Keith’s weekly property news April 30-2023
The re-build question as it relates to older buildings.
To re-build or not to re-build, that is the question. And it certainly has been the question post February 6 and the twin earthquakes. Many buildings built more than 20 years ago will, de facto, be considered risky structures, as they were not built according to the latest earthquake construction code. Of course, this does not mean all of them are unsafe or poorly constructed. However, they are likely to come under scrutiny for future demolition, whether that be next month, in 2 years or in 10 years or more. So what happens if your building is slated for “de-commisioning”? Well, the truth is I wanted to do a much more in-depth analyses of this, but it is still way too early. New information emerges every day. We also have an election coming up that could impact this significantly, so rather than try to chew this off all in one bite, I think it is better we address the issue here today and keep updating on it in future sessions, as new information comes online, which it almost certainly will.
The government has announced a plan for Istanbul, “Yarisi bizde”, which translates as “Half the cost on us”. In this program, every year a hundred thousand or so buildings will be demolished and re-built every year and for many years to come. This would be fantastic in many ways. It would ease a lot of financial burden for lower income people who live in high risk areas and structures. This is just one of the many programs being discussed, but applications are already underway for this. We will update on all the other possible programs at a later date.
But for our purposes, let us just stick to some simple math to see how it affects the investment. The most important aspect is always the value of the underlying land. If the value of the land is low, proportionately, the re-build cost and any profit you may gain from having a more valuable, new building may be eaten into. To illustrate this point, let us take two extremes for 100 sqm apartments in two very different locations.
Tesvikiye re-build (high land value)
7 million lira. Current market value of 30-40 year property.
2 million. Re-build cost.
12 million lira. Value of 100 sqm new build, “Mom and Pop” style in Tesvikiye.
So, as you can see, for 2 million of further investment, your ROI would be conservatively, 20 or 30%.
Avcilar re-build (low land value. You can substitute Esenler, Buyukcekmece or many other areas here)
2 million lira. Current market value of 30-40 year old property.
1.8 million lira Re-build cost (I am assuming a slightly lower re-build cost, assuming the Tesvikiye owners will spend more on finishing. In fact, the gap would actually be a bit more, but lets keep it simple)
5 million lira. Value of 100 sqm new build, “Mom and Pop” style in Avcilar. This is a bit speculative, as such great change may affect market prices in unpredictable ways. However, we have to jump in somewhere.
Again, it is not a disaster scenario for the Avcilar home owner, but we do have to keep in mind, the income level is lower and such unexpected and large expense could really be a challenge to those owners.
That is why the “Yarisi Bizde” is a critical component. I have deliberately kept the above absurdly reductionist, but we can discuss in more detail in the session.
Winter and Ramadan have past and we now enter the high season, or at least are heading into it, in May. I suspect tourism numbers were off by minimum 20%, probably more, from this time last year, but we still have to wait for April numbers. There is a general consensus that this is linked to the earthquakes. We will keep a close eye especially on April and May tourism arrivals. A possible over-supply issue may also have an impact, though I am much less certain about this. If I were an Airbnb operator, I would sit tight for the moment, maybe tweak my prices to make sure they are very competitive during this apparent slight downturn. Again, as this is all a bit of an unknown -how much earthquake news could impact beyond short term- it is very much a wait and see period still. You can contact me directly if you have any more questions on this subject. As loathe as I am to do it, probably in May I will offer a zoom seminar on how to optimize your Airbnb. I may not be as proficient at is as I once was (we had Istanbul number 1 on Tripadvisor for many years), but I still know plenty of good hacks I and am quite in-tune with market pricing.
Negotiations on the secondary market VS negotiating with developer.
There are a lot of paradoxes and intricacies when negotiating for property in Turkey. It is not quite the Grand Bazaar where the first price the guy throws at you is laughable, but sometimes it can feel close to that.
With developers (larger ones) you often get a much higher price at the outset. Then the discounts start rolling in. 10% off for cash deals. 18% if you sign today and so on. 22% because you are the first Hawaiian we have had this week. You get the idea. In this market, we are just looking for a fair deal, in a project not very over-sold to just Middle Eastern buyers. I often have a quick scan of the names lying on excel sheets in the offices of sales staff. If I see a really high percent of “Al-this or Al- that”, I get concerned. We like to see plenty of Turkish names there, although we accept that some of the luxury projects may have a higher representation of foreigners.
Over-pricing is also rampant on the secondary market. This is mostly a result of a fragmented market of real estate agencies and the mis-representation of property details. This leads to a lot of inconsistency in pricing. In Turkey, there are small, independent real estate agencies on every corner and they often bend to the desires of the property seller, fearing loss of the portfolio. In many other parts of the world, the big agencies dominate the playing field (which, of course, comes with its own set of problems), but the plus side is they are usually reluctant to waste their time marketing over-priced properties and usually have more leverage with sellers in reasoning with them. Of course, they are often more knowledgeable, skilled and better-trained. They often confront the owner with cold, hard, and more or less reliable data, when discussing a list price. This does happen, of course, in Turkey, too, but only with a handful of the most reputable agencies. So far, my favorite agency (besides ourselves lol) is KW, with Re-max a distant second. There are several other local chains that are quite good, as well.
I remember when I was selling my personal properties in Budapest some years back. I wanted a slightly ambitious price on the asking side. My realtor looked at me stony-faced (A Hungarian specialty) and said, “But Mr. Boyle, properties in non-panel buildings in the 8th District are zelling for a maximum of 1500 Euro per sqm, I cannot justify an asking price of 1700 per sqm”. I was like, “Gees, have you never heard of a rising market?” But he stood firm. I went to a second agency and got a pretty similar response. In the end I did convince them to at least list the property the property for a few weeks at the price I wanted. A week in, the furtive agent called me and asked if I wanted to drop my price. I said no. We eventually sold for a bit less than asking. So, the moral of the story is that it would have been hard to jack the prices up with these agencies in Budapest. They were not a monopoly, but they constituted a kind of consensus, or acted as a breaker on the market. But, again, these were mostly larger agencies that controlled that market.
As a small agency, we can only expend energy on what we feel are the 10% of properties that are listed at a fair market price. We mostly let the other 90% go, the ones that are over-priced by 20% or more. We make some exceptions if the property has some outstanding trait. Because, even if we get 10 or 15% discount on a property that is 20 or 30% over-priced, it is not like we have accomplished anything. Therefore, we focus on those at, or below market. We don’t, and don’t need to sell 50- or dozens of properties a month, so narrowing it down like this makes sense. Of course, the trajectory of negotiations in these cases is far different. We may get 5% off or we may get nothing off the list price. We look at the whole number and if we like what we see, it’s trigger time. Apologies to veterans of my zooms, as this is a bit repetitive.
Upcoming elections and the CBI, sales to foreigners
One of my least favorite subjects is CBI speculation. But here goes. If the opposition were to win, there is a very, very high probability that the CBI program would be scrapped entirely at some relatively near future date. People would likely have a month notice to get their purchases to the 400K USD threshold and their certificate of conformities issued (enough to get you on citizenship path). So, the door could be shut from mid-June or any time afterwards. Also, if the opposition wins, there may be further restrictions on foreign buying. In my opinion, it is highly unlikely they would go full throttle and ban all sales to foreigners. That would seem to be quite draconian and out of line with decades of policy on Turkish property.
If the ruling party were to win, I feel that major changes or dismantling of the CBI is also quite likely, though the time frame would be less certain. There is a small chance the program would just roll merrily along in its current form (inshallah). These are just my thoughts, but they represent the middle ground of industry insiders I have spoken with.
As promised, here is the second segment on square meter pricing in Istanbul neighborhoods. This week, we will look at what we affectionately dub “Ingridstan” or Merkez neighborhood, which lies between Bomonti and the Osmanbey neighborhood and extends up to the Marriot and the Sisli Mosque in the north and down to MOC in the south ( :Merkez Mah. SQM prices
Category 1. High end, luxury or lifestyle new construction.
These actually do not exist in Merkez Mah. The reason is that probably the land values were already too high many years ago and it was cheaper for developers to develop in Bomonti (and easier, as Bomonti was more industrial)
If such a project were to be done, it would be at least the price of a similar project in Bomonti, but less, naturally, than Nisantasi.
Category 2. “Mom and Pop” new construction:
These can be anywhere from 0 to 20 years old. They usually are very light on facilities. You would be lucky to have underground parking. However, they often have pretty decent locations and can be good value for the money. We sometimes have to come in and fix up a few rough patches, but that is often worth it. Look on the bright side. You get to put your creative stamp on it. These properties usually have elevators.
3250-4000 USD per sqm There are some slight variations due to the precise location of the property in question, view and more.
Category 3. Buildings older than 25 years:
This is a hard category to nail down pricing, as there is such variety of buildings and standards. Some have more classical features and are more elegant. Some are just ugly. Others well-maintained, others not. Again, here, for the sake of argument, we are assuming somewhere in the middle.
1700-2200 USD per sqm. Most likely renovation will be required, anywhere from quite moderate to an A to Z. This should be factored into your equations. That can add anything from 100 USD per sqm to 500 USD per sqm. Of course, the higher end will produce a superior final result. If the property only needs some tweaking, the lower range number should do.
Properties will be distributed in meeting…
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