Keith’s Weekly Property News March 30-2021
Currency chaos and Impact on Property market and YOU:
A few notes.
As many of you are seriously considering property purchases in Turkey, the subject of currency is very germane, never more so than nowadays, where we have seen 13% shifts, even overnight.
My thoughts on this are:
1- If you are an imminent buyer, you may want to consider locking it in TRY if indeed the asset is priced in TRY, which the majority of ones we look at are.
2- You could implement ’dollar cost averaging’ and convert in tranches over a period of time.
3- You could hang on and hope TRY loses more value. Keep in mind, just a few short weeks ago the TRY was momentarily under 6.95 to the USD and seemed poised to go lower. Now it is 8.08. That is approximately 15%.
That is probably all I can add to the debate on this point.
The impact of the currency volatility on the local property market.
1-It reduces negotiating power on the budget properties, particularly the ones that we select, which have already been chosen due to their relative value vis a vis the rest of the market. In these cases, with the stamp duty, commissions etc added in, we are often closing at ‘all in’ price at around the original asking price, at times a bit higher. Keep in mind, there are 4% stamp duties in the mix in the equation and 2-3% commissions.
2- On the higher priced items, above 1 mil TRY, we may hope to secure some overall discount, but again if it is intrinsically well-priced – and I reiterate – many that make it to our short-list, are well-priced, we do not expect big price reductions. We usually start with offers 5-10% less than asking, but often do not get those discounts. That is often the result of the USD/TRY position.
Why this strong correlation to the USD, you ask? Well, it is pretty simple. Turkish people are slightly obsessed with the USD, not to mention that many sellers may have ties outside the country (relatives living abroad, children studying abroad, businesses overseas and so on). So, it can be a significant factor.
3- Overpriced rubbish is overpriced rubbish and usually remains so. Those assets flounder on the market for long periods and we usually only re-assess them if we see a meaningful price cut.
4- Many developers price in USD. I suppose they have to, but it has not benefited buyers over the past several years, especially as many are paying in instalments in USD. Eventually, those properties will be lumped into the same category as all TRY property assets (or most at least) and there will be an unfavourable balance there.
5- A high USD tempts local dollar holders to break their currency and dip into the property market. This is definitely happening. It increases competition and therefore, prices.
A small note on renovations and impact of currency
We have experienced a slightly uncomfortable situation which has squeezed our profitability on renovation projects. In the past few months we have given estimates in TRY, as we always do. Then, many of the materials we had in mind to use have been subject to sometimes quite high price increases from the suppliers. Ouch!!! It does throw off our numbers, and as we already work on low margins there, it does get painful.
So far, we have not reflected that at all onto the client. However, as we usually have a 5% ‘contingency’ fee, we may have to dip into that at times (we will provide verification of the increase). So, yet another example of the impact of USD/TRY volatility. On the plus side, it does not really affect the amount you all pay in USD. Now, you may ask, what if the TL strengthens, do the suppliers reduce prices? Haha, much more slowly it seems; if ever.
Note on rental market impact
1- Locals not earning hard currency would be insane to sign a USD/Euro lease. They are not insane. Most foreigners with lower salaries will also prefer to avoid that situation.
2- Foreigners with high-paying jobs or currency salary are usually ok with currency contracts. It all plays into negotiating the contract.
3-The short-term market is largely hard currency-based.
4- Hard currency contracts usually do not include annual increase or very marginal at best.
Note on impact on valuations done for citizenship purposes.
250K/USD is the magic number for citizenship. As of the end of March, that is hovering around 2 mil TRY.
The conversion used for citizenship purposes is the amount recorded on the title deed on the day of title deed transfer and it should be reflected by the amount sent to the seller’s account – Turkish citizen – on that day.
As many people are buying multiple properties over a duration of time, the math must be followed closely. You can also claim the stamp duty and perhaps even the commission amount, but you must coordinate that with your lawyer, as well as me. In the end, it should not be a significant issue. You could always pick up another cheap, but solid investment, to top up the amount ( :
My final note on all of this. currency business: I have been a long-time follower of the ZAR (South African Rand). It is known in the currency world as the enfant terrible (or ‘bad boy’…i.e. John McEnroe). It has always been hugely volatile. Yet, it is today at almost exactly the same point it was 6 years ago (see graphic attached). Much volatility in between, but…Perhaps the TRY will follow this trajectory. In any event, I think a 100K/USD property becoming a 50K/USD property is a vanishingly slight scenario.
Legal fees for citizenship/non-citizenship buyers
After conducting some research, it seems the base rate for A-Z citizenship by investment fees (including multiple transactions) starts at 4k USD (yes, lawyers charge in USD…haha…no comment) and runs all the way up to 10K USD. The firms that charge at the top end also usually try to entice you to buy properties with developers they have deals with. AVOID at all costs. This will be a very bad deal for you. You might find yourself in a position where you have overpaid and yet still are a 2nd class client in their eyes.
For non-citizenship buyers, standard lawyer fees for single property transactions range from 750 USD-1500 USD + costs for POA, notary, etc). Some will charge much more. Probably best to avoid unless you have some incredibly intricate tax structure.
I have added a second lawyer to my roster, as Lawyer 1 seems to have an overflow of business.
We have yet to see the full impact, but as the number of sales is very brisk across the board in our target neighbourhoods, I am expecting a 15% increase in the next year, with slower growth after that (5-7% for the next 3 years).
Properties that sold last week
40 sqm office, 360.000TL Mesrutiyet
82 sqm garden flat, new. 820.000TL Bomonti
84 sqm unrenovated property, 620.000TL Bozkurt/Kurtulus
Several under offer/deposit.
In the Press
Boom year for Turkish tourism?
Property links distributed during weekly zoom session
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