A Country Of The Future That Is Booming Right Now
The real estate market in Turkey wasn’t hit as hard as others around the world in 2008 and 2009. Values in some districts of Istanbul dropped by maybe 25% at the height of the downturn (about the same as in Panama)…but in just a year-and-a-half prices had recovered. That rate of appreciation (10% to 15% per year on average) has continued through this year and is expected to carry on indefinitely.
Specifically, real estate values in Istanbul were up 11.6% on average in 2013, according to the real estate company in Istanbul I spoke with. And 2014 growth rates are expected to be greater.
Despite these impressive rates of appreciation, Istanbul real estate remains a bargain compared with other global-standard cities. With a starting market price of around US$1,000 a square meter, middle-class housing in the Turkish capital can be an excellent bargain.
That said, to put things into some perspective, the 11.6% average rate of appreciation isn’t as impressive for the locals, as inflation in the country has been running about 9% a year. Still, real estate has been staying in front of inflation on average, making it a good place for Turks to park their capital. And I believe it’d be possible to realize appreciation well beyond the averages if you bought right. My real estate contact reports possible appreciation of up to 30% per year…again, if you know what and where to invest.
Foreign buyers also have to consider currency exchange rates. A foreigner who invested US$100,000 on Jan. 1, 2013, would have had an 8.5% loss in U.S. dollar terms on Jan. 1, 2014. On the other hand, rental yields in the 10% to 12% range could have made up for the capital loss. As real estate is a long-term investment, you can’t worry too much about short-term currency fluctuations, but you do want to be aware of them.
Had you invested that same US$100,000 on Jan. 1, 2014, you’d be up 3.5% on the currency alone this year…and up better than 6% appreciation through the first half of 2014.
What’s driving these levels of appreciation in property values? Inflation is one factor, of course. In addition, the GDP growth rate has been 4.5% to 5%. However, one of the most compelling explanations for why property prices have been going up as quickly as they have been is a big and growing local housing demand.
Half the population of Turkey is younger than 30 years old. The country sees 350,000 weddings a year. All these new couples want places of their own to live. And, thanks to a strong economy and relatively low unemployment, more of these young couples than ever can afford places of their own.
We witnessed this same phenomenon in Ireland during the property boom in that country. The difference in Turkey is that the Turkish economy isn’t predicated on importing foreign business activity, as was the case in Ireland. Turkey has a population of 74 million (about 20 times that of Ireland when we lived there).
In addition to all the young people needing places to live, half of the current housing stock in the country needs to be replaced or at least renovated. Many of the structures are simply not suitable for living…at least not according to current-day living standards. People in the old buildings need new and better ones…further fueling the construction boom that continues to expand. As my real estate contact put it, “There just isn’t enough inventory, even with all the building that’s going on.”
With its young population, Turkey is a country of the future. The economy is growing and diversified between Europe and Asia. And it’s easier than it’s ever been for foreigners to invest here now, especially in real estate.
“It used to be, even just a few years ago, that it could take something like 28 months for a foreigner to buy a piece of property in this country,” explained my real estate contact. “Now it can be done in 10 days.”
Some restrictions still exist on foreign property ownership (a foreigner can’t own more than 30 hectares of land, for example), but these don’t affect the average investor.
Where to buy? I’d focus on Istanbul rather than the vacation properties along the coast that many foreigners have been buying. Vacation markets supported by mostly foreign buyers are less liquid than a local market like Istanbul. When you decided to sell your asset in this city, you’d have many different potential buyers to appeal to.
Bottom line, despite excellent appreciation over the last four years, you haven’t missed the boat on Turkish real estate. Expect decent appreciation for at least the next several years or more and solid, even double-digit rental returns.
Editor’s Note: Today’s essay from Lief is republished from his twice-weekly Offshore Living Letter. If you aren’t already receiving this straight-shooting dispatch direct from Lief’s laptop to yours, get yourself on the list here.
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