Turkey frequently makes headlines in Western media in a negative perspective. I attempted to provide an alternative perspective in my first article on Turkey, which is in many ways a prequel to this one (Is making a bet in Turkey feasible?). Making an investment in real estate in Istanbul, Turkey, is straightforward with all the agents selling shiny new developments online. What is the best way to go about it?
1. The overall state of the market for investment in real estate is Istanbul, Turkey
The most important thing to consider is the Turkish Lira/USD exchange rate.
What is fascinating is that real estate prices have actually outpaced inflation in real sense.
Up to now, following years of declining prices due to deleveraging and deleveraging, the Turkish real property market is on the rise and people are recognizing real estate as their most effective option to protect themselves from rising inflation rates.
What this graph fails to indicate is that prices are rising regardless of USD terms.
In reality, as a Turkish saver, you’re better off investing in local, affordable real estate in your portfolio as opposed to USD in a financial institution in particular with rising inflation across the US and now hovering at 8percent or more.
Turks’ perspective on inflation has evolved. Because the USD is decreasingly a store in value. They could also own local real estate and collect rental income.
Population pressure is a major factor in the attraction to this particular market. Istanbul is home to more than 15 million people and is projected to increase quickly due to positive population growth and urbanization. Based on the World Bank, Turkey’s fertility rate is about 2.1 babies per female. This is in stark contrast to its arch-rival Greece that stands at the rate of 1.4 kids per woman.
2. The top trap that to avoid is an investment in real estate in Istanbul
I’m going to start with this since it’s typical for foreigners to be treated this way. You’ve found some fantastic real estate websites. The salesperson speaks perfect English offers an airport pickup the airport, and then offers you numerous exciting developments, with fancy brochures, rental guarantees as well as promises of excellent future returns.
Run away. You’re in danger of being swindled!
3. To earn money through Istanbul real estate, you must invest as a Turk
Locals are aware that a lot new developments in the area are overpriced. The reality is that the most attractive deals can be found on the secondary market. It is best to purchase second-hand properties in a desirable neighborhood and preferably renovate it up and up to Western standards. This will help you most likely get higher yields and capital gains thanks to the remodeling work. Remember, however, that you have to think like you were born here. If you’d like to earn money from real estate investments in Istanbul it is essential to be one of the people who think like an Turk.
There are two ways to bet on the market.
You can buy top-notch property with a view of the Bosphorus. As the economy grows this prime location apartments will be the first to jump in value. However, be prepared for low gross rental yields of about 3 to 5 percentage.
Buy in up and rising areas in close proximity to high-end communities. This will result in greater rental yields (double) and capital appreciation if the area continues to gentrify, and general appreciation if the general market is improving (though lower than prime location).
4. You are investing on the European or the Anatolian (Asian) part of Istanbul?
Istanbul is famously split into two; The Asian one and the European side. While both sides are growing however, the majority of the significant catalysts lie on the European side.
The new Istanbul airport that was opened in the year 2019 is the world’s largest. It is located deep in the European part of the city.
A huge new Canal is planned for replacement of the Bosphorus as a route for shipping. About 48,000 ships pass through the Bosphorus each year. The result is overcrowding and huge risk to the environment. To reduce risk, and generate more revenues, Turkey plans on creating a new canal on one side of the European side.
These two projects will be a huge draw for jobs, further infrastructure development factories, logistics hubs and other industries.
However, that doesn’t mean that there’s nothing to be excited about on the Anatolian part, as there is action there as well. For instance, an international financial hub is being built on there, including an office of the Turkish Central Bank, the primary regulator of banking as well as the headquarters of a handful of the major public and private banks.
While this is encouraging, the other projects are huge and will drive more economic activity. I’m not saying that there isn’t a plethora of excellent investment opportunities in the Anatolian side, but I see a clearer story regarding this side than the European side.
For properties for sale in Istanbul make sure you visit Prime Property Turkey
5. Which neighborhoods should you make investments in, on the European aspect of Istanbul?
First step, look at the seismic map and avoid areas that are dark red. Every homeowner MUST get earthquake insurance, which means at minimum, you’re protected should this happen. Traditionally, when there are earthquakes in Turkey, it’s buildings in poor condition that will collapse. Built in the 1960s and earlier are sturdier than the normal and better able to endure such unexpected events.
Also, having been all over the European area of Istanbul, I would avoid the outer areas. I’m not keen on buying in rows of new-built buildings that will look ugly after 10 years, particularly as they do not come with a price reduction compared to the prime places in the middle of European Istanbul.
This leaves us with the historical core center of Istanbul.
Taksim, Cihangir, Galata The area is very touristy, however lots of locals reside here as well. Bars, clubs, an artistic area. A moderate price and moderate yields.
Sultanahmet (right part of the red circle) It is the place the area where the famous Hagia Sophia is located. It’s a popular tourist area with lots of Airbnbs and is not very appealing to locals. Overpriced.
Besiktas is a local middle-class and for some reason low yields despite prices aren’t particularly high.
Nisantasi and Macka: Premium area. Good restaurants, hotels, high ends shopping and bars. Very low yields.
Kurtulus, Bomonti, Osmanbey: Local up & coming regions. The area was originally a working class, but is now rapidly changing into gentrifying. High yields and low prices
6. A case study of a real property investment in Istanbul
This loft house is interesting. It is located in Sisli/Osmanbey. an excellent area located on the European side. Its particularity is that it’s located on the street that is lined with textile factories. This means that during the day, it’s lively but it’s not too noisy. In the evenings, it’s incredibly quiet, yet a two-minute walk away from all the trendy, upmarket bars. There’s an aura of a certain glamour in this region.
It is necessary to consider seismic insurance, however the costs are minimal. One of the advantages of making a investment in real estate with Istanbul is that the landlord does not normally pay to find tenants. In the reverse that tenants pay the agents to locate the right apartment. Also, the building common charges are paid for from the renters. The most important thing is that demand from tenants is extremely high, so getting a new tenant generally takes a week or so.
If you have more than a rental property in Turkey, then expect to be paying a higher tax on income rate.
7. It’s possible to get a free passport out of it
If you buy $400,000 or more worth of real property in Turkey, you, your spouse, and your children who are younger than 18 are entitled to Turkish citizenship. It’s a great option B and is a good travel document.
8. Real estate taxes in Turkey
Tax rates for personal income range between 15 and 40 percent. If you invest the minimum amount for citizenship through investment, and earn the gross profit of 5% to 6 percent, then take all expenses allowed (most) then you’ll likely have to pay 20 percent.
You can read more about me and my International Tax Consulting for more information.
There is no capital gain taxes if you hold real estate for more than five years. If you are able to sell it prior and pay capital gains tax, these taxes are added to your annual income (after the deduction of TRY 18,000) as well as taking CPI indexing into consideration. In reality, these capital gains taxes are minimal.
There is an annual property tax that is around 0.2 percent from the appraised value for real estate in Istanbul, which is lower than most Western markets.
There is also about 4% in stamp duty charges for buying real property in Turkey. In many instances, this% is divided between the buyers and sellers, however most of the time it’s not. It’s all about the discussions that take place before securing the deal.
There’s VAT in certain instances, but it doesn’t apply to foreigners’ initial real property investment in Turkey. In most cases , it is able to be avoided, especially when buying on the secondary market.