Keith’s weekly property News January 9-2022
Another arduous week in the market to open the New Year. Still plenty of hesitation as the USD creeps back up near the 14 level. Many question marks as to whether the government’s bold currency gamble will pay off. It seems the jury is still out there and, as always, this causes sclerosis in the property market. We will update you regularly on the impact it has on the frontier. Suffice to say, for the time being, it is creating huge challenges for sourcing properties.
Rather than belabour the above ad nauseam, this week I would like to return to some fundamentals, with a closer look at sqm pricing and the advantages and disadvantages of new/old buildings. P
Historical USD pricing is actually quite helpful, as it allows us to quite easily tell where we are today in relation to 5-10 years ago. The good news is that when we look at the historical USD pricing, I feel we can clearly see we are nowhere near bubble territory. Good days ahead on the Istanbul property market are not out of the question. Why would they be? If you are waiting for the currency crisis to get worse, that is probably a mistaken approach.
Now is as good a time as any. And the historical data on USD pricing shows that. Prices are still cheap. Finding the properties is hard, but there is no other mega-city that I know of that can match Istanbul in terms of affordability. If you want luxury, we have that, too. But that never comes cheap. I have visited places like Belgrade and Bucharest and saw places for 3-4K/sqm. These are relative backwaters compared to Istanbul (my apologies to any Romanians/Serbs).
Paying 3k/sqm in Belgrade for a nice neighbourhood just seems pricey, when you look at the economic fundamentals. I see this throughout many European countries. 3K/sqm in Bratislava? I am sure I would prefer to own comparable property in Istanbul for that price. 3k/sqm for a nice neighbourhood in Sofia? Big pass. 3k/sqm for decent neighbourhood in Tehran? I would expect much less. Istanbul is still a bargain when I compare to most cities I have visited in the last 10-15 years. Decent neighbourhood in Budapest? Now about 3K/sqm. Tbilisi, 2.5k+/sqm (rip off), We do not even really need to mention Northern Europe.
We have had a fair bit of demand for properties in newer buildings lately, built in the past 20 years, so I thought I would address the different options at this point and mention some of the challenges in sorting this type of property.
First of all, a quick review of the type of new buildings to be found on the market:
1- ’Mom and Pop’. These are much smaller buildings and may offer nothing extra in the way of facilities. Perhaps, at most, they have underground parking. The finishes are usually not great. The entry price on these can be lower, but still we increasingly see that 1750USD or lira equivalent is the entry mark. If it is in a favourable neighbourhood, you can expect to pay much more, perhaps up to 2500-3000 USD/sqm.
In the outer areas of the city, you could expect to see prices as low as 1000-1250USD/sqm. These are usually in neighbourhoods that most of us would agree, are not attractive. You probably would not want to live there yourself and can only be considered from an investment perspective. Given energy costs and long commutes, it seems more central options are better, even if you have to pay more.
2- Hotel-style comfort. These properties usually offer a range of facilities from underground parking to fitness areas, concierge, shops and more. In the downtown area it is getting increasingly hard to find these projects for under 2750USD/sqm. The prices range from 2750-3750USD/sqm for projects in the central parts of the city.
3- Luxury projects (Zorlu, Rotana, Sapphire, Divan Bomonti, Istinye Park).
The absolute lowest entry point for these projects is 4-5000USD/sqm. Expect to pay significantly more if there is a great view or a Bosphorous view. Zorlu probably tops out the market at 8-10K. The facilities are beyond 5 start hotel; shopping centre, cinemas, performing arts theatres and much, much more. Probably more luxury than most Western tastes are accustomed to. Popular with Middle Eastern buyers and affluent Turks. High quality finishing and good locations. Usually these properties are not purchased for yield and capital appreciation is expected to be low.
Challenges to buying newer buildings
Newer building more frequently come up with ‘tax issues’. For the uninitiated, what this effectively means is that 70-80% of the properties online cannot be used for CBI. There is nothing intrinsically wrong with the properties that would make them non-CBI compliant. The issue is that if the owner has owned it for less than 5 years – and has under-declared on the original sales price – again a very widespread phenomenon – then they are unlikely to sell to a buyer that needs, or wants, to declare the full sales value.
Unfortunately, for our purposes, most of the time, we need to declare the full value. Therefore, we lose access right away to a huge amount of properties. I mean really huge. So, when you research online, keep this in mind. When we make our calls and do our initial due diligence, it is the very first question we ask, ‘Has the deed passed 5 years?’ If it has not, we more often that not are left with an un-actionable property. That is a great pity as it sharply reduces the amount of properties that are eligible for foreign buyers, or at least for CBI buyers.
Again, I must emphasise that there is NOTHİNG fundamentally non-CBI compliant about these properties. It is purely the sellers unwillingness to declare full value that makes them unsuitable.
Many disreputable agencies will tell you that all secondary market properties are unsuitable for CBI. That is pure misinformation. Almost ALL secondary market properties are suitable for CBI – if the owners agree to show full sales price. The agencies who say this just do not want to deal with the complexity and inefficiency of the secondary markets, not to mention the lower paydays.
SQM prices on older properties
As the market in Istanbul is so asymmetric, with values jumping all over the place from street to street, talking even generally about sqm pricing is always perilous. However, I think with the help of a few descriptors, we can bring some clarity to the picture.
Mostly in core downtown (Şişli, Beşiktaş, Beyoglu, and Kagithane), your prices for unrenovated properties run about 1K USD/sqm, a bit more in Beyoglu and Beşiktaş and a bit less in Kagithane. If it has a decent city view, a balcony, or a lift, this could go up to 1500USD/sqm.
These are for quite decent locations, though certainly not prime. Many areas in Mesrutiyet, Kurtulus, Merkez, Bomonti fit into this range.
Most properties in desirable parts of Beyoglu and Besşitaş are well beyond this price tag, more likely upwards of 2K/sqm. Prime areas in all of the above neighbourhoods are MUCH higher. If we think prime Cihangir, prime Beşiktaş and prime Nişantaşi, we seriously should be thinking around 3k/sqm. Perhaps add on about 750USD/sqm for a renovated property, the standard and aesthetic of which varies greatly. Generally, we like the play of buying very close to the prime areas and wait for gentrification to perform its secret ministry. Nowadays, a good-looking price tag for an unrenovated property, with decent characteristics, in an area which is close to a prime area, should run around 1250-1500USD/sqm range.
Older properties VS newer?
This is one of the most frequent questions I get asked. For me, personally, I prefer older. There are many reasons why; I like to take on renovation projects where value can be added, the entry point is much lower, there is a lot to choose from, and sometimes you find neglected properties at great prices.
However, having said that, I also really love some quality new build projects, with the simplicity, convenience and often, the architecture. In the end, it is really a matter of personal choice. Many people worry about the earthquake factor. In that case, I suggest a newer building.
From a hard-nosed investment perspective, my math leads me to the conclusion that, given a slightly longer investment time frame, even destruction of your property in an earthquake will not materially affect your investment. It would be a tragedy, pure and simple.
But keep in mind, much of the value of the property lies in its location and the land share. Add to that the premium of having a new building (min 40%), part of the re-build being covered by earthquake insurance, and, post-apocalypse scenario, you can see that investment-wise, it is not a doomsday scenario. Factor in the likelihood of the building actually collapsing in a low risk seismic area and you see a different picture.
In the end, we are happy to look at all different kinds of properties, yet we certainly avoid older buildings in higher earthquake risk zones, or buildings that are shoddily constructed or completely unkempt. Newer properties tend to carry a 40% minimum price premium. If your investment amount is low, these may be off the table for budgets under 1 or maybe even 1.5 mil lira.
Just a quick preview of what we may look at this week. Links to be shared in zoom session
Properties will be viewed in zoom session