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. Last Updated: 07/27/2016

Foreigners Snapping Up Istanbul Realty

ReutersThe Ortakoy Mosque, below, and the Bosporus Bridge in Istanbul, where housing prices grew 85 percent last year.
ISTANBUL -- Peeling facades, abandoned buildings and potholed lanes in Istanbul's trendy Beyoglu mask a housing market boom that is tempting foreigners to invest in the city and doubling the price of a Bosporus view.

Foreigners have been allowed to buy property in Turkey again after a suspension last year, and Duru Real Estate in Beyoglu -- traditionally the diplomatic center, now packed with pricey bars -- is hiring new staff to meet the demand.

"Since the permission was given so foreigners can buy flats in Turkey, it's moving much faster," Duru's Semra Sunat said. "In this part of the city [prices] are just flying."

Turyap, one of Turkey's largest real estate firms, estimates residential property prices in Istanbul will rise 80 to 120 percent this year, after an 85 percent rise in 2005, as foreign investment, the start of long-delayed talks to join the European Union and the launch of mortgages spur the market.

Turkey's large, young population is expected to get richer, while a housing deficit of 600,000 residences in cities and potential redevelopments of Istanbul's shantytowns and earthquake-vulnerable buildings could also fuel growth.

Buoyed by the EU talks, foreign companies are pouring into Istanbul, bringing workers who buy or rent homes in exclusive districts on the picturesque strait or in Beyoglu, where the dawn call to prayer tells revelers it's time for bed.

Istanbul -- a tourist hotspot dotted with minarets, bazaars and Byzantine ruins -- is also attracting business with its booming economy, but property is still cheap compared to Europe.

"Prices are not expensive, we are still 50 to 60 percent less than the East European average and 80 to 90 percent less than the general European average," said Turyap's head of international relations, Ferhunde Ozguler.

A 2003 law enabling foreigners to invest in real estate led to a boom in the mainly Muslim country. But a constitutional court ruling last year stopped foreigners buying property for several months, before a new law was passed at the end of 2005.

North Europeans are snapping up second homes on the turquoise Aegean coast at an ever-faster rate. Agents say money once spent on holiday homes in traditional destinations like Spain has been redirected to Turkey.

"We went from an average eight to 10 properties a week in Spain to selling one to two a month, and it's gearing up to those levels [eight to 10 per week] now with Turkey," said David Hunter, director of Exclusive Properties International.

He said prices in coastal areas like Bodrum -- dubbed the new Marbella after the Spanish resort -- have risen 20 percent in the last six months, and he expects rises of 25 to 30 percent over the next year.

Budget airline easyJet starts flying to Istanbul from London this summer, boosting Turkey's potential as a minibreak destination for sun-starved Londoners.

"It's usually a good indicator, the tourist market, and the property market follows that," said Hunter, who sells properties in Turkey for $122,000 to $262,000.

Investment funds and foreign firms are also buying into the retail property market, hoping to snare tenants like department store Harvey Nichols, which opens in Istanbul this year.

Of a total $2.8 billion of foreign direct investment in 2004, $1.3 billion was in real estate sales, while Treasury data for the first nine months of last year shows real estate inflows rose 13 percent year on year.

Economic growth is targeted at 5 percent for 2005 and 2006, while inflation has come down to single digits for the first time in a generation and consumer confidence is growing.