A prominent Turkish developer says a surge of Gulf interest in Turkish property has prompted him to open offices in Dubai to exploit flourishing commercial links.
Ali Agaoglu, president of the developer, says his company has since May sold about 1,300 Istanbul units to investors from Saudi Arabia, the United Arab Emirates and other Gulf states.
Agaoglu, which is developing 12,000 homes across Turkey, usually sells about 4,000 units a year.
The rise in interest, amounting to sales of about $350m, came after regulations were changed last year to allow Gulf investors to purchase property in Turkey.
“Istanbul is a very important city for Arabs,” says the billionaire property magnate. “We have observed a high level of interest and we see Dubai as our gateway to the Gulf.”
Most sales have taken place in the developer’s shiny tower projects, such as My World Europe and Maslak 1453, a project undertaken in co-operation with a state housing agency.
He says most investors are Gulf families seeking to purchase a base in Istanbul to enjoy the street life and Islamic heritage of the historic city.
Many investors also highlight the growth and political stability that have characterised Recep Tayyip Erdogan’s almost 10 years in office as Turkey’s prime minister, even as Mr Erdogan’s government pushes to increase economic and political ties with the Arab world. To date, however, investment flows from the Gulf to Turkey have lagged behind the rhetoric.
Mr Agoglu says flourishing trade flows between the Gulf and Turkey could now cement two-way investment flow with both property investors and corporate transactions.
In the first half of 2012, Turkey-UAE trade, quadrupled to $5.2bn as the UAE became Turkey’s second largest trade partner after Iraq.
However, this phenomenon is largely due to the gold trade between Turkey and Iran, which traditionally uses the UAE as entrepot, and has sought to overcome the paralysing impact of international sanctions on its banking industry. Recent statistics suggest such sales are now declining in the wake of US sanctions specifically intended to bring the trade to an end. Overall exports to the UAE have also fallen from their peak.
Private equity companies working in the Middle East have singled out industrialised, stable Turkey as the star performer in terms of takeover targets and the ability to exit investments profitably.
Mr Agaoglu hopes the new office will help build financial bridges into the Gulf region as his Turkish construction group seeks to add partners into development projects it is working on in Turkey.
He mentions Canal Istanbul, one of the prime minister’s most ambitious projects, which intends to bypass the Bosphorus with a new 50km waterway but which has attracted widespread scepticism over its cost and business rationale at a time when investment finance is sometimes difficult for Turkey to obtain.
Mr Agaoglu says new towns with 1m residents would be built on either side of the waterway, but investment is needed, especially from the Gulf.
Another landmark project is Istanbul’s planned new financial centre, where construction has already started on the city’s Asian side. Mr Agaoglu is seeking to raise $2bn in Islamic bonds for this project, which hopes to position the city as a financial centre to rival other centres in the region.
“The regulations are being prepared, there will be some legal and tax incentives,” he says of the centre, which he adds will be modelled on Dubai’s financial centre.
Istanbul’s bid for a regional financial role puts Turkey in direct competition with several other centres. Dubai International Financial Centre has established itself as the regional financial hub, but other economies, like Turkey, are also trying to muscle in on Dubai’s position, since it dislodged Bahrain as the Gulf’s financial centre.
Qatar Financial Centre lies at the centre of the Gulf’s richest per capita economy, but has yet to gather steam. Riyadh, which is benefiting from surging growth in Saudi Arabia, is also building a vast complex of buildings reserved for the financial sector.
Mr Agaoglu says the strength of the domestic economy, as well as the city’s links into neighbouring markets, will give Istanbul a competitive edge.
But some financial professionals characterise the project as at least as much a real estate project as a financial one, arguing that Turkey needs to make more progress on domestic capital formation before it can become a real international player.
“Istanbul will have an important place, given the strength of the economy,” Mr Agagolu says. “It has a very high potential.”
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