Keith’s weekly property news July 9-2023
Will keep the notes a bit light this week, as I am sure many are on holiday and it has been one of our slowest periods in a while as well. As the temperatures soar, many in Istanbul make the annual migration to the many beach spots along the coast, easing up traffic conditions somewhat. Nonetheless, the influx of tourists means the downtown area feels as bustling as ever. It is hard to imagine that it has been barely 5 months since the awful tragedy of February 6th and the hard, cold and grim days that followed. It was one of those events if you are a Turk or were in Turkey, you will always remember exactly where you were and what you were doing when you first heard the news. Let us not forget.
It has been over a month now that elections have passed and a new economic approach is being tries, a more conventional monetary policy. I suppose we can only say the jury is still out. The lira seems to have found some temporary traction around 26, but that is a 30% drop from a month or so ago. It has led to many imbalances in the property market that are far from being worked out.
Immediately, my first observation is that the rental demand is extremely tepid at the moment. Apartments that would usually rent out in a matter of days, or a week at two at most, are taking longer to fill, perhaps with the average being about a month. In addition, the rents seem incapable of chasing up that 30% depreciation. I can only attribute this to 1 factor. Locals are psychologically only prepared to spend XXXX lira on rent. A few scant years ago, 5000 lira was considered a fairly decent rent for a furnished 2 bedroom in downtown. Now, in the Sisli area, they probably start at 20.000 lira. Apprehension about the economy is pushing Turks to defer big financial decisions. Some will choose to delay marriages, others to stay with their families longer than they may have wanted. Some will move further out of town, or out of town altogether. So, in short, this has been the big story of the latest round of depreciation. It must also be mentioned that salary raises do not immediately occur when the lira depreciates and often people are not sure of how much their salaries will be raised. So signing on a higher lira lease can be a daunting prospect. Not to mention the fear of perhaps being laid off. These are strong demotivating factors to renting out flats. As bad as all this sounds, I am sure in August and September, there will be much movement (as there always is) and many will view having an apartment close to their work as a necessity, and the rental market will likely pick up as the new reality sets in.
Sales, as expected, have been flagging in equal measure, and for many of the same reasons. I do not expect much respite til late August.
Airbnb has picked up after a pretty dismal Spring, but still looks very soft and patchy. Considering that it is high season, things should be booked out, but from the anecdotal evidence that I have gathered, that is not exactly the case. Apparently tourism numbers are strong, so this might indicate an over-supply issue.
The case for commercial-office:
Throughout the years, the proportion of sales we have done in commercial is very low. Maybe maximum 5% of our clients can be induced even to consider commercial. This has always been puzzling to me, especially if the individual is in it purely from the investment side. Why not look at all options, why limit to just residential? Below are a few reasons why I feel people should always keep an eye on and be open to commercial. It is something I definitely keep an eye on, but to be honest, more to the budget side of things. Triple A office space and prime, high street fancy shops are usually a far bigger spend than most clients have the stomach for, and I believe their instincts are probably correct on that end.
1- The very fact that almost no foreigners buy commercial is a great reason to look at commercial. You will truly be entering a market on even footing with locals and there wont be anybody in that space ready to zing out hundreds of glossy brochures of pre-packaged marketing hype. You will have to get in and dig. If you are not in the mood to dig, have not got the time nor inclination, then it probably is not a good option. If it is, I believe you will find above average deals and ones currently more favorable than residential
2- There is more flexibility of rental increases with commercial. For instance, this year the cap on commercial was 65%, whereas on residential it was 25%. That is a huge number, in all respects. It gives you a far greater cushion when it comes to any possible depreciation. That 40% difference has an enormous impact on the yield. If you add in a perhaps 30% annual interest rate in the bank for deposits, it at least begins to make the case for gambling on the lira.
3- Turkey pretty much did not embrace the “work from home model” as much as the West did. It’s a “ties on, at the desk at 8.30 world” in Istanbul. Having said that, of course, there is a strong digital nomad base due to Istanbul’s centrality and connectivity.
4- Probably too obvious to mention, but it opens up many more options for you in your investment search. Whether you be a CBI buyer or a 1 shot investor or a portfolio builder, why limit yourself to just the meat and chicken. Try the salad bar, have some baklava.
5- We should also keep in mind that the boxes may not always stay as commercial. Re-purposing at future date as a hotel or fancy residential is always a possibility. That might be worth a roll of the dice.
Update on staffing. We will be adding a really experienced sales person to the team in August. A bread and butter, no nonsense real estate guy fluent in English, Turkish and Arabic. Excited about that. As my responsibilities get pulled in many directions and the legs sometimes waver, bringing in some new blood to shake things up seemed like the right play. This will also allow me to better serve the clients who are already with us, a task I take very seriously.
Update on the dukkan (in our case, the mini-shop, usually anywhere from as small as 20 sqm to 40 sqm and ranging in price from 500.000 to 1 million lira). We have successfully transacted on multiple deals on this front. The inevitable question is, why bother? It is a little bit like Billy the Kid’s answer to “Why do you rob banks”? For the dukkan, the answer is that it is there, so why not? Yes, it entails more property management, but we are set up for that. It allows us to increase rents more liberally. It also allows us to cater to the truly budget-minded segment of the community. It allows us to achieve higher yields in a time when yields are under pressure and was probably born out of my frustration with all of this. In the end, I think we will try to shift our focus to opportunities in the 50-100K USD range per unit. Unless of course, we can find a tiger or a hare who is willing to go dukkan-storming in the hinterlands. Due to the commission structure, I will have to outfit them with a tent and a few sets of tennis shoes to handle deposits…and tell them to report back to me monthly. Ok, folks, that is as much humor as I could muster up. Have a great week and be in touch.
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