If Turkey does manage to join the EU, it will only be a bonus for the Ottoman Fund, a £150 million residential property fund about to launch on AIM to take advantage of the imminent arrival of mortgages in Turkey.
The fund, set up and run by Development Capital Management (DCM), was, according to DCM’s co-founder Tom Pridmore, about 15% over-subscribed. It has raised £150 million from mainly large institutional investors, through a placing of shares at £1. Shares are due to start trading on AIM on 28 December.
The fund will essentially provide early stage financing for developers of both local and tourist residential property in Turkey. Its chairman is Sir Timothy Daunt, the former British ambassador to Turkey.
Pridmore explained that without this early funding, developers have to wait until they have sold around 60% of a development and collected deposits, before starting to build. By getting in at this early stage of financing, the fund gets to buy properties at discounts of around 50%. The intention is not ever to own the properties, but to sell them on at a profit while they are still ‘off-plan’ investments. In the worst case, if a downturn were to occur and the company ended up owning the completed property, it would let it, attracting rental yields which Pridmore reckons could be as high as 13% based on the large discount achieved on the initial purchase.
Pridmore told Citywire: ‘Joining the EU would be a bonus if it happened’. However he said that simply by preparing to try to join the EU, Turkey has become a more stable place, with tighter military control and more economic stability. Also, the country is just about to introduce mortgages for the first time.
Pridmore said that when Greece introduced mortgages, ‘there was a massive uplift in prices’. In Turkey, banks are expecting to process billions of pounds of mortgage borrowing in the coming years, which Pridmore reckons is a ‘huge opportunity’ for residential property, which hitherto has mainly been bought for cash or on short-term loans only.
Pridmore reckons this is the only fund currently doing residential property in Turkey. With the fund’s gearing, it expects to be able to buy up to £1 billion of property.
DCM also launched a Bulgaria fund earlier this year, the £50 million Black Sea Property fund, and a small UK fund, the Off-plan fund.
On the surface, and judging by the support for the fund so far, there should be huge opportunities in residential property in Turkey in the next few years.
However, there are plenty of risks. A recent report from the Oxford Business Group points out factors such as there needing to be a great deal of foreign investment into Turkey before mortgage lending really takes off. It says there are also cultural barriers, with many homeowners being reluctant to agree on long periods of repayment.
On the plus side, there is an ever growing tourism industry, a great deal of demand for earthquake-proof building, and the appetite of foreign investors for buying holiday homes or buy-to-let properties abroad. Not an investment for the faint-hearted, but the fund should do well.