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Analysis of Turkey’s Economy

More and more investors opt for a property in Turkey. Turkey is a country with a good prognosis and high added value. Turkey has been for some years a popular country for real estate investors. The proximity to Europe makes its choice on this beautiful country fall more and more prospective buyers. The cheap real estate and land prices also do so. Their very high wages allow the builders to purchase their own home at an affordable price. Turkey is a very big country. Therefore, there is no lack of space, and therefore the real estate prices are still extremely low. Property in Turkey is also a safe investment and promises a very high growth. Who won’t buy a property that gets a secure proof of ownership and is recorded as the owner in the land register? Property can be inherited from foreigners without problems. There are very clear laws in this regard. Only, the prospective buyers should not wait with a decision for too long. If Turkey is once member of the European Union, the real estate prices will probably go there very quickly to the top.

Key words: Turkey, Development, Investments, Real estates, Environment


Figure No. Figure Name Page No.
Figure 1 Map of Turkey 3
Figure 2 Turkish GDP development 6
Figure 3 Development of Turkey GDP 10
Figure 4 The Ataturk Dam 12
Figure 5 Development of Turkey’s prime rate 14
Figure 6 Development of the U.S. dollar and the Euro for the TL 15
Figure 7 House Price Changes 16
Figure 8 Home Price- Rent Ratios 18
Figure 9 Most Valuable Districts of Istanbul 2012 19
Figure 10 Istanbul Office Rent ratios 21


In a time of global crisis and uncertainty, in the course of which follow consecutive interest rate cuts by central banks and thus remain only very limited opportunities for returns for investors in savings, it is important to consider alternative investments in order to achieve attractive returns.

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With these considerations are thought to investing in real estate are increasingly also in addition to a riskier investment in individual equities or equity funds. Finally, these have the reputation to be valuable and inflation-proof investments. Since the Bosnian real estate market, however, does not list any high returns and capital appreciation over many years, the view stretches across the borders and abroad. While immediate neighbors and major industrial nations are hardly different from the Bosnian real estate market due to their already mature real estate market from a yield perspective is directed to the profit-oriented view of the riskier investors towards the representative of the emerging markets. These emerging markets are from Europe in particular countries such as Bulgaria, Romania, Russia and Turkey.

Here, specifically, Turkey offers not only as a holiday destination some very interesting reasons for a long-term investment in the local real estate market. Analysts already captioned that Turkey is the India of Europe and pointed it out to an emerging nation. For a country with a young and growing population of over 70 million people in the cities grow steadily by strong immigration and more and more households arise, and whose economy is continuously stable and offers multiple opportunities. How much potential is really in this market and where exactly may even have hidden the risks, should be clarified in this work.


One investment in a foreign country should be preceded by several considerations and analyzes, so transparency is created, information asymmetries are reduced and the risk of wrong decisions is minimized by ignorance. Especially with investments in land and real estate investor binds itself to the country and cannot be transferred later to another location of the property.

Therefore, in almost any other investment, the location plays a more important role than in real estate investments. Both the geographical location as well as the infrastructural characteristics of the country should be incorporated with and analyzed before a decision is taken.

1.1. Geographical Location

With a large area, Turkey spans over two continents. While only 3% of the 814,578 km ² is located on the continent of Europe, 97 % of the land areas are assigned to the Asian continent. The European part of the country is called Thrace, while the Asian part of the country known as Anatolia (Onis, Senses; 2013).

The geographical division of the country carried out in seven regions. Among these regions are:

  • Marmara Region
  • Black Sea Region
  • Mediterranean region
  • Aegean Region
  • Central Anatolia
  • Eastern Anatolia
  • Southeastern Anatolia

Located in Central Anatolia Ankara is the capital of Turkey, but the main artery of the country is in the northwest of Istanbul. It is the most populous city, also the economic and cultural center of the country and leads the European and Asian side of the Bosporus Bridge together. On the whole, Turkey is divided into 81 provinces, each with an appointed Governor of Ankara.

The total length of the borders of Turkey is about 9650 km, of which about 7200 km are bounded by the sea. In the north of Turkey is the Black Sea, to the south of the Mediterranean and the Aegean Sea to the west. In addition, Turkey shares with eight neighboring states his country’s borders, which make up a length of about 2650 km. While Georgia, Armenia and Azerbaijan bordering Turkey in the north-east, Iran to the east, Iraq and Syria to the south, and Greece and Bulgaria is situated in the northwest.

Figure 1: Map of Turkey, Source: Lonely Planet; 2014

1.2. Infrastructure

The infrastructure of a real estate market is a crucial factor for the evaluation of its attractiveness as an investment. Especially with real estate investments, the supply and disposal standards of the place and its transport links and road quality as part of the technical infrastructure are significant. But also the social infrastructure of the town plays an important role prior to the purchase of property by public institutions such as schools, doctors, hospitals and leisure facilities.

About the total area of ​​Turkey away no single standard can be seen. Regional differences in infrastructure quality are available. While European standards are common in the west and south of the country, as well as in the capital Ankara, the population still lives in parts of eastern Anatolia with limitations in the supply of electricity and water. Also the nature of the roads, especially those leading to the villages are still away from western examples.

In the analysis of the Turkish real estate market in the following only those regions are studied in detail, which are the primary focus of the investor and already dominated by European standards. Investors prefer the regions in and around Antalya and the Aegean. But the city of Istanbul is a major player in Turkey in attracting investment capital for the benefit of its building projects and existing properties.

Especially Istanbul needs to make further investments in the infrastructure. For in the Turkish cities took place in the past decades the colonization mostly without development plans. In Istanbul, for example, increased the built-up areas from 1990 to 2005 by more than 40 %. Contrast can be explained by the rapid growth of the expansion of the transport, water, sewage and electricity networks to the extent necessary to ensure hardly. Local governments continue to try to curb this haphazard growth and to establish structures and order, as well as a nationwide transport network. The necessary financial resources, however, are currently the main obstacle to tackle this problem. Therefore, a stronger private sector engagement imperative, but for the time being unlikely, as the first commitment to other areas, such as building construction concentrated. However, a role model takes the waste disposal company Remondis (Finkel; 2012). As part of a joint venture, they invested in the treatment of wastewater and offer their services around four million residents of different municipalities.


The economic development of a country is the assessment of the country’s investment is crucial. This section deals with the economic development and the future prospects of Turkey, and the pulse-generating, political factors.

2.1. Historical review and macroeconomic environment

The current financial crisis, which has its origins in the U.S. subprime market and initially transformed into a global financial crisis to finally trigger a major global economic crisis has hit many countries hard. Many economies are in consequence of this crisis in a recession and that is why the International Monetary Fund (IMF), with only 0.5% growth in the global economy in 2009.

Turkey had to overcome in 2001, a devastating economic crisis which was triggered by a public dispute in the spring of 2001 between the then Prime Minister Bülent Ecevit and President Ahmet Sezer Nejdet about the corruption in the country, the markets and the people lost their trust in the government. Aside from corruption, mismanagement and especially an ailing banking system were the main points of criticism and eventually triggered the crisis. In the course of the dispute between the two politicians, stock markets lost up to 18 % of its value in just one day and over a third in just a few days. The previously linked to major currencies like the U.S. dollar and the Euro Turkish Lira had to be released by the central bank because of capital flight by investors and was thus subjected to the forces of foreign exchange markets. Within a day by the Turkish lira lost 27% against the U.S. dollar and inflation soared to levels of over 60%. Short-term debt costs over 5,000 %. Indebted companies had to go, because of the unaffordable interest on debt to file for bankruptcy and forced hundreds of thousands, into unemployment. A severe recession with values ​​above 8 % was the result. The IMF had gripped Turkey in this situation with a state credit under the arms and saved from a possible bankruptcy, also acts in the later stages as the guardian of fiscal policy and important reforms.

While today the financial system totters around the world, to intervene in many countries, the state, and large companies need to pull the ripcord, the Turkish banking system has proved to be stable during the crisis. Since the Turkish mortgage system subprime loans are not permitted and the banking system is well regulated, remained Turkish banks from the crisis largely spared. Only less than half a percent of the real estate lending in Turkey are in financial difficulties. The Turkish banking institutions were restructured during the economic crisis of 2001 and strengthened. A number of key structural reforms have been initiated to improve the system. For example, many institutions were taken over by the state, mergers and acquisitions which took place and the equity ratio was increased (2007 the average was 18.8 %). The core business was accelerated; risk transactions which could be made due to the harsh regulations were very limited. Thanks to these reforms, Turkish banks were not directly affected by the current crisis, but lead to a decline in business due to the decrease in the number of lending’s (Bekmen, Akça, Özden; 2013).

Noteworthy is the development after the reforms, because a lot of foreign capital flowed particularly in the banking sector and this explains the sharp increase in foreign direct investments in recent years in Turkey. In 2007, the investment reached a record level of 21.9 billion U.S. dollars. Foreign investors hold more than 40 % of the total capital in the banking sector.


Figure 2. Turkish GDP development, Source: Martina Bozadzhieva; emerging markets insights; 2012

In the last five years before the global economic crisis, Turkey has the ideal conditions used well through the restructuring and recorded an average growth rate of the gross domestic product of 6.9 % and also reported a sharp decline in inflation to single digit level. The increasing integration into world trade, played a major role as the taller economic stability, as well as the ever- progressing implementation of structural reforms, such as the liberalization of major industries and the banking sector. But Turkey harbors in its economic and political composition and hazards. It is always susceptible to both external and internal shocks. Thus, the economic fundamentals are still behind those of the so-called BRIC (Brazil, Russia, India, and China) countries. In addition, the enormous dependence on foreign capital, inflationary pressures re-occurring and the risks of political unrest as a constant accompaniment of Turkey and a disruptive positive development of the economy happened. A worsening of these conditions, easily lead to the absence of important foreign capital inflows.

Regardless of the development in Turkey is currently also observed that the investors the means are assumed due to the global economic crisis and therefore supposedly riskier assets such as be exchanged in Turkey against secure government bonds denominated in U.S. dollars or Euros. So Turkey suffered here indirectly from the crisis.

2.2. Political Environment

The political developments in Turkey were always filled with special explosiveness of it is domestic stability but also economic stability dependence. Most of the political environments are more of a risk for the development of Turkey. The overdosed striving for power of Turkish politicians, and corruption instead of profit reforms, the Kurdish issue, the disparity between East and West, but also in particular the role of the Turkish military form regularly uncertainties for outside observers and investors. So the military has already taken three times with military interventions influence on the government and in a fourth time in 1997 by threat of a coup, the government moved to withdraw. For the democracy in the country and security of the markets, these are not supportive measures.

In Turkey, took place 2009 nationwide local elections on March 29. The result was this: the ruling Justice and Development Party structure (AKP) of Prime Minister Erdogan remains with 38.79 % at the top and despite vocal losses it retains a clear edge over the opposition. The opposition Republican People’s Party (CHP) reached in these elections only 23.13 % and 16.05 % voted for the right-wing Nationalist Movement Party (MHP). The Democratic People’s Party (DTP) was 5.67%, while the Islamist Felicity Party (SP) got 5.16 % of votes. The success of the AKP can be attributed to their closeness to the people. However, there are nationwide protests as soon as the Islamization makes itself felt. Because the Turkish people, which is indeed tied to religious values, it does not tolerate radical Islamisation (Richards, Waterbury, Cammett, Diwan; 2013). In particular, the official opening of accession negotiations with the EU and the efforts to enforce the necessary reforms convinced the electorate.

However, it should be noted here that the AKP, like other parties, has also its own “nepotism” built. The opposition has special attention paid during the election campaign to make the electorate to such events carefully. The people today no longer has confidence in the CHP, the campaign was rather unsuccessful. The CHP, founded by Ataturk is considered too “foreign national ” perceived, as their efforts do not comply with the wishes of the faithful Turks. It is irreligious and rejects both privatization, foreign direct investment, as well as the EU requirements. Just tried at one time point at which Turkey to integrate into the world economy and to attract foreign capital flows, the setting of the CHP is undesirable. The nationalist MHP is especially popular in provinces in which the Kurdish internal migration rate is high. The Kurds, an estimated 20 %, that is, Represented 10-15 million of the total population, mostly choose the DTP, but the religious among them trust the AKP. The radical DTP is alleged to that it is under terrorist influences, the nationalists are a good excuse to stamp Kurds as separatists.

Turkey has now assumed an important position in world politics. Thanks to its geographical location, Turkey is an “intersection” in different regions: the Middle East, Caucasus, Russia, the Balkans and Europe.

For this reason, the Turkish foreign policy by the Turkish Foreign Minister Ahmet Davutoglu as a “multidimensional” is referred to, EU accession negotiations on one hand and growing cooperation with other regions on the other. Especially in the Middle East, Turkey has extended its influence, by taking on, for example, the role of mediator in the peace negotiations between Israel and Syria. However, the commitment of the Turkish government in other regions is not a sign of a turning away from the West. After joining the EU is one of the main objectives of Turkish foreign policy. This can also be seen in the efforts of the government to speed up the reform process.

In October 2005, the EU formally opened accession negotiations with Turkey. Expert opinions consequence is a conclusion of negotiations with a final political decision at the earliest possible in ten years. Major points of criticism are still the Cyprus conflict, fighting corruption, institutional reform and freedom of religion. In addition, Germany and France obstruct been categorically as heavyweights of the EU towards the EU – Turkey accession and prefer a privileged partnership between the candidate countries. Since the talks began, 10 of the 35 negotiating chapters have already been opened and already completed one (science and research).

What should be noted is that a prospect of EU membership, the Turkish real estate market offers a lot of imagination for capital gains and progressive success in negotiations is likely to give new impetus to the sector. Thus, it was observed that, for example, after the commencement of accession negotiations for EU membership of Bulgaria in 1999 and shortly before announcement of the accession to the EU, real estate prices in Bulgaria have increased significantly in 2005. Although the EU has been provided only for 2007, prices went even advance on speculation in the air. From 2003 to 2004, a price jump of 80 percent was recorded in the following year, after all, still an average of 36 percent. A similar effect cannot be ruled out for the Turkish property market, even if have already taken place in recent years, significant price increases regardless of EU accession negotiations (McKiernan, Purg; 2013).


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