Turkey is returning to favour among property investors, reveals new research from TheMoveChannel.com. The country entered the portal’s top 10 most popular destinations in July for the second time this year, with 1.61 per cent of all enquiries for the month.
With official figures from the Turkish Statistical Institute showing that property sales to foreigners surged 65.3 per cent year-on-year in July 2017, why are buyers heading back to Turkey in 2017?
With the experts from Turkish real estate specialists VIP Property Istanbul, we break down the main drivers of demand:
1. House price growth
At a time of global political and economic uncertainty, the stability of bricks and mortar makes real estate a reliable asset for investors, and capital growth is a key factor to that long-term appeal. Turkey’s capital growth has been one of the country’s primary selling points in the years since the financial crisis, with prices continuing to grow once more in 2017. In Q1, property values rose 3.4 per cent, according to Knight Frank, taking prices to 13.3 per cent above Q1 2016. As a result, the country is now ranked the fifth fastest-growing property market in the world.
“There is no doubt that the capital growth is one of the attractive factors for the international investors,” explains Evren Erem, International Sales Manager at VIP Property Istanbul. “There are two other factors that need to be taken into consideration: good net yield and unique exit strategy. The yield in Istanbul – Turkey market is not gross in the sense that the tenants would be liable for liable for the Site Management fees and the local charges, which means that the investor/owner will know in advance how much his/her net return would be. In Istanbul market (not the central locations, which are not ideal locations to invest), the net yield is in the region of 5% a year.
“The third factor is the unique exit strategy: after 5 years, there is no Capital Gains Tax in Turkey; it is totally NIL. In Istanbul market, the re-sells are quite easy just because of the high demand. Having had these three golden legs of the investment, what makes Istanbul market different is the balance/combination of these three dominant factors. If we take Egypt as an example, the yield is quite attractive, but not the other two factors. This point, i.e. the balance/combination of three golden legs of the investment is one unique points of Istanbul property market.”
Tourism is a significant driver of market recoveries and investment appeal. After a period of dwindling visitors, Turkey’s tourism sector is now flying high once again, with the number of foreigners visiting the country up 46.4 per cent in July 2017, according to the Ministry of Culture and Tourism, the biggest annual increase since May 2004. British travel agency Thomas Cook says it has seen a “significant pick-up in demand” among UK tourists, which it attributes to both the quality and value of the destination. Russian tourists have also fuelled the sector’s growth, as relationships improve between the two nations. Official figures show that the popular resort of Antalya is the second most sought-after destination among foreign buyers, followed by the Black Sea province of Trabzon.
3. Population growth
One of the fundamentals of Turkey’s real estate market is its population, which continues to expand. Figures from TurkStat shows that the country’s population reached 79.8 million at the end of 2016, up 1.35 per cent year-on-year. While this rate of growth has slowed, the country’s population has expanded significantly over the last decade, with Istanbul now home to 14.8 million people, higher than such crowded metropolises as Rio de Janeiro in Brazil and Lagos in Nigeria. Where population grows, housing is needed, ensuring that development and demand will remain high for years to come. Indeed, almost 31 per cent of foreign property sales have been in Istanbul, according to official figures.
The average property in Istanbul grew in value by 42 per cent between 2011 and 2016
Istanbul’s population growth means that the city’s development arm is highly active, as urban renewal and infrastructure plans seek to support its rising number of residents and improve both travel and quality of life. Megaprojects such as the Marmaray rail project, the 3rd Bosphorus Bridge, Eurosia Tunnel are some of the mega-projects to name that are completed in the recent years.
“Istanbul Financial Center (IFC), the Istanbul Canal and a third International Airport are all underway, while Istanbul’s third international airport is expected to be one of the largest in the world,” comments Mr. Erem. “Having had the uncertain (financial) environment in Europe (particularly after Brexit), IFC would be a good opportunity to fill London’s position for Istanbul in the near future.”
5. Local demand
The government has introduced a range of measures to boost lending, including state-guaranteed finance, tax cuts and looser banker regulations. As a result, lending rose 21.2 per cent year-on-year in March 2017, the fastest level recorded in over a year, according to BDDK. VAT has also been reduced to 1 per cent for certain residential properties. Combined, these have helped to encourage domestic property sales as well as overseas sales, both of which are building momentum in the housing market’s performance.
“There is no doubt that 2015 and the beginning of 2016, the property market in Turkey and particularly in Istanbul was doing explicitly well,” says Mr. Erem. “On the other hand, after the first quarter of 2016 and particularly after the coup attempt in July 2016, the market has slowed down for the international buyers. The numbers of the foreign buyers have decreased, but the number of the sales in Turkey has increased compared to 2015. Interestingly, the local market has not slowed down.”
“Domestic buyers have been crucial to Istanbul’s rise. More than their Western European counterparts, Turkish investors have always had a preference for property over more liquid assets such as equities. Falling interest rates have helped make new home loans affordable,” he explains.
“Since the beginning of 2017 the market (at international level) is picking up particularly after the Referendum, which took place in April 2017. In 2017, one house is being sold in Turkey every 25 minutes.).”
Building upon Turkey’s appeal as an investment destination is the country’s recently introduced citizenship scheme. Turkey now grants citizenship to non-residents who make a $1 million investment in the country’s real estate. With other countries, such as Portugal, Greece and Cyprus, seeing success with similar “Golden Visa” programs, Turkey’s citizenship scheme is likely to boost demand from wealthy buyers from countries such as China.
7. The Lira vs the Dollar
The lira is one of the world’s worst performing currencies at present, falling by roughly 20 per cent against the dollar in the last year. Like the UK after its Brexit vote, though, the currency’s weakness makes investing in the country’s real estate more affordable for overseas buyers.
Historically, GCC nationals have made aggressive real estate investments in Turkey, accounting for one in every four properties bought by foreigners in 2015 alone (Gyoder, Q3 2016). According to property consultant CBRE, GCC countries currently account for about 50 per cent of all foreign sales into Turkey.
“Property investment in Istanbul is considered low risk and high growth, thanks to low supply and high demand, a steady population growth and availability of finance,” concludes Mr. Erem. “One of the most modern cities in the world, Istanbul still manages to retain its rich history and traditional charm, while emerging as one of the world’s richest cities, home to the fourth highest number of billionaires. The average property in Istanbul grew in value by 42 per cent between 2011 and 2016 and buy-to-let investors in particular are now choosing to capitalize on the city’s rising rents and newly developing areas with a fast rental growth.
“Beylikduzu has been attractive to local and international investors not only in terms of marvellous capital appreciation (which is above the average in Istanbul), but also by offering a net yield (again because of the average in Istanbul – for the simple reason: the property prices per SQM is very competitive). Colliers provide some good analyses why the prices and the rents are increasing in certain areas. This is one of the reasons we select the projects near the main highway E5 (where the Metrobus run). It is also predicted that the prices will drastically increase by the end of 2018 when the third Airport is open and when the metro is extended to Beylikduzu.”
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