It can be a bit daunting, as a foreigner, to approach an unfamiliar market when looking to invest. Let's say you've done your homework. You've reached this site understanding that Turkey looks to be a fine candidate for investment. As an emerging market it does look quite attractive to foreign eye. It has a favourable exchange rate, proximity to the Mediterranean, Aegean, Marmara, and Black Seas. All of which are very desirable in their own rights. But it's fair to say that the coastal regions of Turkey are not the most beginner friendly entry points for foreign investors.
You are most likely much more accustomed to the real estate markets of large modern cities. Turkey happens to be home to one of the largest cities in the world. A city that is unparalleled in history and cultural diversity. That city is Istanbul. If you've made it this far then let us, here at Property Turkey, take you the last mile into your final destination. That destination being a profitable experience here in Istanbul. In this article let's take a look at some of the most profitable segments of the Istanbul market you need to consider upon your arrival.
Fresh off the boat, or plane, or train, or automobile, as a foreign investor you should be prepared to be greeted by the largest segment of the market. We'll name this investment theme, "Large Branded Complexes." This segment is the most heavily invested in area in the foreign investment market. The benefits are clear. Coming into an unknown market the natural first step is to search for a landmark that is familiar, to set your bearings.
This comes in the form of globally recognised rands of developers. Around 60% of foreign nationals will invest with these developers who build large scale complexes, consisting of over 500 units. They are usually luxury, residential apartments. They are easy to find and they are very accessible to contact. They speak your native language, they have many available agents and marketed sales materials. This segment exists in the front of the line, out in plain sight. Here at Property Turkey, we too can lead you to one of these risk-averse projects. The rate of return may even be agreeable to you and fit all of your goals and needs.
But, in terms of the downsides to this thematic approach, it is very limiting. You, as an uneducated foreign investor, will tend to pay a premium for perceived brand quality and investment protection. That will manifest itself in lower returns compared to local Turkish counterparts. You may assume that is an expected outcome. Bu in Turkey, as a foreign investor, you have access to the full gamut of properties and price points in the market. That is to say, you enter the game on the same level playing field as local Turkish nationals. There is not restriction in terms of what type of properties you are allowed to buy, or where those properties are located. In this article, and through our decades of experience in this market, we hope to draw back the curtain and reveal a few alternative approaches to fully tap into the potential of vast opportunity Istanbul provides.
The three themed segments highlighted are:
- Boutique Projects
- Urban Regeneration Zones
- Resale Properties
Boutique projects, especially the ones in prime locations, carry very, very good investment returns. In some cases, exponentially more than the flashy, large scale, highly-marketed complexes. When it comes to Boutique projects developers are generally not as skilled at marketing the project. So their exposure to foreigners is automatically reduced. Investors, understandably, begin wary of smaller projects. They are deemed untrustworthy, and there is much lower perceived risk in projects developed by globally known brands. But on the flip side, sales offices at larger projects usually provide bells, whistles, and other investing frivolities that do little more than provide surface level assurance. Does this perception always match with reality? Property Turkey says, "not the case." But it is Property Turkey's experience, that there are real quality small scale projects in this market.
Why are there gems available that fit this type? The local Turkish market is suffering. High interest, high inflation, and the devaluation of the currency has slowed the domestic market. Smaller developers have been the first to feel the reverberations of those effects. In this domestic economic environment, boutique projects in prime locations are available to foreign investors, that otherwise would be scooped up by the more savvy domestic participants. These gems offer more ROI than large branded complexes.
So here we're looking for projects with units totalling 20-100, in centrally located districts. The location, size, and price profiles of these projects can vastly outweigh the sheen of large-scale projects on the outer edges of the expanding city.
Urban Regeneration Zones
But where do you find those opportunities off the beaten path? This next approach takes some deeper layers of the history of the Istanbul market. After the earthquake of 1999, Istanbul has been going through the process of urban regeneration, district by district, to ensure higher standardised structures along with improved city planning. This means fast, government green-lit, centrally located projects you can enter into at the ground level. These are generally more rewarding, in our experience, in contrast to those larger scale projects. But they require a scope outside of the normal foreign friendly districts, as over 90% of the Turkish real estate market is still comprised of Turkish buyers. You may think your branded project is very liquid due to the globally recognised branding. But in reality take a trip over to the Asian Side, where more local Istanbulites live, where you'll find regenerated areas at smaller scales that serve a deeper pool of Turkish buyers.
How to go about finding these credible, low to no risk of delivery, good quality opportunities in Istanbul? We will assume you don't know the Turkish language here. You will need a large network and boots on the ground, leaving no stone unturned. One or small groups of agents usually will not have those boutique developments in their portfolios. But Property Turkey has the resources to help you invest in the ugly ducklings of today that will return as swans tomorrow. Narrow the scope of the future prospect of the area from 20 years to 3-5 years. If you know the way Istanbul moves sideways, upwards, forwards, and the way and pace of change in the city you are at an advantage. You will be able to weigh the differences between the regeneration areas.
How quickly will the area be regenerated? That comes down to two factors: regeneration rules and regulations in the municipality. How quickly you can start digging and raise the building finishing construction and cut out the title deeds can be delivered for sale. Who are the stakeholders in the regeneration? If you are a developer and have to develop relationships with incumbent residents, and so forth, the timeline will tend to elongate. In contrast, there are areas where there are far smaller stakeholders in the area. Even better still, form this perspective, is industrial or commercial districts. How many contract negotiations will it take to free up the square footage needed for the projects. In this example, a developer could acquire the total allotment with one contract with a company. Or hundreds of smaller contracts with individual residential parties.
It's our job to know these differences and highlight worthwhile opportunities. We are here for advisement and consultation to facilitate the discovery of these projects.
La Mer Dragos Case Study
We found out that some historically commercial factories in Kartal, a district on Istanbul's Asian side, were rezoning to residential. There are factories along an adjacent creek next to the plot. One of our clients was looking at purchasing a unit in the Kartal boutique project. He asked, "Many of the units are similar in layout. Which unit will be best to purchase? Should it have a sea view?" The answer to this question may surprise you. The best investment in this project was actually on the first floor facing these industrial factories. The reason, of course, is that in the regeneration zone, within the three year view, those factories are set to be demolished. And our investor will have bought at one of the lowest entry points in the project, only to sell at his maximum return.
Do not be discouraged by the ugly ducklings of today. In fact, search them out. Because in a large, modern, emerging city like Istanbul, they will be regenerated increasing in future value.
The last segment encompasses properties purchased by investors who have accrued adequate capital appreciation. They are ready to exit, potentially at lower than market price level because of the margin of return the investor has gained. These are the more interpersonal relationships that carry varying risk depending on the negotiation with the private owners. But if you can secure a deal with a legacy investor, it is possible to provide an exit strategy for a valuable price for you the new investor, and a valuable exit for the seller. Sometimes it is vastly easier to deal with developers as foreign investors.
But if you have a strong ally, you can connect with private, local sellers and obtain a nice entry into the Istanbul Real Estate market. Many foreign buyers shy away from these engagements, because of the unpredictability of the sellers. But at Property Turkey we truly believe in the quality of many opportunities in the resale market. We open up our valuable network, built up over decades of leadership in the space, to foreign buyers so that we are able to find you a great deal here when they reveal themselves.
The fourth bonus theme is under development here at Property Turkey. We are always searching for new and exciting ways to innovate the space, open up, even further, the ease of entry and exit into the Turkish Real Estate market including Turkish Citizenship by Investment considerations. Stick with us in your future endeavours and welcome to Turkey!
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