Turkey is one of the most important destinations for Arabs to invest, immigrate and reside. Buying a real estate in Turkey is one of the most important goals of this unlimited community of Arabs, among those who want stability and housing, or an investor.
Below, we try to answer the most prominent inquiries about the real estate market in Turkey and real estate investment in Turkey, moving away from the marketing promotion paid by real estate brokerage companies on the one hand, and from the negative attack and misleading advertising resulting from political propaganda on the other hand.
- Is real estate investment in Turkey safe and profitable?
● What about the problem of exchange rate fluctuations and the continuous fluctuation of the lira between low and high?
● How do we convert the risk of exchange rate fluctuations into an investment advantage?
● Is it better to go through the experience of buying a property individually or by relying on real estate brokerage firms?
Before getting detailed answers, it is necessary to first lay out the understanding of the structure of the real estate market in Turkey, and understanding the difference between it and the Gulf or European markets, for example.
What is the difference between the real estate market in Turkey and the rest of the real estate markets?
In the year 2018, about one million and 350 thousand properties were sold in Turkey, topping the list of the European countries that sold the most real estate in one year, while we find in Spain – one of the most important European destinations in real estate investment – the number does not exceed half a million properties during one year.
Looking at this number, we note that out of every 40 properties, one of them was for foreigners – in 2017 the percentage was for foreigners out of every 60 properties – while in Spain the percentage is approximately one property for foreigners out of every ten sold properties, and in the states The United States has a ratio of one in 20.
Also during 2018, it was found that 47% of real estate in Turkey were under construction or new real estate, while the percentage in Dubai, for example, is about 65%, and that properties sold through bank loans amounted to 20% of the total.
The above statistics give us an indication of the nature of the Turkish real estate market; We clearly realize that it is an active market in which there are many sales and purchases, and it is based primarily on local demand, which is the main engine of the market, which largely avoids the real estate bubbles that occur in markets dependent on the foreign buyer, as happened previously in Dubai when the real estate bubble burst. .
Despite the modest rates of buying a property in Turkey for foreigners, it is undeniable that the size of these contracts is huge, as last year it approached $ 7 billion.
Besides, these numbers give evidence to real estate investors that the determinants of real estate supply and demand are made according to the conditions of the local market, and the Turkish consumer behavior, which we will review later.
It should also be noted that the rental yield differs between the real estate market in Turkey and the rest of the markets, as the rental yield in the Turkish city of Istanbul ranges between 4% to 5%, while it does not exceed 2% or 3% only in cities such as Paris or London, while we find that The rental yield in the Gulf markets is 6% and 7% as in Dubai, despite the fact that indicators have shown a decline in rental returns in recent years.
From the legal point of view, there is a difference, as buying a property in Turkey for foreigners is a permanent possession, and it is not the case in some Gulf or European countries to be a temporary possession as in Spain for 99 years.
As for the taxes and fees related to the transfer of ownership, or the profits generated from real estate investment, they are considered low if we compare them with the taxes imposed in the European market. Although some Gulf real estate markets enjoyed low rates of fees and taxes, these advantages began to fade away with the new tax legislation in these countries.
Is real estate investment in Turkey safe and profitable? What are its benefits and risks?
As for the returns on real estate investment in Turkey, they are of two types: One of them is renting, and the other is investment, resulting from the rise in real estate asset prices over time. We have previously indicated that the annual real estate return for residential apartments ranges between 4% to 5%, and in hotel apartments, offices and shops ranges between 6% to 8%.
As for the real feasibility of real estate investment in Turkey, it is the capital returns resulting from the increase in real estate prices, as the percentage of these returns in some areas reaches 25% annually on the Turkish lira, and these rates decrease by the calculation of the dollar.
In order to be able to know the expected returns from real estate investment, we must first understand the nature of the risks related to real estate investment in Turkey, which are three types of risks:
- Legal risks: It is the most prominent risk that can make your real estate investment unsafe, and it is represented in the failure of the developer to deliver or delay in delivering the property on time, due to financial difficulties or the completion of development work, or because of the bankruptcy of the developer. We find these risks clearly in real estate under construction, and this type of risk also implies that the project will not be delivered in terms of cladding and finishes according to the agreed quality.
As for ready-made properties, among the most prominent legal risks that new investors are exposed to is not knowing the details of the property’s debts, and receiving the address registered in the papers that may differ from the real address.
The good news here, that the correct handling of this type of risk can be easily avoided, by buying real estate under construction from projects that are under the supervision of the Turkish government, represented by Emlak Konut.
Where the risks in this case are very low when buying from well-known and reputable private companies.
As for ready-made real estate, when a third party is authorized to purchase or extract the title deed, the agency must be restricted as being valid for the purchase of mortgage-free real estate.
- Risks related to the decision to choose the property: These risks include buying a property at a higher than its market value, which is what Arab investors are usually exposed to, due to their lack of strong knowledge of the Turkish market, or because the developed companies provide a price bulletin for foreign buyers, which is different and higher than the prospectus for the local buyer. . One of these risks is also buying a property that does not match the behavior of the Turkish consumer, which makes the process of reselling it later takes a lot of time.
From here it appears to us that the wrong purchase decision leads to a losing investment, and to avoid this type of risk, the real estate market, supply and demand factors must be studied well.
- Risks related to exchange rates: These are the most prominent types of risks that the Arab real estate investor is exposed to in Turkey, where the exchange rates of the Turkish lira are constantly fluctuating and may not be in the investor’s favor. In pounds. But in fact, this type of risk is a fundamental feature of a profitable real estate investment in Turkey for the investor who knows how to deal with it properly.
We must understand .. why is there a continuous decline in the exchange rate?
Turkey belongs to the “emerging economy” group, which is a developed economy from the third world countries, but it has not yet reached the level of the advanced economy. The “emerging economy” countries are distinguished by several advantages, most notably high growth rates, high inflation rates, low and continuous fluctuations in the value of the local currency, with these countries enjoying investment opportunities, high profit margins and return on capital. This group includes countries such as India, Brazil and Argentina.
But … why has the lira’s decline accelerated in recent years?
The recent decline occurred due to a group of economic roots such as the trade balance deficit and others, but the most important reason at this time is the political reason and external factors such as speculation on the Turkish lira and the reduction of the credit rating agencies of Turkey, despite the absence of positive reasons for this, and other reasons that are motivated Political, but it is considered casual and temporary factors.
Although the Turkish currency will decline in the long term, the relatively high profit margins in the real estate sector compensate for this decline, and the real estate price is always in a state of continuous correction and catches up with general inflation rates, which keeps this sector a profitable sector and a safe haven for investors.
How do we convert exchange rate risk into an investment advantage?
By purchasing the property in installments and in installments only! As the method of purchasing the property largely determines the expected return from it, it is never recommended to buy cash despite the discount granted by the companies developing it, but it is recommended to buy in installments in Turkish lira and not the dollar. In this way two things can be accomplished. They are a hedge against exchange rate fluctuations, and the value of the monthly installment – which is fixed in pounds – is decreasing!
To understand the matter, it can be assumed that there are two investors, both of whom bought two apartments in one project, at a value of $ 100,000. The first chose cash payment, while the second chose to pay in installments in Turkish lira, and the exchange rate of the dollar at the time was equivalent to 5 lira, so what will happen?
- The first investor, who paid the full amount in cash, got a 10% cash payment discount, meaning that the investment cost is $ 90,000.
- The second investor who bought in installments, and let’s assume that his installment period is 5 years, he will pay every year the equivalent of 100 thousand Turkish liras. We will find that although he does not get any cash discount, he will pay 20 thousand dollars in the first year, but in the following years if the exchange rate falls until each dollar is equivalent to 6, 7, 8, and 9 liras, respectively, in the following four years, we will find That the value of all that he pays in dollars equals about 74 thousand and 500 dollars only.
That is, the cost of the investor who bought in installments is actually less than the investor who owns the cash payment, and the return to the investor in installments is higher than the return paid in cash because the annual rent or the high price of the property is calculated on the amount paid and not the entire price of the property.
When is the best time to buy a real estate in Turkey?
The best time to enter the Turkish real estate market and not exit from it, is when there is a fluctuation and a rapid decrease in the exchange rates, because there is a time between the devaluation of the currency and the adjustment of the real estate market in Turkey to its prices, so you can take advantage of these opportunities to increase the rate of return on investment.
Turkish consumer behavior
When deciding to buy a property in Turkey with the aim of investing, you do not look at the real estate market with the gaze of the tourist, but rather the look of the resident, because as we mentioned earlier, the local investor is the one who determines the direction of the market, and we list some of these indicators below.
It is preferable to choose apartments with fewer room models, because they sell faster than apartments with large areas and a large number of rooms. Apartments on the middle floors also sell faster than the last ground or upper floors, which have a lower price and rental income.
Apartments with solar sides are more desirable than apartments on the northern side, and interior views of the inner gardens of residential complexes are more desirable than external views of the roads and markets.
The Turkish consumer prefers apartments that are located in closed residential complexes that enjoy security services more than apartments that do not have this feature, so their price decreases. The fewer the number of housing units in the residential complex, and the more limited the number of apartments on one floor, the more preferable it is as well.
In addition to the specifications of the apartment itself, there is a set of information of interest to any real estate investor in Turkey, where the main factor in increasing the apartment price annually is the advantages of the real estate area, infrastructure services and transportation network, in addition to the quality of the decoration, services and facilities that the residential complex contains.
How to buy a real estate in Turkey
Because of the relatively unpleasant reputation of real estate brokerage companies, some Arab investors are trying to buy a property in Turkey, with the aim of getting rid of paying purchase commissions, or because they do not trust real estate brokerage companies.
Unfortunately, they may expose their real estate investment to a higher risk and cost. In spite of some wrong practices and the preference for personal interest by some of these companies, they are able to provide legal care for purchase contracts, ensure that there are no cases of fraud, fraud or debt on the apartment in question, follow up on the situation of the developed companies, and notify the investor of any incident that may arise On the project in question.
Also, real estate brokerage companies are aware of the value of the actual prices of the apartments offered in the real estate market in Turkey according to each urban area, and they distinguish between the offered price and the real price, so they can pressure the developing companies to get the best prices for investors.
In fact, the investment costs will not differ with the presence or absence of a real estate broker, because the developed companies monopolize the commission values in the absence of an intermediary, so you must strive to get acquainted with a credible real estate consulting and brokerage company to help choose the property correctly and safely.
One final advice about buying a real estate in Turkey for foreigners
A final advice about buying a property in Turkey for foreigners: Do not listen to those who talk about the real estate opportunity that is not compensated and that its owner wants to sell it because of his urgent need for money, and that the value of the apartment is much lower than the market price; Because in the event of such an opportunity, the brokerage firms and 90 million Turkish citizens will hear about it before you, and they will have completed the purchase!
Try to obtain real estate at its real market value in areas that have real added value through infrastructure projects, which will give this investment higher values than the general inflation values, taking into account the forces of supply and demand, and paying attention to the superstructure represented by the social fabric of the target area.
