The world's economies follow a volatile course

Fraught as it was by economic  problems of global magnitude, 2007 was a year in which financial markets were marked by considerable unpredictability. Signals of an impending slowdown in the world economy combined with distress in the US mortgage market were the principal causes of volatilities whose strength at times varied between weak to strong.

In the Turkish economy, there was a clear weakening in domestic demand that was brought on in part by some capital flight and by ensuing interest rate rises that were triggered by global worries in May and June of 2006 combined with uncertainties attendant upon parliamentary and presidential elections at home in 2007.

Economic growth, which averaged 7,2% a year in 2002-2006, slowed down appreciably in 2007. Figures put the rise in Turkey's GNP at the 4% level in the first three quarters of 2007. During the same period, industrial output increased 5% while there was a 5,6% contraction in agriculture brought on largely by drought conditions.

A similar picture was to be seen in services, whose growth slowed down considerably in the second and third quarters in response to weak domestic demand. The nine-month rate of growth in this sector was 4,5%. One of the most striking developments on the production front was the low 5,4% rate of growth in construction in the last quarter of 2007: this weak performance was the follow-up after ten consecutive sectors of double-digit growth.

One of the most striking features of the Turkish economy in 2007 was a combination of high real interest rates with low currency exchange rates. Despite a positive appearance in exports, a strong rise in imports nourished further expansion in the country's foreign trade deficit and led to more growth in its current account deficit in 2007. While it is possible to finance the CAD through “hot money” inflows, the degree to which this is sustainable given the size of the deficit and a record-breaking level of indebtedness is becoming increasingly worrisome.

The rise in inflation was effectively suppressed by an over-valued Turkish lira. As measured in consumer prices, the year-to-year rise in 2007 was on the 8,39% level.

The future of the real estate sector remains bright
In light of the developments mentioned above, consumers in 2007 were inclined to put off decisions to buy houses in 2007. Notwithstanding the sluggishness of the housing market however, the vigor in real Estate properties continued and this was particularly true in the case of shopping centers.

Although we are going through a period of some economic instability, we nevertheless have confidence in our country's future. With a population of over 70 million, a substantial segment of which is young, Turkey's real estate market has a potential that can be matched in very few other countries. That potential is what provokes increasingly greater interest in our real estate sector on the part of foreign investors and this interest is attested to by a record-breaking level of foreign direct investment in the sector last year.

We are focused on success.
Yapı Kredi Koray performed well and posted successful results in 2007. We  maintained a solid balance sheet structure last year while continuing to put our signature to outstanding projects as a real estate investment company with a strong reputation for innovative Project development. Total assets at end-2007 amounted to YTL 259,3 million while our shareholders' equity reached YTL 106,1 million. Net profit last year weighed in at YTL 11,4 million, a year-to-year rise of 82,7%. Our property portfolio, which was worth YTL 122,7 million in 2006, rose to YTL 168,4 million in value in 2007.

These are the principles underlying the success that we have achieved:
• Put shareholders' capital to work in investments conforming to our risk-return profile and maintain a balanced portfolio through perfect financial management.

• Undertake project development as an integrated process involving correct and effective market analysis and sales and after-sales service strategies and transform everything into customer satisfaction.

• Ensure that projects that create a difference through project management practices which are attentive to detail are also projects that generate profits. These principles are the source of the strength that drives us along as well as the guarantee of our achieving sustainable commercial success under all economic conditions.

The essential determinant of a real estate investment company's success is its ability to determine whether or not projects will generate returns commensurate with their risks and to invest its resources in the right places. We have always been extremely careful in making our investment decisions and you may be certain that we shall continue to do so in the future as well.

Aiming at creating the very best portfolio
The İstanbul İstanbul, İstanbul Zen, İstanbul Bis, and Evidea residential projects that Yapı Kredi Koray has undertaken have all attracted tremendous interest and been huge successes both as business ventures and in terms of customer satisfaction. Our company is currently working on two major residential projects (Ankara Ankara and Mor Ada) and construction work has begun on residential blocks and a boutique shopping center on a third project in the prestigious Çankaya district of Ankara. Neo Eskişehir, a project developed by Yapı Kredi Koray and that city's first shopping and lifestyle center, was completed and sold to Riva Gayrimenkul Gelifltirme Yatırım, a real estate development and investor, in 2007. Neo is a powerful indication of the potential that lies in shopping center development outside İstanbul and is also strong evidence of the validity of Yapı Kredi Koray's portfolio strategy.

In keeping with our goal of moving into international markets, we have begun looking into possibilities in Eastern Europe. The first concrete result of this is a residential development project in Romania, evaluation work on which is currently in progress.

We are mindful of our long-term performance
In the face of the economic and sectoral conditions that confront us today, we are more aware than ever of the importance of our corporate strength and competitive position.
Since the day it was founded, Yapı Kredi Koray has always distinguished itself from other players in the sector by formulating its strategies on the basis of longterm performance rather than short-term gains. What puts our company way ahead of all the others however is not just the pioneering and innovative nature of the projects it develops.

Yapı Kredi Koray also distinguishes itself by virtue of:
• Its corporate strengths and objectives
• Its management competencies
• Its professional approach and business model
• Its careful and analytical project development processes.
These attributes are what will enable Yapı Kredi Koray to defend the same strong and distinguished position in the future that it enjoys today. Thanks to our performance-focused business model and corporate culture we can proudly say that we have all the essential managerial and operational qualities and attributes that we need to be one of the best real estate companies in Europe. What's more we are moving confidently towards achieving that goal.

YAPI KREDİ KORAY ANNUAL REPOT 2007/ 9
Although housing will always be a high-priority component of Yapı Kredi Koray's investment portfolio, we are also determined to take advantage of opportunities that present themselves in other (that is, non-residential) business lines, with a particular emphasis on commercial properties such as shopping centers. Our fundamental point of departure in all our projects however will always be to  develop those that will generate the highest returns for investors and shareholders based on the risks that we incur. Yapı Kredi Koray regards creating trust among customers by keeping its promises to them and by being sensitive to their needs as the keystone to its continued success as a company. In that respect and as consumer awareness continues to grow in the period ahead, we have complete confidence that reliable firms will gain the foreground in the sector.

Knowing that we are creating comfortable and reposeful living spaces for people today and tomorrow is a source of tremendous pride and happiness for us all. We strive enthusiastically to do better. These are feelings that every member of the Yapı Kredi Koray family from employee to shareholder can take part in equally.

Yücel ERSÖZ
General Manager