Turkey entices foreign investment amid uncertain economy

Turkey is feeling strain from an enervating economy and taking regulatory measures to help shore it up. On Wednesday, the World Bank cut its growth forecasts for Turkey "as uncertainty over who will govern exacerbated the country's economic weaknesses and vulnerability to global liquidity tightening."

The lira fell to record lows against the U.S. dollar following the June 7 parliamentary elections, which failed to give any party a clear majority.

As Reuters reports, since the election, foreign investors' bond portfolios have fallen $1.7 billion, as investors worry that an unstable government would be unable to deliver the structural reforms needed to revive growth.

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"It's becoming apparent that whoever is in government needs to make some large structural reforms to boost growth. Without a stable government, it would be very hard to push those reforms," William Jackson of Capital Economics in London told Reuters.

The World Bank said in a note the uncertain political outlook and a gradually tightening global financial environment had prompted it to cut Turkey's 2016 and 2017 growth forecasts to 3.5 percent. Although it kept its 3 percent forecast for 2015, it said political uncertainty created downside risks.

However, some believe the uncertainty could be short-term. "Political uncertainty is clearly an economic liability. But a sustainable coalition that helps Turkey achieve some political equilibrium is a real possibility," said Michael Harris, Turkish strategist at Renaissance Capital.

In order to stir the economy, Turkey is seeking to boost international investment in its property market by allowing the creation of funds that can invest in development, reports Ireland's Independent.

How it will work: Funds that exclusively market Turkish property abroad will be allowed to finance real estate development if the companies that operate them accept new standards for risk management and capital reserves proposed by the Ankara-based Capital Markets Board.

"We aim to tap into areas that are the focus of global investors' demand, particularly from Gulf countries, and develop a strong and institutional model that can withstand risks," the Capital Markets Board said.

The proposed fund regulations are part of a government effort to increase transparency in financial markets and allow performance comparisons of all funds sold in Turkey. Companies focused on selling Turkish real estate overseas have been largely unregulated by the capital markets board until now.

"This will bring transparency and safeguards to the real estate market," Alaeddin Babaoglu, chairman of Amplio Real Estate Investment in Istanbul, told the Independent. "It's hard for real estate investors to compare prices in the current non-transparent conditions that bloated property prices."

Under the current rules, only real estate investment trusts can invest in development. Real estate funds that market properties to domestic investors will still be unable to invest in development under the new regulations.

Currently, the majority of property projects are financed with bank loans and pre-sales. The new rules would allow funds to invest in greenfield projects on undeveloped land.

"Greenfield projects may offer more opportunities with added value, which investors lacked before with finished projects," Murat Gulkan, managing director of Istanbul-based Unlu Portfolio Management, told the Independent.

Meanwhile, fund management companies that want to invest in development will be required to hold at least 20 million Turkish liras (around $7 million) in initial capital and equity capital.

Concurrently, foreign hotel brands and operators are making a push in Turkey. Japan's Hotel Okura Co. will open Okura Spa & Resort Cappadocia in 2017, its first property in Turkey and, reportedly, the first hotel in Turkey operated by a Japanese hospitality company. In February, Hotel Okura established a joint venture company with two Turkey-based companies: Sarayli Turizm A.Ş. and MSIC Gayrimenkul Yatirim Ve Danişmanlik Ticaret Ltd. Şti. The joint venture aims to accelerate Okura’s expansion in Turkey.

“Establishing this joint venture in Turkey is a strategic move to expedite our global growth,” said Toshihiro Ogita, Hotel Okura’s President and Representative Director.

Hotel Okura plans to open multiple properties in Turkey, including in Ankara and Istanbul.

Others are also getting in on the act. Aside from Okura, Hong Kong-based Swiss-Belhotel has announced plans to open hotels in Turkey, while The Ascott from Singapore and Central Group of Thailand have added the country to their future investment plans, as well.

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