Istanbul offers a bargain in the bazaar

Investors should start looking towards the city that bridges continents, says Graham Norwood

There's a sure sign Istanbul has joined the club of international property locations - it is about to become a destination for budget flights by easyJet. Daily services from Luton to the Turkish city start next month, with a typical return price of about £170 excluding taxes, making it feasible to buy an exotic second home or for investors to size up what many believe to be an emerging buy-to-let market. International tourism in Turkish coastal areas has blossomed significantly in recent years but Istanbul, spanning the Bosphorus and so located partly in Europe and partly in Asia, claims it will become a major global business centre if the country is allowed into the European Union.

Alise Crossick of Ready2invest, a British firm selling properties in the city, says: "Turkey and particularly Istanbul offer unparalleled investment opportunities. There's currently a housing shortage of some 500,000 units per year and this, combined with a frenzy of interest since October [when accession talks with the EU began], is pushing Turkey to become one of the main players in the world property market."

The city has more than 10 million residents if one includes its farther-flung suburbs, and is undergoing rapid modernisation. The small manufacturing industries that used to dominate much of the city are moving out, being replaced by commercial and service companies and a new "downtown" high-rise area. Istanbul's stock exchange now trades more than 320 companies' shares, and a city-wide underground system is being built.

The UK's Royal Institution of Chartered Surveyors (RICS), which monitors housing markets across the world, says Turkey's improving general economic performance bodes well for property investors seeking long-term returns from buying in Istanbul.

Prime locations for long-term investors include Levant, Akatlar and Etiler, central areas mainly consisting of apartments close to shopping malls and the business centre, Maslak; Besiktas and Ulus, with good views of the Bosphorus; the hilly, older areas of Bebek and Rumelihisari; and Kemer, where larger houses are the norm.

About £30,000 will buy you a very small new-build flat in a secondary location, almost certainly without car parking; for £60,000 you may buy a small property in an area more appealing to renters. But you need to spend £100,000 or more to get the quality product likely to appreciate most and attract corporate tenants, while £200,000-plus gets a large house in a well-regarded suburb perhaps 15 minutes from the centre.

But the RICS also warns that to encourage more home ownership amongst the Turkish population and therefore create a long-term stable property market, the country needs a better-regulated and lower-cost mortgage system - something which is on its way, but has taken years to come to fruition. And there are frequent tales of British buyers taking insufficient care when choosing an estate agent or checking purchase details. SMI (Overseas) Ltd, a firm based in Stamford, Lincolnshire, was wound up by the Department of Trade and Industry last November after telling investors it would build up international property portfolios by using their money to buy in Turkey. The DTI investigation found that, despite taking payment from investors, there was no evidence of any buildings having been purchased.

A spokesman for John Howell & Co, an international property solicitor, says: "It is vital for buyers to always seek independent legal advice, preferably from a lawyer who can speak both English and Turkish and who is able to read all documentation."

Yet for investors who use reliable agents and exercise careful due diligience, Istanbul's prospects look good - especially if Turkey gets the go-ahead to join the EU. The country has enjoyed one of the world's best productivity growth-rates of the past decade; the median age of its population is 22, meaning that most people will be of working age for decades to come, inflation is at its lowest since the mid-1970s and foreign investment is at its highest level ever.

Despite Ankara being the administrative capital, most of the growing service economy of Turkey is based in Istanbul. "The economic transformation has been dramatic," claims Crossick. "The introduction of a mortgage system due to be ratified in 2006 will stimulate demand for domestic housing and drive house prices upwards. There's been a liberalisation of foreign property ownership laws with new legislation that came into play in 2005 and with [the possibility of] EU accession, increased foreign investment will lead to Turkey's infrastructure and economic vitality."

One other factor may heighten the city's prospects - it will become better-known to budget-flight Britons in the years to come.

How to buy on the Bosphorus

* Britons can buy in Turkey providing the property lies within the boundaries of a city, town or village with more than 2,000 residents and does not lie in a military zone

* A buyer signs a contract with the seller and an official of the property registry department

* The contract sets out the agreed price and completion date with a deposit, usually 10 per cent or more, paid at this stage

* Applications to buy need to be agreed by the local council and Turkey's Army Office - an eccentric but obligatory part of the process, and which may take up to eight weeks

* The remaining balance is paid at the date negotiated between buyer and seller, when the deeds are transferred on completion day.

* Fees include estate agency (three per cent of the purchase price); legal (about £100); purchase tax (£300); land registration (about £450); and earthquake cover (£35)

* There is 25-per-cent capital gains tax levied on the profit from a property when you sell