Is Turkey becoming the new luxury hub?

In Turkey, spending on luxury is increasing. Despite high inflation, a depreciating currency, and unconventional monetary policies, wealthier Turks and foreign investors are acquiring real estate, luxury goods, and other assets that have maintained or even increased their value despite the sharp currency depreciation. Economic pressures have pushed those with access to capital to protect their wealth by transferring it into durable assets like property and gold, thus fueling a surge in asset prices, according to The Economist. This boom has been particularly evident in Istanbul, where luxury goods consumption has seen unprecedented growth according to the publication, which also reports a significant increase in wealth among the country's ultra-high-net-worth individuals (UHNWIs). Between 2022 and 2023, the number of UHNWIs with a net worth exceeding $30 million increased by 10%. UBS, cited in the report, reports an extraordinary 158% increase in average wealth per Turkish adult in terms of lira from 2022 to 2023, marking the highest increase globally. This dramatic increase stands in stark contrast to Turkey's annual inflation rate, which reached 61.8% in July 2023, and the 19% devaluation of the lira against the dollar during the same period.

For the wealthy, this environment is advantageous. Those with access to credit have leveraged low real interest rates to accumulate wealth. However, this benefit for the rich contrasts sharply with the situation of the average Turkish citizen. Despite the apparent increase in wealth on paper, real purchasing power appears to have collapsed, according to The Economist. Nominal average wages have actually decreased between 2022 and 2023, exacerbating the impact of rising inflation on daily expenses. Rents have also increased in line with inflation, adding further financial pressure on those who do not own property. The Treasury, under Mehmet Simsek since last year's elections, is trying to stabilize the economy through more orthodox monetary policies. The Central Bank has kept the base rate at 50% since March 2023, after a series of significant rate hikes. Additionally, credit limits have been reduced and there was no mid-year increase in the minimum wage in July 2023, unlike previous years. These measures aim to contain inflation, which the Central Bank forecasts will drop to 38% by the end of 2024. While this is a positive sign, the immediate impact on the average citizen remains severe.

The asset price boom in Turkey has also led to the growth of a domestic wealth management industry. According to The Economist, the value of Turkish assets under management could reach $123 billion by the end of 2023. Much of this wealth is concentrated in family-owned businesses, which represent 95% of Turkish enterprises. Preserving and managing wealth are crucial concerns for these families, many of whom seek to secure their assets through generations. Moreover, the Turkish real estate market has undergone significant changes. Already last April, Forbes highlighted that, after a relatively stagnant 2023, the luxury real estate market is rebounding, with 70 million tourists expected in 2024 and a slowdown in inflation. Coastal regions like Bodrum and Antalya are experiencing significant growth in real estate transactions, with foreign buyers from the Middle East, Eastern Europe, and beyond showing strong interest. Istanbul remains a competitive market, with high real estate prices and cost of living.

Recent regulatory changes have also affected the real estate market. In 2023, Turkey increased the minimum real estate investment required for a residence permit from $75,000 to $200,000 and introduced stricter restrictions on foreign ownership in certain regions. These changes have contributed to a slowdown in the market. However, prospects for 2024 seem more optimistic, with tourism expected to reach record levels and potentially stimulate the luxury real estate sector. Additionally, the Turkish government has introduced measures to protect domestic online retailers from foreign competition. According to eCommerce News, import duties on packages from Europe will increase to 30% from the current 18%, and those on packages from outside the EU have doubled to 60%. Additionally, the threshold for import duty exemptions has been reduced from 150 to 30 euros. These changes aim to support domestic online spending and mitigate the impact of foreign online stores. In the coming months, however, Turkey’s efforts to stabilize the economy and manage inflation will be crucial in determining whether the benefits of this economic boom can be shared more equitably.