Changes to Turkey's real estate sector can be described as a leveling off in prices for residential property targeting high income people, the introduction of mortgages for the first time into Turkey, the continued success of real estate investment trusts (REITs) and a growing realisation that Turkey is heading for a crisis if it does not address the housing needs of those on lower and lower-middle incomes immediately.

Turkey has a large and growing population with more than 50% under 25. This growth, coupled with shrinking household sizes and an ageing housing stock means that Turkey will need 8.5m new houses by 2015. The real problem for developers is that the vast majority of the housing need comes from lower and lower-middle income groups from whom returns are more challenging to achieve. One possible solution - the discussions around which are at the earliest stage - is to establish a western model of social housing, where the state shifts from builder to commissioner of new housing.

In stark contrast, the residential market for A and A+ income groups suffers from neither a supply nor a demand problem, indeed there is a temporary oversupply problem. The pent-up demand following the crisis of 2001 finally sated, prices for middle to high income residential property are expected to see a leveling off as, year-on-year price increases of 200-300% now firmly in the past.

This represents an all-round normalisation of the real estate market in Turkey as it moves firmly into a development phase that should last the next 15-20 years: mortgage loans are now worth some $25bn (€16.9bn) and secondary markets are beginning to settle on the way to reaching $100-120bn by 2015. Yields are dipping below 8% from highs 15-20% and there are intermittent and temporary oversupplies of A-B+ commercial real estate. Given the relative cooling off of the market, firm local knowledge and expertise becomes ever more key, making Turkey-based REITs seem intuitively the best option for investors.

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