Falling lira: Are Turkish real estate prices dropping in 2017?
As the lira drops, interest from potential buyers with Euros, Dollars or Pounds in their pocket is rising, and investors are looking to make big gains in valuable real estate markets like Istanbul. However, is the hype justified? Are Turkish real estate prices really dropping? Is it good time to invest in Turkish real estate now?
Despite recent turmoil: the ongoing war in Syria, internal security issues, the debate over Turkey’s presidential system and violent currency fluctuations, property prices continue to rise, although since the beginning of 2016 the upward trend has slowed.
Even with the slowdown, signs are encouraging: nationwide, house prices rose by 14% from the year until July 2016, according to the Central Bank of Turkey. In Istanbul, house prices surged by 17.7% during that same period, and Turkey’s largest city also saw the highest annual increase in new-build housing prices in the country, at 15.3%.
Will Turkish property prices drop in 2017?
However, along Turkey’s south coast, particularly in areas with high levels of foreign investment like Antalya, Alanya, Fethiye and Kalkan, we’re seeing a drop in prices compared to 2014 and 2015. Against the pound or the dollar, these properties are now 15-20% cheaper.
If the overall trend is an upward one, why are we seeing these price drops?
This phenomenon is due to the high level of foreign ownership in these areas. Sellers tend to calculate costs in TRY, and even with a price increase these properties still represent a significant bargain to overseas buyers, whose currencies are now much stronger against the Lira.
Additionally - and if you’ve ever sold your own home you’ll identify with this - the psychology of selling means that once a house is on the market, foreign vendors want their property gone yesterday, which means they’re generally amenable to sell at a lower price - after adding a respectable margin.
Let’s look at this in real terms, using the example of our client, David K. In 2010, David bought a villa for sale in Ovacik, Fethiye for £107,000. Today, in line with similar properties Ovacik on the market, that villa is worth £238,000 - slightly more than double what he paid for it. Now, David’s looking to sell his villa. If he asks for £199,000, that is a significant discount for a buyer, and for David, who is impatient to sell, it’s a pretty good deal: almost £100,000 profit in seven years.
Are property prices falling In Istanbul?
In Istanbul, the opportunities lie with the large developers who deal in TRY. A current government push to support local currency means the business and finance sector have incentives to quote prices in lira. This is excellent news for foreign investors spending dollars, euros or pounds, or those with hard currencies such as the Saudi Riyal.
These investors are finding their money is going much further, buying them 15% more: not an insignificant amount in an expensive city like Istanbul.
For example, in the project on the left, which is offering low prices to early investors in central Sisli, investors are offered a 20% deposit with the rest payable over 60 months fixed in Turkish Lira. This means you sign the purchase contract today in Turkish Lira and put a 20% deposit with the remaining 80% payable in Turkish Lira over 60 months. Property Turkey director Cameron Deggin explains why these terms represent an exceptional investment.
“In the short term, say, the next 24 months, we’re expecting the lira to depreciate against the US dollar by an average of 1.08% each month, this is based on our analysis of past 5 years' trends and economic projections for the next 3 years. What this means to anyone buying into this Sisli project now is that in dollar terms, investors will end up owning apartments in Istanbul central at around 15% less than today’s advertised price in US Dollar.” This is because the buyer will make payments in Turkish Lira but the buyer is using US Dollar or other hard currency to buy the Turkish Lira he is making the payments with. Therefore each month when the payments are made, less US Dollar (or other hard currency) will be needed to meet the obligations. However, the real benefit will come in when the appreciation of the property will exceed depreciation of Turkish Lira.
Deggin, who has a background in finance and accountancy, explains that the current window of opportunity is set to close.
“Between now and when this project completes in June 2018, the developer will increase prices by at least 30%. This increase in value will far more than outweigh the depreciation in Turkish Lira thus resulting in a net advantage of approximately 15% in US Dollar terms from now till completion”“In short, there are gains to be had, but this is a blip: a loophole, if you like. And it will close soon.”
Another projects with similar terms include this property seen on the left.
Located in Istanbul's Basin Ekspres or Media Highway, this project is available with 20% deposit and a 48 month payment plan. This up-and-coming area is set to become a major financial hub, making it popular with investors and professional workers with jobs in the new region. As with the above Sisli project, investors can capitalise on the currency gap to take advantage of the favourable price and payment terms. You can read more about Media Highway and its projects here.
Incentives offered for buyers
The local market, which account for 95% of Istanbul’s property purchases has increasingly fueled demand over the past decade. Local demand has temporarily slowed down due to Turkish buyers taking a 'wait and see' attitude for the Presidential system that is being debated through the Parliament currently. However, this demographic is set to take off again as interest rates (currently around 7% - a vast improvement on 2002’s eye-watering rate of 48%) are cut to the government target of 5% and more and more middle income earners find they can afford property.
With the dip in local demand, developers are offering incentives to local and foreign buyers alike, including lower prices, extended payment terms, and rental guarantees.
Turkey real estate market 2017 outlook
The security concerns and mounting pressure on the lira are curbing investment, despite high demand, which is in turn caused by low supply, a phenomenon mostly evident in Istanbul.
However, the long-term outlook of Turkey’s property market is overwhelmingly positive, confirm analysts.
An analyst from Knight Frank stated that: “In the long-term, Turkey is likely to remain on the radar of investors, given the underlying market fundamentals of strong demand set against low supply.”
We can compare today’s situation to that of the 2007 to 2011 period, when house prices in Turkey fell by 2%. Since then, prices have risen continuously - and rather dramatically, with the price of a new home rising by 69% in US Dollar Terms since January 2010.
Construction permits, a bellweather for Turkish property market trends, rose by 16% last year, according to the Turkish Statistical Institute. This further confirms the positive outlook for Turkey’s property market.
“Put it this way,” says Deggin, “Although prices have continued to climb, the falling lira has presented an artificial situation for investors with foreign currency. It’s certainly not a phenomenon that will endure for long, the market will adjust its prices, but the next few months - until the market corrects - will be extremely favourable for investors.”