bank, Treasury, army
and judiciary, replacing them with incompetent place-men. He
has also attacked foreign lenders and their interest rates as
immoral and evil and he threatened not to repay Turkey’s
debts."
Clearly, under those circumstances he won't be getting any
more loans.
Second, "there was a boom built on a borrowing binge in
dollars by local companies rather than Turkish lira because
domestic interest rates were much higher. This can work for a
while, provided the exchange rate remains stable and the
budget and current-account deficits modest. But both exploded,
ensuring the lira had to fall, making foreign debt hugely
costly. This was a disaster waiting to happen. So my guess is
he decrees either a moratorium on repaying foreign debts; or a
“haircut” (say 50 cents in the dollar); or even the repayment
of dollar loans in Turkish lira at the current exchange rate."
Clearly the local economy will shrink dramatically putting
more financial pressure on the citizens, and will likely lead
to social unrest.
For those who want to holiday in the country, things are
getting cheaper by the minute. For those who have bought
property, they will find inflation is eating their profits and
the value of their real estate is dropping on a daily basis. I
hope you took my advice and stayed out of Turkey.
Sadly there will be repercussions. Turkish debt is held by
several Italian, French and Spanish banks. Since all three of
those countries have serious banking problems already, this
further hit is likely to cause not just economic woes, but
political problems for all three countries. As we know, Italy
is already seriously battered.
I now have to emphasise what I have been saying for some time.
Don't buy in Spain, Portugal, France or Italy, and certainly
not in Greece or Cyprus.
This can't go on. We all need economic crash helmets.