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Property in Turkey: a profitable asset or a risky investment?

The real estate market is one of the most important growth drivers of the Turkish economy. In recent years, the rapid development of the sector was supported by the state program for the demolition of dilapidated and unsafe housing, the activity of the middle class against the background of lower mortgage rates, as well as inflows of foreign investment. Over the past ten years, the real estate market and the construction market accounted for about 8.4% of Turkey’s GDP. The share of foreign investors at the same time was almost half of the total investment.

Crisis in Turkey opens up new opportunities for foreign investors
Crisis phenomena in Turkey open up new opportunities for foreign investors twixx / Depositphotos
In 2018, the Turkish economy experienced one of the strongest shocks since the failed coup d’état in 2016. Against the background of growing internal tensions associated with the re-election of the president, and the escalation of the conflict with the United States, which provoked a mutual increase in trade duties, the rate of the Turkish lira in August fell by 30%. As a result, Turkey faced the strongest inflation in the last 15 years – up to 25%. The current situation, of course, put pressure on the construction sector, but it also opened up new opportunities for foreign investors.

What worries investors?
European investors are particularly concerned about the current economic and political situation in Turkey. Leading European real estate market players who took part in the PwC “Emerging Trends Europe” survey, assessing the prospects for investments in key locations in Europe in 2019, put the Turkish market in last, 31st place.

Most Europeans are most worried about geopolitical risks, but some of them rely on waiting tactics. “Required investments, which were previously estimated at 8,000–9,000 euros per square meter, have fallen sharply to 4,000 euros. Perhaps now is the time for profitable acquisitions, but it is also possible that the market has not yet reached the bottom, and in the coming months it will be better to exercise caution, ”said one of the respondents. The unfavorable factor is also a high concentration of investors, in particular, in popular markets. For example, in Istanbul, many properties are owned by foreign investors, who, in the event of a worsening economic or political situation, may try to withdraw assets, sending the market at its peak.

According to experts of The Economist Intelligence, Turkey is in dire need of external financing, and the private sector has accumulated large debts in foreign currency. As a result, the country’s economy has become extremely sensitive to turbulence in global financial markets. Despite the fact that the government is trying to stop the collapse of the lira, in the future the authorities may face difficulties in restoring the confidence of foreign investors.

It is interesting, however, that, despite the forecasts and seemingly weighty arguments of those who are expecting stagnation or even a recession of the Turkish real estate market, the situation here is developing in a positive direction.

Turkish real estate market: reality
According to the newspaper Daily Sabah, 2018 was one of the most successful for the real estate market in Turkey, including due to the record activity of foreign investors who invested in residential properties. According to the Turkish Statistical Institute (TurkStat), over the past year, foreign investors bought 39,663 properties in Turkey (by the end of 2017, this figure was slightly more than 22,000).

In 2018, foreign investors preferred to invest in the acquisition of residential properties in Turkey
In 2018, foreign investors preferred to invest in the purchase of residential objects borzaya /
A surge of activity of foreign buyers came in the last two quarters of 2018. So, if at the beginning of the year they sold a little more than 11 thousand residential properties, then in the third and fourth quarters foreigners purchased 12 339 and 15 508 objects, respectively.

The activity of foreign investors in the second half of the year can be explained by two factors: the depreciation of the lira, which made housing cheaper in currency equivalent, and the unprecedented easing of conditions for participation in the program of “golden visas”, providing an opportunity to obtain a residence permit and (in the long run) citizenship. In the autumn of 2018, the threshold for investment in Turkish real estate, which allows you to apply for a residence permit, was reduced four times: from $ 1 million to $ 250 thousand. The minimum requirements for other investment instruments were revised in the same way. For example, the minimum bank deposit is now $ 500 thousand instead of $ 3 million.

Among other things, it is worth noting that today investors in Turkey are exempted from paying VAT when they buy their first office or residential asset. The object can not be sold during the year (otherwise you will have to refund the amount of tax).

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