Foreign demand and high-rise luxury housing projects in two Turkish cities: Ankara and Trabzon

Highlights

• Foreign population affects housing sector.

• Foreign housing demand affects the emergence of high-rise luxury housing projects.

• State housing policies affects the development of high-rise luxury housing projects.

Abstract

In recent years, Turkey has experienced a drastic increase in transnational migration, especially from Middle Eastern countries, and consequently, there has been a significant rise in foreign demand for Turkish property. After the 2000s, new arrangements in the Land Registry Law eased the acquisition of the real estate by foreigners, and the ensuing rise in demand for real estate had a significant effect on the Turkish housing sector. Turkish cities have seen a significant rise in the development of high-rise residential communities in recent years, some of which aim to attract foreign investors. This study investigates the relationship between the emergence of high-rise luxury housing projects and the rising demand for homes by foreigners focusing on two case study cities: Ankara and Trabzon. Both cities face the pressure of high-rise residential development and the foreign demand for real estate but under different circumstances.

Introduction

Under globalization, transnational migration has experienced a drastic increase in certain countries, leading to a significant rise in homeownership demand among foreign people. This new demand has caught academia's attention, with studies focusing on the reasons and the negative and/or positive consequences of foreign homeownership. There are a vast amount of studies claiming that foreign homeownership affects house prices. For instance, Chao and Yu (2015) argue that cities in the world that have experienced substantial real estate purchases by foreign buyers in the local housing markets had pushed up real estate prices to levels beyond the residents' affordability. In another study, Liao et al. (2015) identify a strong correlation between property acquisitions by foreigners and regional housing price movements in Singapore, arguing that foreign liquidity had played an increasingly important role in shaping the regional and local real estate markets. According to the authors, foreign liquidity shocks can significantly impact housing price growth in the central region and in the non-central region where foreign buyers are inactive. The authors claim that foreign liquidity can lend support to the market, but may worsen housing affordability when the market is tight. In Wokker and Swieringa’s (2016) investigation of the impact of foreign demand on residential real estate on property prices in Australia, the authors noted a positive relationship between foreign investment approvals and price growth (Wokker and Swieringa, 2016). According to the authors, the majority of foreign investment approvals are for new rather than existing dwellings. In another study in Australia, Guest and Rohde (2017) examine the effects of foreign real estate investment on housing prices and identify increases in foreign investment as a significant predictor of increases in residential property prices. In another study focusing the short-and long-term effects of foreign buyers on housing prices conducted by Tai, Hu, Chao and Wang (2017), one of the forces contributing to surging housing prices be the increasing demand from foreign buyers. Furthermore, according to Badarinza and Ramadorai (2018), foreign investments have a long-term effect on London house prices.

This rising housing prices linked to foreign homeownership may cause residents' affordability problems, as argued by Chao and Yu (2015), and there are further studies that support this argument. For instance, Giannoni et al. (2017) argued that the existence of nonlocal buyer premiums leads to the eviction of local (domestic) buyers from the market, while Wong (2017) claims that the growth of foreign property investments has compounded the housing affordability problem in Sydney.

In another study focusing on the different consequences of foreign homeownership, Kim et al. (2015) argue that foreign housing investments have the potential to strengthen the long-term settlement of foreigners. Paris (2017) suggests that the emergence of transnational systems of housing production, investment and consumption has led to a new form of gentrification that has made the “national” housing markets increasingly redundant, and that cross-border housing purchases are increasingly being associated with migration.

There have also been studies discussing the positive impacts of foreign homeownership on the economy of countries. Rodríguez and Bustillo (2010) claim that foreign real estate investments in Spain have had an important macroeconomic effect, maintaining a long-lasting bubble and contributing significantly to the financing of the current account deficit.

Besides the consequences of foreign homeownership, the reasons for and site selections of foreign housing demand are also discussed in some studies. Rodríguez and Bustillo (2010) suggest that foreign real estate investment is influenced mainly by such factors as Housing Prices, GDP per capita and the number of tourists. According to Lipkina (2013), second home ownership has been a growing trend in Finland, with the untouched and clean nature, the lake landscapes and properties with personal access to the lakeshore, and the price rates for second homes being among the primary motivations for second home ownership in Finland. According to a study by Gauder et al. (2014), foreign purchasers tend to opt for new rather than established dwellings, in higher- rather than lower-priced dwellings in Sydney and Melbourne. Wong (2017) claims that the transnational real estate process in Australia is shaped by both global forces and local factors, including the motives and practices of social actors, geographical settings and cultural politics in Sydney. According to Montezuma and McGarrigle (2019), economic factors are at the forefront of the decision-making processes of different categories of the foreign homebuyer in Lisbon. The authors claim further that the effectiveness of government incentives to attract foreign homebuyers is heavily dependent on the prospects of economic growth and rent legislation in the city, and the perceived attractiveness of the city/region for new residents and tourists.

In summary, empirical evidence from previous studies reveals that an increase in foreign homebuyers can cause housing prices to rise, and can also lead to affordability problems for local buyers. It is further indicated that in some countries, the state supports foreign real investment as a means of financing the economy. The review also highlighted a relationship between foreign homeownership and tourism, with nature and the attractiveness of a city being leading motivations for foreign homebuyers, who tend to opt for new and higher-priced dwelling units in cities.

Turkey has experienced a couple of economic crises in recent years, and foreign real estate investments have been seen as a remedy to the ailments of the economy and the financing of the rising current account deficit. Since 2000, foreign direct investments (FDI) in Turkey have exceeded the total direct investments up to that point from the beginning of the Republic in 1923. Also, in recent years, Turkey has seen a rapid increase in the construction of high-rise residential projects with strictly controlled entrances and several private amenities. In some cities, these new residential areas are especially attracting foreign homebuyers. It is the intention in this study to investigate the relationship between the emergence of these projects and foreign homeownership in two different cities in Turkey, namely Ankara and Trabzon. Ankara is the capital city of Turkey, and Trabzon is a coastal city which brings in many tourists who are attracted by its beautiful nature, and while both cities are feeling the pressure of the wealth of high-rise luxury housing settlements that are springing up, the circumstances are different.

In both cities supply of housing units increased more rapidly than the population. Both cities are under the pressure of growing foreign population, and foreign housing demand is playing an increasingly important role in shaping the local real estate markets. However, the current study argues that the impacts of foreign real investment on the housing market vary according to the cities. This study predicts a strong relationship between foreign housing demand and high rise luxury developments especially in coastal areas like Trabzon. Foreign home buyers are mainly interested in a particular segment of the housing market, especially in these areas, and foreign population creates housing demand independent from local demand. However, in larger cities like Ankara, other factors playing a significant role in shaping the housing market. Despite the increasing foreign population in these cities, domestic structural features continue to play a significant role in shaping the housing market.

This paper is organized as follows. The following section presents a summary of the historical development of the property acquisition regulations related to foreigners in Turkey. In Section 3, background information about Ankara and Trabzon is presented. Section 4 discuses foreign demand and high-rise luxury housing projects in two cities by using different statistics, and the final section concludes the study.