Peeling façades, abandoned buildings and potholed lanes in Istanbul's trendy Beyoglu mask a housing market boom which is tempting foreigners to invest in the city and doubling the price of a Bosphorus view.

Foreigners have been allowed to buy property in Turkey again after a suspension last year and Duru Real Estate in Beyoglu - traditionally the diplomatic centre, now packed with pricey bars - is hiring new staff to meet the demand.

"Since the permission was given so foreigners can buy flats in Turkey, it's moving much faster," Duru's Semra Sunat said. "In this part of the city (prices) are just flying."

Turyap, one of Turkey's largest real estate firms, estimates residential property prices in Istanbul will rise 80 to 120 per cent this year, after an 85 per cent rise in 2005, as foreign investment, the start of long-delayed talks to join the European Union and the launch of mortgages spurs the market.

Turkey's large, young population is expected to get richer, while a housing deficit of 600,000 residences in cities and potential redevelopments of Istanbul's shanty towns and earthquake-vulnerable buildings could also fuel growth.

Buoyed by the EU talks, foreign companies are pouring into Istanbul, bringing workers who buy or rent homes in exclusive districts on the picturesque Bosphorus strait or in Beyoglu, where the dawn call to prayer tells revellers it's time for bed.

Istanbul - a tourist hotspot dotted with minarets, bazaars and Byzantine ruins - is also attracting business with its booming economy but property is still cheap compared to Europe.

"Prices are not expensive, we are still 50 to 60 per cent less than the Eastern European average and 80 to 90 per cent less than the general European average," said Turyap's Ferhunde Ozguler, head of international relations.

A 2003 law enabling foreigners to invest in real estate led to a boom in the mainly Muslim country. But a constitutional court ruling last year stopped foreigners buying property for several months, until a new law was passed at the end of 2005.

Northern Europeans are snapping up second homes on the turquoise Aegean coast at an ever faster rate. Agents say money once spent on holiday homes in traditional destinations like Spain has been redirected to Turkey. "We went from an average eight to 10 properties a week in Spain to selling one to two a month and it's gearing up to those levels (8 to 10) now with Turkey," David Hunter, director of Exclusive Properties International, told Reuters.

He said prices in coastal areas like Bodrum - dubbed the new Marbella after the Spanish resort - have risen 20 per cent in the last six months and he expects rises of 25 to 30 per cent over the next year.

Budget airline Easyjet starts flying to Istanbul from London this summer, boosting Turkey's potential as a minibreak destination for sun-starved Londoners.

"It's usually a good indicator, the tourist market, and the property market follows that," said Mr Hunter, who sells properties in Turkey for between £70,000 and £150,000.

Investment funds and foreign firms are also buying into the retail property market, hoping to snare tenants like department store Harvey Nichols which opens in Istanbul this year.

Of a total $2.8 billion of foreign direct investment in 2004, $1.3 billion was in real estate sales, while Treasury data for the first nine months of last year shows real estate inflows rose 13 per cent year-on-year.

Economic growth is targeted at five per cent for 2005 and 2006 while inflation has come down to single digits for the first time in a generation and consumer confidence is growing. Istanbul still lags the European average in terms of shopping centres per capita, according to real estate services company CB Richard Ellis, leaving potential for growth.

United Arab Emirates-based Dubai Holding plans to build a pair of twisting skyscrapers in Istanbul for shops, offices, flats and hotels in a $500 million investment.

Dutch group Corio bought a 46.9 per cent stake in Akmerkez GYO - owner of an upmarket shopping centre of the same name - for around €148 million last year.

The main draw is the fact that the return on investment is higher in Turkey than it is in western Europe, although that implies there are risks, such as the value of the lira currency.

"(In western Europe, yields) are five per cent for prime shopping centres, maybe five-and-a-half, six per cent for office buildings... but in Turkey, you are still achieving double these rates," Feroze Bundhun, managing director of CB Richard Ellis in Turkey, said.

Yields will decrease as prices rise faster than rents, experts say, but fat capital gains are also to be made.

Equity broker CA IB International Markets expects capital gains of 15 per cent on office space and at least 11.5 per cent on retail space by 2009.

"In addition to your annual income, you're also getting a capital gain... as a long-term investment it's pretty attractive," CA IB's head of research Mark Robinson said.

Most experts say the boom has been created by European Union membership prospects, although Turkey might never join the bloc. Negotiations began in October last year and are expected to last at least a decade, with a range of thorny issues to be tackled. Among those is a European Union demand that Turkey abolish property restrictions on minority non-Muslim religions.

But Bundhun is not fazed: "The negotiations are going to take 10 years... but in the next 10 years a lot of people are going to make a lot of money."