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December 20 speech of the Turkish president and its impact on real estate investment

December 20 speech of the Turkish president and its impact on real estate investment

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The exchange rate of the Turkish lira against the US dollar opened at the beginning of 2021 at a rate of 7.42 Turkish liras per dollar, and on March 27, 2021 the exchange rate for the first time reached nearly 8 Turkish liras per US dollar, and on October 12, 2021 the exchange rate for the first time reached the threshold of 9 Turkish liras for each US dollars, and thus until that point, the Turkish lira had lost about 21.3% of its value since the beginning of 2021.

 

But the month of November was very harsh in relation to the exchange rate of the Turkish lira against the dollar, as it started with 9.58 lira per dollar and ended with 12.74 lira per dollar. Thus, during this month alone, the Turkish lira lost about 33% against the dollar.

 

As for the month of December, it was not better than the previous month for the Turkish lira, as the month opened at an exchange rate of 13.5 per dollar, and on December 20 it reached the maximum peak, which is 18.14 per dollar. Against the dollar from the beginning of 2021 until the date of December 20, it is 244%, to be the worst performing currency in the world during 2021, and the graphic below shows these numbers that we talked about:

What happened on December 20 during the speech of the Turkish President?

Before talking about the speech, itself, we have the following economic data that were known before the speech:

  • The Turkish president is interfering with the work of the Turkish Central Bank, and this is what causes fears among foreign investors, since the central bank in any country should be independent in the decision.
  • The clear intention of the Turkish president to reduce interest rates, and more precisely, we can say that the interests are eliminated and 0% interest on bank deposits in the Turkish currency.
  • The interest was reduced by 1% twice for the months of December and November and by 2% for the month of October, so at the date of the letter the interest value was 14% on deposits in Turkish lira.
  • The Turkish president confirms that the current exchange rate is not real and is being manipulated through schemes aimed at carrying out an economic coup against the current government to overthrow it after the failure of the military coup in 2016.
  • Many economic analysts expected the exchange rate to reach 24 Turkish liras for every dollar after the exchange rate crossed the threshold of 18 liras for every dollar.

 

Now, the most important thing that came in the Turkish President's speech is the following points:

  • Turkish President Recep Tayyip Erdogan said that his government will launch a new financial instrument that will allow to achieve the same level of potential profits for savings in foreign currencies by keeping assets in lira.
  • The tool makes it possible to achieve the same level of profit potential as savings in foreign currencies by keeping assets in lira.
  • A long-term exchange rate will be set for the exporting companies through the Central Bank, and in the event of differences, they will be paid to the companies.
  • New tools will be developed to encourage citizens to bring their gold savings into the financial system.
  • He also pointed out that it is known that citizens have about 5000 tons of gold "under pillows" (they keep them in homes), valued at $280 billion, and that new tools will be developed to encourage citizens to enter their gold savings into the financial system.
  • Erdogan stressed the government's keenness to achieve stability in the economy and reduce exchange rate fluctuations by continuing to adhere to the rules of the free market, and to encourage production, export, and investment.

 

The result of this speech was a sharp rise of the Turkish lira against other foreign currencies with a value of more than 33% directly, and thus the exchange rate fell from the value of 18.14 to about 12.27, after which the Turkish lira achieved a set of gains to close the exchange rate market on Friday, December 24 at 10.75 Turkish liras per dollar, the gains achieved by the Turkish lira against the dollar are close to 59% in less than 5 days after the Turkish President’s speech.

 

Why is this speech considered completely changing the course of the Turkish lira’s course against foreign currencies?

  • Everyone is accustomed to the decline of the Turkish lira against the US dollar in every speech of the Turkish president, especially when he praises the situation and stability of the Turkish economy and that it is safe for investment. What happened in this speech is a very sharp and rapid improvement, and it is in the knowledge of speculation that it is a disaster for speculators on the continued decline of the Turkish lira against the dollar.
  • The improvement in the exchange rate so quickly confirmed that the Turkish President's statements about the strength of the economy have roots on the ground and can be transformed into tangible actions on the exchange rate.
  • The rapid improvement in the exchange rate demonstrated the capabilities of the Turkish government and its ability to absorb this economic revolution very quickly and efficiently.
  • The economic tool announced by the Turkish President has proven that the Turkish economy has many winning cards and does not depend only on raising and lowering the interest rate to maintain the value of the exchange rate.
  • Exposing the conspiracy led by the main economic group in Turkey, "Tusiad", with the aim of overthrowing the Turkish government.
  • The popularity of the Turkish president increased after directing citizens to exchange their savings in gold and foreign currencies into the Turkish lira, so that they made very large gains.

 

What is the impact of the December 20 speech of the Turkish President on real estate investment?

Many real estate investors have seized a lot of distinguished real estate opportunities during the sharp decline in the value of the Turkish lira, as we have provided free consultations to them, but at the same time, the real estate market in Istanbul is an investment market and it has demand from local residents in the first place and from foreign investors in the second degree, and therefore opportunities exist in it at all times, if the right projects are selected based on a deep study of the real estate market, and this is what our company offers free of charge to investors.

The impact of the Turkish President’s speech is not only limited to the rapid recovery of the Turkish lira against foreign currencies, but also the destruction of the old saying that believes that the direction of the exchange rate of the Turkish lira against foreign currencies is always downward, and therefore, according to some studies, says that the exchange rate of the Turkish lira against the dollar can reaches only 9 liras, and it is also possible in the coming years to improve to reach 7 or 6 liras only, and therefore it is possible to open the year at an exchange rate higher than the price at which it will be closed, and this is with a reduction in the interest rate if it occurs, we can make sure that the Turkish economy will transition from being a developing economy to a stable economy in its own right.

 

What points can a real estate investor benefit from now?

  • In the past, paying in instalments was a profitable process if the instalments were chosen in Turkish lira, and lost if the instalments were chosen in US dollars. Today, after this speech, it is not clear which of them may be better for the investor.
  • Cash payment, if possible, will earn the investor an additional discount and we believe it is the safest option now.
  • Investment in under-construction projects has proven its efficiency in previous years and we believe that it will continue to provide very high returns due to the increasing demand in the real estate market in Istanbul, if the project is chosen correctly and the correct timing to start and end the investment.
  • Focusing on investments that depend on tangible points on the ground (such as building a new metro station near the project) and moving away from investments based on dreams (purchasing a property 50 km from the centre of Istanbul because Canal Istanbul // if it is built // will be close to it). Previously, we talked about the Istanbul Canal project and how long it really needs to be implemented when starting it, and what are the best investment options.
  • Communicating with an experienced real estate consultant in this field will save you a lot of time and effort to find the most suitable investment property for your request and budget.
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