When fighter jets flew low, loud and fast over Turkey’s major cities on an otherwise uneventful Friday night two weeks ago, everyone feared the worst.
“We thought it was another terror attack,” says Erkan Sonmez, chief executive of Turkish developer Aydinli, who was at his home on the outskirts of Istanbul at the time. “The sonic boom was deafening and just above our homes as the jets tore past. Everyone was scared.”
It soon became clear that this was something quite different – but no less frightening. The fighter jets were part of an attempted military coup to overthrow the Turkish government and its president, Recep Erdogan. Not just that but the action was not contained to Istanbul. It was happening all over the country.
“It was terrible,” adds Kerim Cin, managing partner of Colliers International in Turkey. “A terrible night. Really scary as we had no idea how violent it would get or what would happen overnight. It’s one of those things that you can’t quite believe is happening in the city you live in. You see it on TV, in other places. But never in your own hometown. It was such a shock.”
By daybreak the coup had failed. Swathes of Turks took to the streets, soldiers were overpowered and pulled from their tanks. But plenty of damage had already been done. Thousands of government and military personnel have since been arrested, their fate uncertain.
But as the shock has subsided, thoughts have turned to finance and business, to what such an uncertain future could mean for Turkey’s already faltering real estate market. And whether, despite some short-term fallout, Europe’s former rising star could remain a viable investment opportunity for those with their sights on longer term goals.
Immediate aftermath
The immediate economic aftermath of the attempted coup has been well documented. The Turkish Lira hit an all-time low against the dollar, and US global rating agency Standard & Poor’s changed the country’s outlook to negative.
Another major issue has been the impact on tourism. Figures were already way down as a year of terror attacks – including the triple suicide bomb at Ataturk Airport in June – political in-fighting and external geopolitical rifts saw the number of foreign visitors to Turkey fall more than a third in May, the biggest drop in at least 22 years.
The sector is expected to take an $8bn (£6.1bn) hit this year, which could have a huge knock-on effect on the economy given that Turkey is largely dependent on imports for its growing energy demands and relies heavily on tourism to help fund its current account deficit. In 2015 this stood at more than $32bn, or about 4.5% of GDP.
And it is the effect on tourism that Colliers International’s Cin says is also one of the biggest causes for concern in relation to real estate prospects.
“I am most worried about development in the tourism sector,” he says. “This market has already seen a drop and I fear the hotel market will be affected the worst now after the unrest. Occupancy and room rates are in freefall. That could impact banking as most are financed by banks.”
He adds that while he fears for tourism in particular, he cannot foresee much real estate activity at all over the next six months in Turkey in any sector bar residential: “It is very hard to tell for sure yet but I just can’t see how what has happened this year with the terror attacks and attempted coup won’t push a slowdown further. If there was any hope of recovery after a slow nine months, it’s lost until at least the end of the year. I expect to see no demand in any sectors before people feel reassured the government is stabilised.
“Residential may be less affected as we have a huge, fast-growing population and there is a lot of local demand. Hotels and hospitality, as I said, will really suffer. On the commercial side I think offices are in trouble as the sector needs economic growth to flourish, which we don’t have right now.”
He adds that the impact of this, even before the release of any concrete figures, is unlikely to be positive: “We were already seeing signs of concern among global investors last year. The possibility of the Fed raising interest rates will affect all emerging markets. So long-term interest from investors has definitely diminished. It’s safe to say it’s at a minimal level. For now.”
Infrastructure pipeline
And therein lies the next question. Will Turkey’s ambitious infrastructure development pipeline, burgeoning population and comparably high levels of wealth for an emerging economy save it in the long term?
Aydinli’s Sonmez thinks so. “People will be shocked for a couple of months,” he says. “But then there will be a mindset change. And I think investment will pick up again, particularly in the residential sector. Turkey is open for business. The banks are open for business.”
But what about the threat of another terror attack or the possibility of a second coup attempt? On the former issue Sonmez makes a good point: “That could happen anywhere in the world now. It is not a Turkish issue. You just need to look at the photos of the bridge here in Istanbul during the attempted coup to see it lit up in the colours of the French flag because of the Nice attack earlier in the week. This is not a local problem, it is a global problem.”
Cin agrees: “Where in the world is safe now? These attacks could happen anywhere.”
And as for the coup? Cin does not think we will see another attempt in the immediate future given Erdogan’s strict crackdown. Though he does point out that while he thinks the offices and industrial sectors in Turkey might bounce back as soon as next year, the attempted coup has added a degree of long-term concern into the mix. Something that wasn’t necessarily hanging over developers, investors and the Turkish people until 15 July.
“Sentiment here in Turkey was not very positive before the coup. People feared for their personal security. They started to go out less. Life here slowed down. But they were short-term fears. Then we had the coup attempt and concerns went from immediate to mid- or even long-term. Because unless the government gets back in control soon, the implications could be much deeper.
“Property has been affected before by fear of terror or clashes with the Kurds. But it often recovers quickly. So there is definitely some nervousness around more long-term worry having a longer term, deeper impact,” says Cin.
As to whether Turkey can recover from the turmoil of the past few weeks and months, both pessimists and optimists agree that the country has enough going for it to weather the storm for a while. But not indefinitely.
All eyes will now be on the government to see if it can claw back some control of a country on the brink of tough times ahead in every sense – economically, socially, legislatively, and even emotionally.
The sad story of a rising star stopped in its tracks
The dust may have settled, but the shock still hangs heavy in the air. And will do for weeks, months – maybe even years, writes EG global editor Emily Wright.
No one knows what will happen now. No one knows how to fix the mess. No one knows how we even got here.
And I am not talking about the decision by the UK to leave the EU.
The attempted military coup across Turkey – eerily stealthy and entirely unsustainable in equal measure – was a huge blow to a country already on its knees, reeling from months of mounting political, social and economic instability. This is the sad story of a rising star stopped in its tracks.
Just over a year ago Turkey was on course to be the fastest-growing economy in Europe with an average annual growth rate of 5%. A former safe haven in an otherwise turbulent region, it is now systematically being dragged down by both internal and external geopolitical strife.
The attempted coup – ended within 12 hours, resulting in the death of more than 300 people, and leaving the future of many more uncertain at best – comes after months of unrest. On 28 June, three men carried out a targeted terror attack on Ataturk Airport in Istanbul. Guns and bombs left blood-smeared walls and shards of shattered glass in their wake. And 42 people dead.
The attack and the attempted coup came hard on the heels of numerous bomb scares over the past 12 months. In Istanbul alone, 10 people were killed by an IS suicide bomber in the vicinity of the city’s iconic Blue Mosque back in January, and four people died in March in a similar attack on one of Istanbul’s main shopping streets.
Now, heading into the country’s main tourism season, international visitors are already down by 10% and early predictions suggest numbers may decline by a further 5.2%.
On the real estate side, this was a country that, just 18 months ago, was on a clear upward trajectory. The development pipeline was looking strong, there was a dedicated plan to deliver on major infrastructure projects and bold, fresh architecture was set to cement the country’s position as a serious global player, as the likes of Soho House and Yoo Hotels flocked to get in on the action.
Then everything changed. Almost overnight.
I remember, because this time last year I happened to land at Ataturk Airport the day after Turkey shocked the world and launched airstrikes on IS targets in Syria. It was the first time the country had become directly involved in the conflict since the Arab Spring. The original purpose of my trip was to visit Istanbul as part of a plan to work up a standalone guide for investors looking at the city as the next emerging market to splash their cash.
Two days before I left the UK this was an entirely viable project. By the time I got off the plane it had dwindled to a pipe dream. And the story instead became one of a city stuck between the east and west – caught in a haze of geopolitical crossfire. And it has been the case ever since.
Whatever is happening in the UK, however strongly we feel about the implications of a democratic vote, the footage of tanks lining up silently along the Bosporus Bridge and the horrific scenes from Nice and Germany will at the very least, put things in some kind of perspective.
We live in a world where nearly 100 innocent men, women and children have just been wiped out as they went about their daily lives. Where gunmen took to the streets of Paris and started to shoot in cold blood. And where Syria, a once beautiful, historic country has been all but decimated.
One of the saddest outcomes of the EU referendum vote in the UK has been the emergence, and exacerbation, of a huge divide between the leave and remain voters.
While no death, no terror attack, no injury should be used irresponsibly to force people – guilt people even – to feel less concerned and worried about the future of this country, shouldn’t they at least act to remind us that turning on each other is not the answer?
• To send feedback, email emily.wright@estatesgazette.com or tweet @EmilyW_9 or @estatesgazette
