Disadvantages and risks of investing in Turkey

It can be said that Turkey is considered one of the advanced countries in terms of adapting laws and infrastructure in general to serve foreign investors, which has indeed led to their continued and increasing attraction to Turkey.

In general, it is natural for any investment process in any part of the world to be surrounded by risks, and in this context, the risks of investing in Turkey do not differ from those associated with investment in any other country in general.

But is it inevitable that everyone who enters the investment process will come out a winner?

The answer, of course, is no, as successful investment must be based on sound principles.

What are the conditions for successful investment?

• Comprehensive knowledge of the investment field in general.
• Market study and awareness of expected risks.
• Ability to plan and manage.
• Ability to evaluate.
• Seizing available opportunities.
• Rationality in decision-making.
• Dynamic thinking.
• Ability to endure.
• Ability to assess risks.
• Emotional control.

And other objective factors, so real preparation before entering any investment is the key to its success.

Investment risks in Turkey - General investment risks

The risks of investment in Turkey do not differ from the risks associated with investing in any country in general. Here are the most prominent aspects:

1. Management risks

These are risks related to administrative functions and practices such as (lack of efficiency and experience, decision-making, problem-solving).

2. Legal risks

These are risks arising from entering into contractual agreements with other parties without ensuring fulfillment of obligations towards these parties.

3. Business risks

These are risks related to the industry and the field in which the company operates.

4. Operational risks

These are risks related to the company's internal systems (systems, employees, embezzlement, breakdowns).

5. Credit risks

These are risks associated with the failure of the other party to fulfill its obligations and not taking sufficient guarantees.

6. Price risks

These are risks related to undesirable movements (up or down) in market prices.

7. Reputation risks

These are risks resulting from your company's inability to maintain an excellent market reputation (quality, commitment, accuracy, keeping up, transparency, excellent customer service).

8. Political risks

These are risks resulting from government decisions such as taxes, pricing, customs, nationalization, etc.

9. Financial risks

These are risks resulting from the company's failure to meet debt obligations according to the terms agreed upon with financiers or lenders.

10. Concentration risks

These are risks resulting from concentrating your investments in only one sector, such as agriculture, or in several small sectors.

Examples of investment risks in Turkey

1. Real estate fraud in Turkey

This happens in several ways, such as exaggerating the real property prices in Turkey for extra profit. There is no doubt that the new circular issued recently largely solves this problem.

A circular was issued by the General Directorate of Land Registry and Cadastre, affiliated with the Ministry of Environment and Urbanization of the Republic of Turkey, dated 15/02/2019 under number 2019/1, requiring foreigners to obtain a real estate appraisal report. This is not only for those applying for Turkish citizenship after buying property, but also for those selling and buying property from foreigners in Turkey in general.

2. The decline in the Turkish lira exchange rate

Naturally, an investor wants to invest in a safe investment environment to reduce potential risks to their investment. As for investment in Turkey in particular, some investors complain about the fluctuations in the Turkish lira exchange rate.

Looking at the real estate investment situation as a model for investments in Turkey, the sector benefited from the decline in the local currency exchange rate during 2019, as real estate sales to foreigners in Turkey increased by 69% in the first half of 2019 compared to the same period in 2018.

Economists considered this figure an important indicator of the real estate sector's recovery from its previous stagnation and a return to attracting investors in a vital field for the Turkish real estate sector and the Turkish economy.

According to the Turkish Statistical Institute, real estate sales to foreigners in Turkey have increased nearly fourfold over the past six years.

All of the above is concrete evidence that the real estate sector was not affected by the decline in the Turkish lira exchange rate; on the contrary, the situation of the Turkish lira gave foreign investors a preferential advantage due to the high purchasing power of the US dollar in the Turkish real estate market.

3. Not dealing with trusted parties

There are many commercial companies based in major Turkish cities such as Istanbul and Ankara. These companies vary between construction, consulting, import and export, and other types.

However, if you want to make a successful investment in Turkey, whatever the nature of the intended investment, do not hesitate to inquire about the credibility and transparency of any party you will deal with in the future.

To avoid real estate investment risks, for example, it is very important to work with a trusted real estate broker.

On the other hand, investors or their brokers should conduct preliminary market research on the real estate company in which the investment will be made.

Once the investor makes the decision to invest in a project with a certain company, they must be extremely careful about the terms stipulated in the contract.

In particular, the penalty clauses should provide protection for the investor and their rights.

Also read our article on: Why invest in Turkey and what is the best investment in Turkey?

Advantages that encourage investment in Turkey

1. High population density

Turkey's population is about 84 million, which is a large number. The significance lies in the proportion of young people, as Turkey has the highest proportion of young people among its population compared to EU countries.

2. Among the most attractive cities for tourists worldwide

The number of tourists who visited Turkey in 2019 exceeded 48 million.

3. Diversity of investment patterns in Turkey

There are opportunities to engage in more than one vital investment field:

• Industrial investment.
• Agricultural and food investment in Turkey.
• Service sector investments.
• Real estate investment in Turkey.

4. Advanced infrastructure

A new infrastructure with highly advanced technology in transportation, communications, and energy, including:

• Advanced and low-cost maritime transport facilities.
• Rail transport advantage to Central and Eastern Europe.
• Paved transport routes and direct delivery mechanism to most EU countries.

5. Incentives and low taxes

• Reducing corporate income tax from 33% to 20% (22% for the years: 2018, 2019, and 2020).
• A law to support innovation and research and development.
• Tax incentives and advantages in technology development zones, industrial zones, and free zones.
• Incentives for strategic investments, especially for large and regional investments.

What is the feasibility of investing in the Turkish real estate sector in particular?

When an investor starts the investment process, they certainly expect a rewarding financial return commensurate with the size of the capital and the nature of the investment.

When talking about real estate investment in Turkey, it is known to be a vital sector that has attracted and continues to attract many foreign investors who have already benefited from Turkey's strong infrastructure.

Looking back at the Turkish real estate sector, it has recently become the focus of attention for foreign investors, especially after the incentives offered by the Turkish government, which include granting Turkish citizenship to those who own a property worth not less than 250,000 US dollars, on the condition that it is not sold for three years.

See at Imtilak: Apartments for sale in Istanbul at attractive prices in various areas and apartments with Turkish government guarantee suitable for Turkish citizenship

Other important information and topics, learn about them:

• What criteria do foreigners prefer when investing in real estate in Turkey?
• Villa prices in Turkey: constantly updated prices
• Buying an apartment in Turkey in installments: important legal conditions and matters

Edited by: Imtilak Real Estate©

Sources: SME Financial + Investment Office (Presidency of the Republic) + Wikipedia

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