Türkiye’s luxury boom masks financial struggles for average Turks

Istanbul’s upscale shopping districts are teeming with activity, luxury yachts fill the marinas, and Michelin-starred restaurants are booked months in advance in Türkiye.

On a typical weekday afternoon, Istanbul's Istinye Park shopping center is bustling with activity, Caliber.Az reports, citing foreign media.

The city's Michelin-starred restaurants are fully booked months in advance, and the yacht marinas are packed. Evidence of a significant wealth surge is evident throughout Türkiye’s largest city, with a noticeable increase in luxury goods consumption. The number of ultra-high-net-worth individuals (those with assets of $30 million or more) in Türkiye grew by 10 per cent between 2022 and 2023. However, the average Turk is unlikely to feel any personal increase in wealth.

The statistics are striking. A UBS report reveals that average wealth per Turkish adult, combining financial and property assets minus liabilities, soared by 158 per cent in lira terms from 2022 to 2023—making it the highest increase globally. Türkiye's inflation rate, which reached 61.8 per cent annually in July, far exceeds the devaluation of the lira, which dropped by 19 per cent against the dollar during the same timeframe. As a result, property prices are skyrocketing even in dollar terms, as Turks invest their savings in assets they believe will retain value. Those who have had access to credit have often seen their wealth increase by borrowing at significantly negative real interest rates.

While wealthy asset holders might see their fortunes grow, the average person faces a much grimmer reality. Despite an increase in their paper wealth, everyday consumers have seen their purchasing power plummet, with nominal average wages actually declining between 2022 and 2023. Türkiye's new treasury team, led by Mehmet Simsek since the last election, is trying to curb inflation by returning to more conventional economic policies after President Recep Tayyip Erdogan's prolonged reliance on low interest rates and easy credit.

As a result, the central bank has maintained a base rate of 50 per cent since March, following several significant hikes, and banks are cutting back on credit limits. The previously frequent nominal increases in the minimum wage have been halted, with no mid-year raise in July as seen in the past two years. Renters are particularly hard-hit, facing rapidly rising rents due to inflation.

“Those who can hedge their assets are getting richer, while those who can't are falling further behind,” explains Murat Ucer, an economist and former adviser to Türkiye’s economy minister. The new wealth is being spent in Istanbul's upscale neighbourhoods and Bodrum's celebrity-studded resorts. A growing domestic wealth-management sector is emerging to cater to the country's newly affluent, with the value of Turkish assets under management expected to reach $123 billion by the end of the year. Much of this wealth is concentrated in family-owned businesses, which make up 95 per cent of Türkiye's enterprises, though preserving wealth across generations remains a challenge.

“The largest families are already well taken care of, but now there are new ones emerging,” says Ozge Dogan, founder of Karman Beyond, Türkiye’s first multi-family office firm, and a member of a second-generation wealthy family. “We tend to be more cautious with our wealth, but the understanding is evolving.”

The central bank anticipates that annual inflation will decrease to 38 per cent by the end of 2024, which would be beneficial for ordinary Turks. In the meantime, Ms. Dogan's clients are exploring investment opportunities outside of Türkiye. Her own family, for example, is purchasing properties in London.