As the economy finally begins to improve, many Europeans are considering a second home. Some will buy their retirement home, perhaps enjoying a few vacations in their ultimate destination while they continue to work. Others will buy-to-let, allowing guests or tenants to pay the mortgage. Still others are buying a dream of owning a boutique hotel or commercial property. Whatever your reason, the first question you are probably asking is where you should go to find real estate bargains.
We suggest that you pass on New York, London, Paris or Rio and head straight for Turkey. Although Turkey might not already be on your radar, you are going to be pleasantly surprised once it is. For a fraction of what you might find in a real estate “hot spot,” you can either buy much more or spend much less all over Turkey.
Before comparing Turkey’s real estate pricing to other markets, let’s first look at some tactical advantages that Turkey holds. Turkey’s government is very pro-foreign investor. This means you will find longer visas as a foreign property owner. It also means that you can directly own real estate in Turkey, unlike many nations who require an agent, government controlled trust or other vehicle for outside investors.
Additionally, Turkey has the geographic distinction of being close to Europe, Asia and the Middle East. As a gateway to many lands, Turkey is rich with culture and history, but has only recently discovered how valuable its real estate truly is. While much of Europe was seeing property values decline, Turkey’s property values continued to climb.
Diversity is also a tactical advantage for Turkey. From quiet mountain villages to beautiful Mediterranean beaches, Turkey offers a broad range of property options not found in other countries.
If you were considering a buy-to-let or retirement home in Europe, you would find that Turkey has extremely low per square metre real estate costs when compared to other European destinations. In major cities within the United Kingdom, you’ll find per square metre real estate costs over 24,000 Euros. France, Italy, Switzerland and Russia average 6,000 to over 12,000 Euros per square metre. But, compare this to the 2-3,000 Euro per square metre cost of Turkish real estate and you’ll begin to understand why institutional and individual bargain hunters are flooding into Turkey.
You’ll also have a hard time finding bargain real estate in Asia. Japan averages over 11,000 U.S. dollars per square metre and Hong Kong tops 20,000 USD for each square metre you want to purchase. Imagine what that does to the price of a home or condo that is a few hundred square metres. Ouch. Even locations that aren’t known to be friendly for ex-pats such as Cambodia and Thailand will still set you back over 2,500 USD per square metre, assuming you can wade through all of the red tape required for foreign real estate ownership in these countries.
If money is no object and you are looking for the opposite of a bargain, go to Brazil. The median price per square metre in Rio is $4,000 USD. Just in case that isn’t painful enough for you, check out Brazilian mortgage rates. They average over one percent per month and you probably won’t find a mortgage term longer than fifteen years. In comparison, Turkish banks offer significantly lower interest rates, longer terms and simpler mortgage processing and underwriting and the difference for foreign investors between direct real estate ownership and navigating Brazil’s myriad of regulations only adds to the rewards for the smart investors who skip Brazil and head for Istanbul, Bodrum or other Turkish destinations.
Gross Rental Yield is the total yearly gross rent divided by the house price (expressed in percentages).
Of particular note to those who are considering the buy-to-let option is how rental income will compare to your purchase price. Once again, Turkey is a clear winner when you divide rental income by your purchase price. In France, Italy and much of Europe, much of your rental income would be eaten away by the amortised purchase price of a property. This means that it will take longer to be truly cash-flow positive. In most of Europe, it will take you TWICE as long to enjoy the true cash flow benefits of a by-to-let property purchase.
If you want to wait a really, really long time to see truly positive cash flow, buy a rental property in Hong Kong. It will take you as much as five times as long to completely recoup your purchase price and see any meaningful positive cash flow.
But, none of these calculations include property and other foreign real estate ownership taxes or other costs. Because Turkey allows foreigners to directly own Turkish real estate, there is no difference in the property taxes paid by you versus a Turk. This will not be the case in many other countries where extra taxes are paid by foreigners.
You should also consult a tax professional when structuring your real estate investment. Property taxes paid to Turkey will generally be deducted from any taxes owed in your home country. This same benefit will also include income from rentals.
Most exciting to a would-be bargain real estate investor should be Turkey’s almost certain addition to the European Union. Turkey has worked hard to bring its policies into alignment and the progressive Turkish government clearly understands the value in EU membership. Even as Turkish real estate values have increased during and since the global economic crisis, they are most likely to explode with European Union membership as they have with other newly minted member countries.
So, although a savvy bargain real estate investor should still do their homework, they should make sure to spend time in Turkey and see the quality, the diversity and the amazingly low prices of Turkish real estate before considering a real estate investment anywhere else.
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