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Observations and an Overview of Istanbul's Real Estate Investment

20/05/2022 Investment in Turkey 5 Observations and an Overview of Istanbul's Real Estate Investment

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In order to promote Turkey and its investment ambitions, Turkish media and economic organizations have, in recent decades, begun to support the growth of the private sector in general and real estate agents in particular. So, it has become incredibly easy to invest in Turkey , thanks to all of these internet real estate agents marketing showy new projects. Is it, however, the most effective strategy?

The current situation of the Istanbul real estate investment market

Prices seem to be on the increase after an acute decline. However, it should be remembered that governments all over the globe tend to underestimate actual inflation in their CPI assessments, implying lower "real" growth statistics in this situation.

Nonetheless, after years of falling, prices have begun to rise again in USD terms. Furthermore, the market's attraction is boosted by demographic pressure. Istanbul has a population of 15,636,000 million people and is predicted to increase rapidly in the next few years as a result of favorable national demographics and urbanization. Turkey's fertility rate is at 2.1 children per woman, according to the World Bank. This contrasts positively with its arch-enemy Greece, which has a child-to-woman ratio of 1.4.

The trickiest trap you should avoid when investing in Istanbul properties

Unfortunately, foreigners are frequently caught in this trap. Some scammers create fantastic real estate websites. The salesman speaks flawless English to persuade you, may offer to pick you up at the airport, and sell you a slew of developments with dazzling brochures, rental guarantees, and promises of high future profits.

Furthermore, they may fabricate videos depicting an imaginary purchasing procedure in which international purchasers are depicted as having acquired property of the same sort in order to mislead you into falling into the trap.

Invest like a Turk in Istanbul's real estate market to make money

Turkey's real estate market investments grow every year, since the country provides the most beneficial returns to investors. Locals are well aware that many of these projects are now expensive. The truth is that the finest discounts are only available on the secondary market.

You may purchase a high-end property with a view of the Bosphorus. These prime location flats will be the first to appreciate in value as the economy improves. Expect modest gross rental rates of around 2% to 3%, though.

Alternatively, you could wish to invest in up-and-coming locations near high-end neighborhoods. You'll earn greater rental yields (by a factor of two), greater capital appreciation if the neighborhood continues to gentrify, and general appreciation if the market improves generally (though less than in a prime location).

However, buying a used house in a busy neighborhood and renovating it to Western standards is the best way to get greater income and financial gains.

Where should you invest in Istanbul (on the European side or the Anatolian (Asian) side)?

Istanbul is the world's only megalopolis that spans two continents. The Bosphorus Strait, which connects the Marmara Sea with the Black Sea, separates Istanbul from its European and Asian sides.

Although both sides are flourishing, many of the main incentives are on the European side, which is more overpowering as it is the most populated side of this city of 15 million people and where some of Istanbul's trademark landmarks are located.

Moreover, the new Istanbul Airport, which was opened in 2019 and is in its final phase in 2025, will be able to accommodate up to 200 million passengers annually, becoming the biggest airport worldwide in terms of passenger traffic. It is situated at the heart of the European side.

Additionally, Turkey is establishing a large megaproject by opening a water canal that will connect the Black Sea to the Sea of Marmara and thus to the Aegean and Mediterranean seas. It will be constructed to replace the Bosphorus as a shipping route where over 48,000 ships pass through the Bosphorus every year, resulting in overcrowding and significant environmental danger. So, to decrease danger and increase income, Turkey plans on building a new canal on the European side.

These two initiatives will generate a lot of employment, infrastructure development, logistical hubs, manufacturing, and other things.

On the other hand, there is the Asian side of the city, which is calmer and more authentic in many ways, with a strong sense of community. This is not to suggest that there is not vitality on the Anatolian side; there is. A significant international financial center, for example, is being developed, which will host the Turkish Central Bank, the country's primary banking regulator, and even the headquarters of some prominent public and private banks.

While this is great, the two other megaprojects are still significant and will spur more economic activity. Bottom line: although there are investment opportunities on the Anatolian side, the best ones are on the European side.

Where to invest on the European side of Istanbul?

The most critical step is to examine the seismic map and stay away from dark red areas. However, property owners should get earthquake insurance so that they are at least slightly protected. When there are earthquakes in Turkey, it's usually the inferior-quality buildings that fall. Buildings from the 1960s and earlier are stronger than the norm and can endure such a calamity.

Another piece of advice is that if you don't want to wait 10 years before getting good returns from your property and seeing it thrive and flourish, you should avoid the outer of Istanbul  districts that are far from the center of European Istanbul.

The districts of Istanbul's historical center

1.Taksim, Cihangir, Galata: are considered very touristy, yet many locals live here. There are bars, clubs, and artistic areas. Prices and yields are moderate and reasonable.

  1. Sultanahmet: This is where you'll find the historic Hagia Sophia. It is a very touristic region that is also quite unappealing to the locals.
  2. Besiktas: It is a middle-class local area with poor returns, despite the fact that prices are not exceptionally expensive.
  3. Nişantaşi: It is a luxury district with fancy hotels, restaurants, high-end shopping malls and stores, and nightclubs, but their yields are modest.
  4. Kurtuluş, Bomonti, Osmanbey: These are local areas that were formerly working-class but are now quickly redeveloping. The prices are cheap, but the yields are high.

Choosing a real estate investment in Turkey : What to consider?

Before going through with your first attempt at Turkish real estate investing, there are a few stages to explore, beginning with choosing a city and then locating the ideal area in which to purchase your property. Remember that many top investment opportunities share common traits.

Since, as maintained by the real estate market's tendency and statistics, choosing a proper property in such a situation where you can rent or resell it would be easy.

Aspects to keep in mind before investing in Istanbul real estate

Rental returns

In Turkey, the most common type of real estate investment is rental properties. Real estate provides a reliable supply, with rental returns of 8–11 percent compared to 2–4 percent for residential properties. However, keep in mind that commercial property management is considerably easier than residential property management. Then less management is required because these assets are cared for by expert project maintenance companies.

Another advantage is that the renters will furnish the property according to their needs and preferences, eliminating the need for the investors to spend money on the property's furniture. Short-term leases are favored for residential properties, whereas a 3+3+3-year agreement with a preset rent increase is negotiated for commercial ones.

Financing

The most crucial thing to know before purchasing a property in Turkey is your budget and how much you are prepared to pay.

In Turkey, banks give loans for property investment; the conditions and quantities vary depending on the type of property. It is simpler to obtain a loan from a bank for a residential property worth at least 90% of its value. Otherwise, loans for commercial property are significantly more difficult to get, and only 60% of the property's worth is insured.

It's worth mentioning that the interest rate is substantially higher, and it's only appropriate for you if you have sufficient funds. Even so, if you only have a limited amount of money, you should invest in residential property.

Selling the property

One of the most difficult and time-consuming procedures is finding the perfect buyer for real estate assets. If you buy a commercial property in a certain area, the state of the economy has a big impact on the commercial property. Finding a buyer and selling a house might be difficult if the market has stalled. You may even have to make concessions on things like rent. In contrast to the residential unit, there is one possibility with the commercial estate: you may sell a portion of it.

Rental demand

Studying demand is a critical phase in every industry, including real estate investing in Turkey . Because you do not want to endanger your income stream, it is critical to invest in a market with steady and rising rental demand, as well as to understand your target demographic.

When assessing rental demand in real estate, vacancy rates, days on the market, population growth, and the quantity of rental units against available listings are all factors to behold.

Exchange rate

If you wish to make a real estate investment in Turkey , you also need to evaluate the growth and collapse of the Turkish Lira. The exchange rate between your currency and the Turkish Lira will either benefit you or lose you money.

Keep in mind that when dealing in Turkish currency in return for your money, time is critical since the Turkish currency has lost 30% of its value in a year, giving you a 30% discount. As a result, investing in Turkish real estate is crucial while the Turkish Lira is weak.

Free Turkish passport

By purchasing real estate for $250,000 or more, you, your spouse, and your minor children are eligible for Turkish citizenship . It is a good backup plan and a beneficial travel document.

Taxes of Turkey real estate

The rates of personal income tax range from 15% to 40%. If you invest the minimam amount for citizenship by investment and get a gross return of 5%-6%, after deducting all permissible expenditures (most), you will most likely pay around 20%.

If you own real estate for five years or longer, there are no capital gains taxes. If you sell it before the end of the year, the capital gains taxes will be applied to your yearly income (after a TRY 18,000 reduction) and will be adjusted for CPI indexing. In actuality, capital gains taxes are quite low.

In comparison to other Western markets, Istanbul has a low annual property tax of about 0.2 percent of the assessed value of real estate.

Furthermore, stamp duty taxes of around 4% apply when purchasing real estate in Turkey . This 4% is usually split between the buyer and the seller, although that is not always the case. It all boils down to the talks that take place throughout the closing process.

In some cases, VAT applies, although it does not apply to foreigners' first real estate investment in Turkey . In most circumstances, especially if you buy on the secondary market, it may be avoided.

Damasturk’s consultants in Istanbul

Our helpful buyer's consultants have lived in Turkey for many years. They has been involved in the Istanbul real estate market for over a decade, speak Turkish well, and understand the business through and through. So, all you need to do is to give them a brief, and they will look for properties that meet your investing criteria. Our consultants may also connect you , when necessary, with the appropriate legal team to assist you with your citizenship application.

How does the process work with our Istanbul real estate buyer's consultants and renovation managers?

  1. You may reach out to them directly by writing them an email.  If you use WhatsApp, please include your phone number.
  2. They take you through the projects and provide all of the numbers you may inquire about (prices, rental yields, etc.).
  3. They will charge a fee of 0% of the purchase price. We will provide you with free assistance as we take commissions from the construction companies rather than the clients.
  4. If you intend to renovate your home after purchasing it, our renovation managers can provide you with a detailed price. You are invited and encouraged to obtain other quotes.
  5. If you hire them for the remodeling, they will oversee everything from start to finish.
  6. They also provide comprehensive property management services, but exclusively to those who have purchased or remodeled a home through us. 

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