Driven by a falling currency and the prospect of citizenship, sales of homes to foreigners reached record numbers this year. However, a new government rule aimed at tackling an "unethical" practice has stymied investors' bids for citizenship.
Real estate agencies told Reuters that before the rule change, some cheaper Turkish homes were being marked up to reach the $250,000 threshold for Turkish citizenship. These agencies were working with appraisal companies to ensure citizenship for their buyers. In some cases, the mark-up would be returned to buyers.
However, a new regulation last month has put a stop to this practice by assigning appraisers to properties, ending any collusion over prices.
Head of an industry body said that since the regulation was adopted at the end of September, the number of homes sold to foreigners dropped by more than a third, and some investors were walking away from planned purchases.
"This difference between construction companies' sales prices and new valuations has led to distrust among foreigners," said an insider. "We have since seen sales offices emptying out and presale contracts getting cancelled," he said.
Property Turkey director Cameron Deggin welcomed the new regulations.
"Unethical practices reflect badly on the whole industry, and companies that stick to the straight and narrow end up being tarred with the same brush," Deggin said.
He had heard of buyers cancelling their planned purchases, he said. "The customer signs a contract for a property, with the intention of gaining citizenship. But then when the appraiser comes back with a lower valuation than expected, they walk away."
Like others in the industry, he had seen buyers burned by poor practice. "They end up with a Turkish passport, but at a cost," he said. "They're left with a substandard property, that they will make a loss on when they come to sell."
Deggin's advice was to stick with a reputable company. "Don't take shortcuts," he advised. "If something seems too good to be true, it usually is."
Will the move put the brakes on a booming market?
The citizenship for investment scheme was introduced in 2017, and a year later, the minimum amount for investment was dropped to $250,000 from $1m. About 7,000 foreign buyers received Turkish citizenship through the scheme between 2017 and 2020, according to government data.
Last year, foreign buyers invested $5.7 billion in Turkish real estate and last month, prompted by a dip in the lira, home sales -- mainly to Russians, Iranians, Iraqis and Afghans -- reached a record high of 6630.
The appetite for Turkish property has pushed prices up, making it difficult for Turks to enter their own market, or afford rents in larger centres like Istanbul. It's a problem that is weighing heavily on Turkish president, Recep Tayyip Erdogan, who is working to curb rising housing inflation.
However, Cameron Deggin does not see appetites for property slowing.
"Despite rising prices, the low lira means that Turkish property is still cheaper than many other locations. For example, we have a number of clients from the Middle East who look at Dubai, then come to Istanbul and realise they can buy something just as good, or if not better, for a quarter of the price."
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