Keith’s Weekly Property News July 3-2022
As the dust continues to settle on the post 250K USD CBI we sense a gradual return to the norm in the Istanbul property market and are hopeful of being able to snap up reasonable opportunities in July. We are especially paying attention to the new entries to the market, hoping to see some rational pricing there.
One of my clients asked me an interesting question yesterday
A few notes on renovation.
From about 2019 to 2021 I was able to confidently boast that A to Z renovations cost 300-350 USD per sqm for good quality, mostly higher end Turkish material finishes. The consistency of that number was like clockwork, job after job. Then something changed around the end of 2021 and I was not really even aware of it. Prices went up to 400-450 per sqm almost overnight. At first, when I saw a few of the estimates I thought the clients had gone a bit overboard with more expensive materials choices. Then I realized it was across the board. I checked with competitors, same story everywhere. I do not really have much to add to this other than to say I was always really shocked that we could do it in the 300 range. It just seemed too cheap, even way cheaper than our Eastern European counterparts and a fraction of costs in the western world. And it still is, we must keep that in mind. I think in the end it kind of gets washed out in the whole project costs.
For example, if you buy an unrenovated property, let us say, in a reasonably good part of Mesrutiyet, a stone’s throw from Nisantasi, if you are lucky, maybe you will pick it up for 1700 USD per sqm. Add on 400 for renovations and your all in sqm price for a pristine apartment, that will require absolutely minimal maintenance for years to come, in a very solid location is 2100 USD per sqm. The real current market value for that property would undoubtedly be north of 2500 USD per sqm, at an approximate lock in of 20% appreciation. And that is if you bought at fair market value. If you bought at 10% under market value, which we regularly do, the appreciation post-reno is 30%.
Or perhaps you have bought in at 1100USD per sqm in Ferikoy, spent 400USD and end up with a 1500USD per sqm property. That 100 USD equates to just over 6% of the overall total. We might be able to further write that down by deducting some of the material costs for the renovation.
Seen from that angle, a 100 USD per sqm increase in reno costs is not such a big deal and has a minimal impact on your profitability. It is one of the main reasons we have a preference for reno projects. That and the fact that there are very few tastefully renovated properties for re-sell on the market and the owners often stand in awe of their own cleverness and ask absurd prices for the renovation projects they completed. We seldom end up buying those because we are able to do the math and know the reproducibility of the final end renovation product. There are rarely any surprises in terms of going over budget. Some of the projects may take a bit longer than planned, often due to complications with the municipality or with a change in the increased scope of works (“mission creep” where half way the client expands on the original plan)
2021-2022 we went from doing 1 or 2 projects at a time to doing more than 6-8 at a time. Dealing with different neighbors, different municipalities, different building managements was a gargantuan task, believe me. I was watching from the sidelines wincing in pain and thanking my lucky stars that I was not involved in renovation (was on sales only) during this frenetic period, which also saw prices in materials and labour costs zipping around like an Indian rubber ball, not even to mention currency gyrations. Some delays in delivery may have resulted, but I believe going forward, we will be consistently be able to bring projects in within the 3 month time frame, and very importantly, on budget. Angelina and her team groaned under the work load that I assigned to them but I believe the end results speak for themselves. When I see the quality of the projects that we are rolling out, I know that it is unprecedented in the local market. The value added and the overall finish is way above the local standard and in most cases is almost perfectly on target for local rental market. More bespoke renos can be tailored for clients who want to live in the properties, but we are quite commercially-minded and we know what works best on rental market and for the specific neighborhood. Gaggeneau is not the best choice for deep Ferikoy lol.
The kinds of renos we have been delivering are so good that I have little hesitation putting them forward as Airbnb properties. For those who have been following this discussion, I am really only in favor of Airbnb for exceptionally solid properties. In addition to this, with the level of quality, and the increase in the number of expats settling in Istanbul, I believe it is game on again for USD contracts on long term rentals. From around 2016 to 2020 we saw an exodus of expats. That has been clearly reversed in the past year. Tourism has also gone ballistic as the city seems to be bursting at the seams. Our reno projects are ideally positioned to take advantage of these trends.
Not that there not some clouds gathering that give me reason for disquiet. Some neighborhoods are closing their doors to sales to foreigners and some of them are neighborhoods we like to purchase in. I will not go into this much tonight, as it is all very fresh and I need to get a full understanding of what is going on. I will make it a major theme for next week’s zoom, when I should have a grasp of all the issues.
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