I have been thinking about the Turkish fascination with land lately. Real estate makes our world go around, but I increasingly find it odd and outdated. Our hyperactive real estate drive is harmful for industrial development and registered activities. However, it is still with us. Show us a piece of land and immediately we start making calculations. The first thing we typically do is to build a fence around it.
Why? Just to wait for the urban sprawl to reach our piece of land. Land is important for us Turks.
Let me start with a few facts. Around 60 percent of Turks in Istanbul own a home there. The rate is even higher outside Istanbul, without including the multiple homes and direct land investments.
Turkey’s domestic savings rate has been declining quite quickly, even in the last 10 years, from 25 to 12 percent. That is because we are still preparing for old age by investing in a piece of tangible land. Why? I can think of a few reasons, but I do not think that our fascination with real estate is related to our distant nomadic past on the route from Central Asia. It’s a lot less sentimental than that.
Let me focus on two rather cold reasons. Just to underline that there is nothing wrong with the Turks.
Firstly, the inflation rate in Turkey declined from 80 percent to 8 percent fairly recently, in 2005 and 2006. Even during China’s rise, with prices declining everywhere, Turkey had high inflation. Inflation is still around a high 6.5 percent, but there hasn’t been much progress since 2006. Erasing the memory of inflation is even harder than fighting the thing itself, if you ask me. Memory is even more persistent. Take the example of book price tags in Turkey. In the high inflation years, publishing houses decided to use adhesive price stamps on the back cover of books to adjust prices monthly or bimonthly. Only in the last two years have they reluctantly started to print prices on back covers. These are only book price tags; consider a once-in-a-lifetime investment decision. It is not easy to change tack in just a few years. Memories die hard. Old investment habits die harder, as we see in our real estate market. Six years is too short for major shifts in reasoning.
Secondly, changing zoning rules by administrative decisions can lead to enormous economic rents in land investments. Not fair, I know, but c’est la vie. If you know how to pull a few strings, don’t bother with hard work or education. Grab the land, change the zoning rules. That has been the story of our local democracy in the last fifty years; in that sense, Turkey has become more democratic than ever in the last decade - a kind of “advanced democracy” pour L’Orient! Individuals have trouble overcoming their memories, but we should be even more worried about our political and administrative institutions.
Land is important for us in Turkey. There are no sentimental reasons for this. It is all about the difficulty in changing the institutional setup. No wonder that we have not had major structural reforms in the last 10 years. This is the basis of our fascination with land ownership.