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Turkey Real Estate Beware! TUR

|Includes: iShares MSCI Turkey ETF (TUR)

Beware of the Turkey Real Estate Market

August 22, 2012

Last week I returned from conducting my summer macro-economic research. This summer as part of my research into the European economy went I visited Croatia, Bosnia-Herzegovina, Montenegro, Greece, and finally finished up in Turkey. I have traveled extensively in Turkey over the last 13 years and I have been impressed by what Turkey is doing with its economy. If you visit Turkey will find the Turkish people to be some of the most friendly you will find anywhere in the world. So as you can see I am a fan of the Turkish people however I am now alarmed about the development taking place in Turkey. This year I entered Turkey through Bodrum, a costal city midway along the west coast.

It is been three years since I've been back to Turkey and I was depressed by what Turkey is doing to its coastline. They seem to be following the model exhibited by Spain 20 years earlier. Where Spain lined its coast with big ugly concrete boxes from Gibraltar up to Barcelona which were designed to be sold to Sun's seeking northern Europeans and now has collapsed. Turkey seems to be following the same example but instead of big ugly concrete boxes they are choosing to clone little white sugar cube type structures over and over and over again on grid patterned streets. In spite of the fact that very few of these ugly little sugar cubes seem to have been sold they keep building and ruining what was once a very beautiful coast. At least that is what I saw between Bodrum and Yalikavik.

Even though the GDP and debt to equity ratios don't indicate it at this point in time I would be highly skeptical of investing in Turkey or specifically Turkish real estate. They appear to be over building and this over building is due to what appears to be the start of the credit bubble. In Bodrum standing on one corner I could see five different banks and ATM machines. There is been an expansion of banks in Turkey and correspondingly it looks like an expansion of real estate development that is due to collapse at some point of time in the future.

I noticed this same phenomenon in Italy last year where it appears there seem to be more banks than churches in Italy and we've seen what that's done for the Italian economy.

Next year when I return into Turkey I will examine see if this ugly real estate development pattern continues further along the coast.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.