Changing Trends in Real Estate Investments in Turkey
The sharp increase in housing prices due to high inflation, high credit interest rates, longer investment payback periods, and legal regulations in the real estate sector have led to a shift in investor preferences in Turkey, where housing is a traditional investment tool.
While monthly housing sales have dropped to their lowest levels in the past 10 years, real estate investors are turning towards foreign countries, especially Montenegro, Spain, Dubai, and London.
It is expected that the real estate investments of Turkish residents abroad, which were $2.1 billion last year, will reach levels of $3-4 billion this year. Turkish construction and real estate companies, seeing the interest of Turkish investors in the foreign real estate market, are also shifting their focus abroad to capitalize on this opportunity.
According to industry representatives, especially Turkey, Montenegro, and Northern Cyprus are among the top destinations attracting Turkish investors in the real estate market.
Turkish Construction Companies See a 400% Increase in Foreign Investments
In the first 5 months of the year, foreign investments by Turkish construction companies have seen a growth of over 400%. This increase comes as the allure of real estate investments in Turkey diminishes, prompting individuals to look overseas for opportunities.
Tolga, 56, Sells Home in Istanbul to Buy Property in London
One such individual is Tolga, a 56-year-old energy sector worker who has chosen to sell his home in Istanbul and purchase a property in London. Tolga, who prefers not to disclose his last name, aims to diversify his investments and generate income in foreign currency through this decision.
“Property prices in Turkey are very high, but rental incomes for those looking to invest in real estate remain low. When you rent out a property in Turkey, the return on investment can take up to 30 years. In London, this period is approximately 15-20 years,” Tolga explained. He added, “Moreover, the regulations there are clear and concise. By selling a property in Turkey and utilizing some of our savings, we were able to become homeowners in London.”
According to data from the Central Bank of the Republic of Turkey,
Real Estate Investments Abroad by Residents Increased by 164% in 2023
The real estate investments abroad by residents increased by 164% to $2.09 billion in 2023. According to the latest data, in the first 5 months of this year alone, it reached $1.062 billion with a 51% increase compared to the same period last year. The total figure for the past year was $2.444 billion.
Decline in Turkey, Rise in London
On the other hand, housing sales in Turkey continue to decline, following the trend from last year. According to TURKSTAT data, housing sales decreased to 75,569 in April, the lowest level in the past 10 years. Housing sales in June were slightly higher than the historic low level at 79,313 units.
Arzu Uygun, the Founder of Unique London Consultancy, a real estate consulting company in London, pointed out that Turkish interest in the London housing market has been increasing significantly, especially due to the high real estate prices in Turkey.
Comparison of Real Estate Investment Returns in Istanbul and London
When comparing the return on investment in real estate in Istanbul and London, it was found that a property in Istanbul takes about 26 years to recoup its value, while a similar property in London takes around 17 years.
Housing Market Trends in Turkey
According to data from the Central Bank of Turkey, the housing prices in Turkey peaked in September 2022 with a 189% increase. Although the rate of price increase slowed down afterwards, it still remained above inflation in 2023. The latest data shows that housing prices have increased by 45% in May of this year.
Turkish Construction Companies Turning Overseas Due to Investor Interest
Fenercioğlu Companies Group, operating in the construction and real estate sector, is one of the companies that decided to focus their projects abroad due to the growing interest of Turkish investors in the foreign real estate market. They have started housing projects in 6 different locations in Northern Cyprus, aiming to capitalize on this trend.
Real Estate Investment Trends in Turkey
The Chairman of the Board, Aycan Fenercioğlu, announced that they will start construction in the Alicante region of Spain in the fall, where they recently completed a project. He also mentioned Turkish investors’ growing interest in Montenegro until the New Year, followed by a new residential investment project in Dubai.
Changing Trends in Real Estate Investment
Fenercioğlu expressed his belief that real estate in Turkey will not provide significant returns as an investment tool in the next five years. He stated that most Turkish citizens no longer see real estate as a profitable investment. Investors are currently seeking alternatives, anticipating a decrease in interest rates in the future. People are now looking to keep their money in foreign currency while also making a profit from exchange rates.
He noted, “The purchasing power of people in Turkey has decreased, and high interest rates have emerged. Construction has come to a halt, and the industry is in a deadlock. However, the construction sector is like a bicycle – if you stop, you fall. We saw an opportunity and decided to move forward with new projects.”
Government’s Warning Against Investment in Real Estate
The government is currently advising people to only purchase homes for residential purposes and not for investment. They want to eliminate the idea of housing being used as an investment tool. This policy change may result in more Turks turning towards foreign real estate markets in the future.
Reports of Tax Changes Cause Concern Among Real Estate Investors
Recent reports in the media suggested that the government was considering imposing additional property taxes on those who own multiple homes, and abolishing the tax exemption for those who sell their homes after five years. However, these changes were not included in the finalized tax law.
Legal Regulations Causing Anxiety Among Real Estate Investors
The rumors of these legal changes are causing anxiety among real estate investors, leading them to become even more hesitant and distant from the market.
The Reasons Behind Turkish Investors Turning to Overseas Real Estate
According to the President of the Real Estate Service Exporters Association (GİGDER), Bayram Tekçe, the first reason for Turkish investors turning to overseas real estate is the inflation and sharp increase in housing prices. The second reason, he mentioned, is legal issues.
Tekçe also pointed out that the rent ceiling was a major problem for housing investors, but now it has been lifted. However, rumors about changes in the tax system have emerged, causing concern among investors. Even just the rumor of a new law is enough to create uncertainty.
Tekçe stated that Turkish investment in overseas real estate is expected to increase by at least 50% this year, reaching 3 billion dollars, and could even reach up to 4 billion dollars. He also mentioned that Turkish construction companies, aiming to attract Turkish investors going abroad and create an alternative against a stagnant market, have already made investments amounting to 249 million dollars in the first five months of the year. This figure is significantly higher than the 47 million dollars invested in the same period last year.
Investing in Real Estate: Comparing Investment Returns in Different Countries
Many investors are turning to foreign real estate markets to generate rental income in the face of the continuous depreciation of the local currency. The advantage of investing in properties abroad is that the return on investment is often quicker compared to the returns seen in Turkey.
According to industry experts, while the average investment return period in Turkey has been around 30 years, in countries like England and Spain, this period is less than 18 years for a similar property. In Montenegro, which is preparing to join the EU, the return period is even less, at around 12 years.
One of the factors contributing to the longer investment return periods in Turkey is the government’s recent decision to cap rental increases at 25%. This has deterred some investors from seeing quick returns on their investments.
Tolga, who has invested in real estate in London, attributes his decision partially to the legal uncertainties and restrictions that have been imposed in Turkey recently. He mentions concerns about rental caps, property and income taxes, and the lack of clear regulations as reasons for investing abroad for better returns.
The uncertainty of future construction projects
As homeowners, we often find ourselves wondering about the future of our neighborhood. Will a new building be constructed next to our homes, or will the old one be torn down? The uncertainty of future construction projects can be unsettling, as it can greatly impact our daily lives and the value of our properties.
It is important for homeowners to stay informed about any potential construction projects in their area, as this can help them prepare for any changes that may come. By staying proactive and involved in the decision-making process, homeowners can ensure that their voices are heard and that any new construction projects align with the best interests of the community.
