Keith’s Weekly Property News December 11-2022
Again, speculation regarding the CBI has seen an uptick in the past few days, with Andrew Henderson of Nomad Capitalist suggesting that the main opposition party in Turkey would like to make changes to the program or eliminate it entirely. Again, as of now, there have been no changes, but as with all CBI programs, local politics play a big role, so these kinds of changes can never be taken off the table. We will monitor the situation and keep CBI clients informed and up to date. Personally, I feel CBI will continue in its current form til the elections in June, at least.
Regarding market prices, as I have maintained in the past few months, the property market in most of Turkey has entered a pronounced slump. It may not always be seen immediately in the pricing due to the “irrational actor” effect of individual owners who may need time to realize their pricing does not reflect market reality. Again, this market correction is nothing to be particularly concerned about if you are a property owner, and may be seen as a good opportunity for those looking to jump in and test the waters. I expect further easing with the winter months now upon us, as well as uncertainty about the elections. I am expecting a prolonged, but shallow, slump. Rather than big price crashes, the number of transactions will drop significantly and prices might drop 15-20%, which is a very moderate number for Istanbul and Turkey.
Airbnb is seeing some quite normal, seasonal cooling, but is still outperforming vis a vis past years. It will be interesting to see how it plays out in the Spring, but the initial signs are for continued strength. Good news for those who have been riding a good wave on Airbnb for the past 1.5 to 2 years.
Mid-term rental market demand continues to look robust as well, as Russian, Ukrainian and longer term stays from countries throughout MENA seem on the increase.
All in all, it is a good period to hold property in Turkey and, to an extent, opportunity for cautious purchasing. The only segment I continue to be sceptical of is the luxury segment. It just seems there have been far too many luxury projects rolled out in the past 5 years. A lot of the demand for those has come, though not exclusively, from foreigners. If something were to happen to diminish the foreign appetite for Turkish real estate, we could see some pain for holders of that kind of property, but again, I would not forecast anything like a price crash. I would just be a bit mindful of luxury projects, especially in far flung suburbs of Istanbul where it has always been debatable whether or not those locations are worth 3 or 4K USD per sqm. As a corollary, not surprisingly, those are often the properties with the lowest yields, even dipping into the 2% range.
While that is all fine and dandy, the competition for decent properties in, say, the 2 mil to 3.5 mil lira range is intense. If we can manage to lock in something decent for you in that range, it is advised to move with some speed. Owners will always be tempted to raise their prices as they are likely getting plenty of footfall in their properties from locals, as that figure constitutes the sweet spot of affordability for most buyers. We still favour these investment-type properties over the lifestyle&luxury properties for the reasons stated above. In addition, owners of luxury properties are probably in much less of a hurry to sell their properties at what we deem to be a fair, or market price. My views haven’t changed very much over the past year. If you can claw back some money by buying in at 10% under market price, add some value either through “smart” renovations, or targeted, or even full renovations, despite the cost rise in construction, it still works out very favorably for the owner. A dollar in usually gets you two back. Here is a quick comparison of the power of renovations (mostly I am speaking of older properties but it often applies to a 10 or 15 year old property as well, and often targeted renovations for even newer properties as well)
Sales figures are purely hypothetical and just used to show percentage benefits. Let us assume properties are 60 sqm.
Pre 2020. 1 bedroom, unrenovated, 100K, 20 K for renovation, newly assessed value port-renovation (at that time), 140K, Very often our projects followed if not exactly this trajectory, very close, sometimes perhaps a bit less but sometimes a bit more, or fair bit more. The renovations gave a nice bump in the value of the asset immediately. Not to mention, they also pump up the yield and instead of dealing with a property that has issues of all sorts over the years, most renovated properties are pretty problem free for many years to come. Of course, it takes some several months to do a renovation, but this easily and quickly gets flattened out over the lifetime of the investment. Not to mention the fact that in order to operate an Airbnb, you will be doing a great disservice to yourself to present something to market that is anything less than pristine.
Post 2021 *when costs increased. Unrenovated 1 bedroom 120K. Renovation costs, let us say, 30K, with a newly assessed, post-renovation value of 170K. As you can see, the increased renovation costs do not significantly impact the overall performance of the asset, particularly over time. Again, any negative impact from those costs has probably been swallowed up by a better yield. Anyway, that is what I have noticed through observing this all very closely for the past few years, if not 18 lol.
Still, finding good properties is always a challenge, whether they be new builds or old fixer uppers. Tenants are not cooperative about letting us do viewings, tax issues are as always a huge issue, as is the inefficiency of misleading advertisements on the websites, whether it be inaccurately placed pin maps or grossly exaggerating views on offer (am sure we have all been victim of that) or the ubiquitous mis-quoting on the size of the properties. Just another day at the office, I suppose. Despite these pitfalls, Turkey deserves its place as a hotspot for international real estate investment. It just takes patience.
The in focus, investment “on” neighborhoods these days seem to be Kagithane, Sisli (still). Along the Golden Horn, Zeytinburnu, Fatih to a very limited degree, pockets on the Asian Side and isolated opportunities in Besiktas and Beyoglu.
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