Keith’s Weekly Property News November-12-2023
Even though the Indian Summer continues well into November here in Turkiye, on the property front it is beginning to feel distinctly frosty, maybe even winter-like. As noted in several past zoom notes, transaction numbers for many months back to back are markedly off pace from last year. Where transaction numbers go, eventually go prices. This ‘cool off’, ‘slump’ or what you will is starting to trickle down in a more meaningful way in the pricing, as well as the statistics, in so far as you can trust those blunt instruments which do not really distinguish between the incredibly wide variety of properties and neighborhood characteristics. In any event, taken with a grain of salt, stats can often be useful in identifying trends, particularly when supported by local, on the ground, anecdotal evidence. So, to sum up, as I have been saying for several months, we are on that downward trend, a fact supported by all the graphics as well as the tone of behind the scenes discussions with agents, owners, etc.
We will discuss these 2 graphs in detail in the zoom session (middle left and right). A few months ago, I chided some of the higher profile agencies who went on YouTube boasting of the incredible 2X and 3X gains – blah, blah on the properties they had sold. My thoughts then were, ‘curb your enthusiasm”, too early to take your victory lap just yet. And everything that has happened since then just confirms that view. The “real” gains are often much less than the “on paper” gains, for a host of reasons that I previously detailed. In any event, no gain at all is realized until the property is liquidated and all closing costs are tallied. We will save detailed analysis for the zoom session, but what sticks out in these graphs are 1) how ridiculously under-valued real estate was in Turkey in the 2015 to, say, 2019 period and 2) How limited in duration the peak in prices was.
We can see a kind of “jagged peak” in each graph (though slightly different trajectories based on their differing methodologies). What we then see is a kind of reversion to the mean. Housing became, for a very short period, completely out of whack with local affordability. Of course, as 97%, give or take, of the property sold in Turkey, is sold to Turks, this was unsustainable.
More on this in the session; not too keen on spending a lovely sunny Sunday afternoon interpreting a pretty straight-forward illustration. Seller’s market tips into buyer’s market. There is not much on the horizon that is likely to change that view in the short term.
Airbnb update, rental market update
Now that we have had a few weeks to digest the news of the new Airbnb legislation, a few words are in order. As the topic seems to have been rather over-baked, I will keep it short. The Airbnb landscape in Turkey looks like it will be deeply impacted by the new regulations. My estimate is by this time next year there will be at absolute least 50% less Airbnbs than there are currently, across the board in Turkey. Full stop.
Airbnb is in the crosshairs of the government and the legislation looks designed to drastically reduce the numbers on offer and also to change the type of properties that can be let out short term. I think Airbnb went through a kind of golden period the past few years and I steadily forecasted clouds on the horizon and encouraged my clients to opt for ‘all weather’ properties that would stand up well in event of changes in legislation. There is also a massive over-supply issue that crept in, especially in the past year. So, it looks like that party is over. Just as it might be over in the US. I believe Airbnb is already heavily regulated in most of Europe, with plenty of competition, so gains there are probably very modest, anyway. Dubai will also get rocked, as it always does. When I hear of the supposed 10 to 15% gains on Airbnb, my only wish is there were some mechanism to “short” those positions. I kept hearing the same about Tblisi. Obviously, that party is about over. Trades get crowded out and yields go down. No surprise there. Next?
The rental market is experiencing some seasonality with properties staying up on the market a bit longer than in August and September, but as always, still there is demand. Some potential tenants are probably digging in and choosing not to rent, perhaps rather staying at home longer, taking on room-mates etc. The rents have gone up still in the past 6 months, but I feel we probably did get a percentage point or 1.5 chopped off due to the lira depreciation. In other words, the yields did not quite keep pace with the depreciation. Most properties yield between 4 and 6%, with luxury properties in the 2.5 to 3.5% range. To get 7% or more on “investment-type” properties, there is a high chance you would have had to do some renovation or value adding move. It is very challenging to just come in and scoop that off the shelf.
Movers and Shakers Izmir, Mersin, Kocaeli, and Karaburun (very limited supply) are on the top of our list for locations outside of Istanbul with favorable dynamics. Karaburun aside, for it has its own, separate dynamics, being more of a coastal resort area, the reasons are as follows:
-new builds or new-ish (1 to 20 yrs old) offering yields of 5%, at times 6% and above. This is much higher than average on newer buildings in Istanbul.
-lower entry point for investment properties, anywhere from 80K to 125K, which might actually get you a sea view as well in Izmir or Mersin.
-plenty of local demand and no, or very low, CBI distortion on prices.
-Prices hit that “sweet spot” of affordability for locals, 100 to 150K in many cases.
-internal immigration demographics are favorable. For example, many people like to retire around Izmir. More and more people retire or semi-retire in Kocaeli. Mersin population exploded after the earthquakes last year, not to mention a new regional airport coming online.
-New construction, labour and land costs look set to put real upward pressure on prices of anything new that comes online. Developers simply put, will have zero profit margin if they are selling anywhere in Turkey for less than, lets say a bit arbitrarily, 1500 USD per sqm. It is conceivable that these areas will see price growth in the next 3-5 years anywhere up to 2500 USD per sqm. It is hard to envision that kind of rapid expansion in price growth in Istanbul over the same time line.
To buy or not to buy…Land?
Having spent countless hours and weeks working on land deals at various points in past years, I can tell you this is not the game for outsiders. The market is even less transparent than the residential and commercial segments and the advertising rarely gives enough useful information, so it is highly inefficient to travel around and fact check all the details. Basically, I would not even undertake a search for a client unless they had a fairly sizable budget, a reasonable expectation of what they could get + a retainer fee. It just would not be worth it otherwise. If you are looking to do CBI – and feel the pinch of time – I would bypass this entirely. Also, again, unless you have a huge amount of time on your hands to learn the market, I would pass on it. Not to mention, there is much talk of a rather huge bubble in land prices post-2023 earthquake. I might review this stance in late winter, but for now, like Bodrum-Antalya, it is very much on the back burner.
Visited a handful of really great – but non-CBI compliant properties – last week. I am just pursuing the details on those and will likely reach out to my non-CBI buyers. It really is a pity that CBI buyers sometimes miss out on these.
Will cut off abruptly here; much to do on this Sunday. As always, we will review a dozen or so properties in the zoom session. Thank you!!!
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