Turkey frequently makes headlines in Western media in a very negative way. I tried to give an objective view in my first piece about Turkey and can be seen as a prequel to this one (Is investing in Turkey possible?). Making an investment in real estate in Istanbul, Turkey, is straightforward with all the agents selling flashy new developments on the internet. What is the best way to go about it?
1. The state of the real estate investment market is Istanbul, Turkey
The main concern is the Turkish Lira/USD exchange rate.
What’s fascinating is that real estate prices have actually beaten inflation in real measures.
Up to now, following years of decline in prices due to deleveraging and deleveraging, the Turkish real property market is booming once more as buyers see real estate as their most effective option to protect themselves from rising inflation rates.
What this graph fails to indicate is that the prices are growing and rising USD terms.
As a Turkish saver, you’re more likely to benefit from local, affordable real estate investments than USD in a bank particularly with the current rate of inflation throughout the US and currently at 8.8% or more.
Turks’ perspective on inflation has evolved. Because the USD is declining as a store worth, the Turks may be able to own local real estate , and also collect rent.
The pressure from demographics adds to the appeal in this sector. Istanbul is home to 15 million residents, and is expected to expand rapidly over time due to positive nationwide demographics and urbanization. As per the World Bank, Turkey’s fertility rate is approximately 2.1 children per woman. This compares very favorably with its arch-enemy Greece that stands at an average of 1.4 women per child.
2. The top trap that you should avoid when making an investment in properties in Istanbul for sale
It’s important to begin with this, as it’s common for foreigners to be manipulated in this manner. You’ve found some fantastic real estate websites; the salesperson is fluent in English and is willing the opportunity to take you to the airport, and pitches you several projects with flashy brochures, rental guarantees, and promises of high-quality future returns.
Run away. You’re about being scammed!
3. To earn money through Istanbul the real estate market, make investments as the Turk
Locals know that many of these developments are too expensive. In reality, the best prices can find on the secondary market. You want to buy an investment property on the second hand market in a thriving neighborhood and, ideally, renovate it according to Western standards. This is the way you can likely obtain better yields as well as capital gains, due to the renovations. Be aware that you must to think like you were born in Istanbul. So, if you want to be successful in real property investments in Istanbul it is essential to be one of them and think like an Turk.
Two ways to participate in the market.
It is possible to purchase high-end real estate with a stunning view of the Bosphorus. Once the economy improves again, these prime-location apartments will be the first to rise in value. However, be prepared for low gross rental yields of 2-3 percentage.
You can buy into up and up and coming areas near to premium neighbourhoods. This will result in more rental income (double), capital appreciation in the event that the area is gentrifying, as well as general appreciation if the overall market improves (though lower than prime location).
4. Do you want to invest in the European or Anatolian (Asian) portion of Istanbul?
Istanbul is known for its division into two: there is the Asian one and the European side. Though both sides are growing, many more of the major catalysts are on the European side.
The new Istanbul airport that was opened in the year 2019 is the world’s largest. It is situated on the European part of the city.
A massive new Canal is being constructed to replace the Bosphorus as a shipping route. About 48,000 ships pass through the Bosphorus every year. The result is overcrowding, as well as a significant environmental risks. To reduce risk, and to increase revenues, Turkey plans on creating another canal on one side of the European side.
The two projects are an enormous incentive for job creation, further infrastructure development factories, logistics hubs and more.
It’s not to say that there is no dynamism on the Anatolian side, because there are activities there too. For instance, an international financial center is being built that side, which include the Turkish Central Bank, the main banking regulator in the country, as well as the headquarters of some of the most important public and private banks.
While this is good, the two other projects are vast and can trigger an increase in economic activity. I’m not saying there isn’t a plethora of excellent investments that are on one side, the Anatolian side, but I see a clearer story on the European side.
5. Which areas to make investments in, on this European portion of Istanbul?
Start by looking at the seismic map and avoid any area that is dark red. Every homeowner should get earthquake insurance, so that at least you are somewhat covered in the event of an earthquake. Typically, when there are earthquakes in Turkey, it’s buildings of poor quality that collapse. Buildings from the 1960s and earlier are sturdier than the typical and can withstand these unexpected events.
Also, having visited all over the European area of Istanbul I would steer clear of the more affluent areas. I am not interested in purchasing new buildings that will look ugly within 10 years, particularly because they’re not at a discount to near-prime locations in the center of European Istanbul.
This leaves us with the historical core center of Istanbul.
Taksim, Cihangir, Galata The area is very touristy, however the locals are a lot of them too. Bars, clubs, art zone. Average prices and moderate yields.
Sultanahmet (right part of the red circle) The Sultanahmet area is the area where the famous Hagia Sophia is located. It’s an extremely touristic region that has a number of Airbnbs and not a lot of appeal to the locals. Overpriced.
Besiktas local, middle class and for some reason low yields even though prices are not extremely high.
Nisantasi and Macka: Premium area. Good restaurants, hotels High-end shopping, and bars. Very low yields.
Kurtulus, Bomonti, Osmanbey The local hot and emerging regions. At first, they were working class, but are now gentrifying. Low costs and high yields
6. A study of a real property investment in Istanbul
This loft house is intriguing. It is in Sisli/Osmanbey, a nice area on the European side. Its particularity is the fact that it is located on a street of textile factories. So during the day it is lively, though not noisy, and in the evenings, it’s incredibly quiet, and yet only a couple of minutes walk away from all of the fashionable, trendy bars. There’s a certain charm to this area.
There is a need to include seismic insurance, however the cost is minimal. One of the advantages of making a property investment to invest in Istanbul is that landlords don’t usually pay for finding tenants. It’s the other way around and tenants pay agents to locate they an apartment. Additionally, the common costs are paid through the tenant. The most important thing is that demand from tenants is strong, so finding a new tenant normally can take a week or more.
If you own more rental property in Turkey the country, you should expect to pay more tax on your income rate.
7. It’s possible to get a free passport out of it
If you purchase $400,000 or more worth of real property in Turkey the owner as well as your spouse and your children younger than 18 can be granted Turkish citizenship. It’s a great alternative and also a great travel document.
8. Real estate taxes in Turkey
Personal income tax rates range from 15% to 40%. If you put aside the minimum amount required to obtain citizenship by investment, make the gross profit of 5% to 6 percent, and then reduce all allowable expenses (most) in the process, you’ll most likely be paying around 20%.
Learn more about my International Tax Consulting for more details.
There is no capital gain taxes if you hold real estate for five or more years. If you are able to sell it prior and pay capital gains tax, these taxes will be added to your yearly income (after the deduction of TRY 18,000) and take CPI indexing into consideration. In actuality, these capital gains taxes are minimal.
There is an annual property tax of around 0.2% of the assessed value for the real estate market in Istanbul, which is lower than most Western markets.
Additionally, there’s around 4percent in stamp duty charges for buying real estate in Turkey. In many cases this 4 percent is split between buyer and seller, but most of the time it’s not. It all comes down to the negotiation process before securing the deal.
There is VAT in some circumstances, but it doesn’t apply to foreigners’ initial real acquisition in Turkey. In most cases it can be avoided, especially when you purchase on the second market.
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