Turkey constantly makes headlines in Western media, and is often portrayed in a negative light. I attempted to present an alternative perspective in my very first piece on Turkey that is in many ways an in-between article to this one (Is the idea of investing into Turkey feasible?). The process of investing in real estate with a property in Istanbul, Turkey, is simple with the multitude of agents offering flashy new developments online. However, is this the most effective option for you?
1. The state of the market for investment in Istanbul real estate, Turkey
The primary concern is the Turkish Lira/USD exchange rate.
What is fascinating is that real estate prices have actually outpaced inflation in real sense.
As of now, after years of decline in prices due to deleveraging The Turkish real property market is on the rise once more as buyers see real estate as their best protection against rising inflation rates.
What this graph fails to reveal is that prices are increasing even in USD terms.
In reality, as a Turkish saver, you’re better off with cheap, local property in your portfolio as opposed to USD in a financial institution in particular with rising inflation within the US and currently at more than 8.
Turks’ perspective on inflation has changed. Because the USD has been declining as a currency of value, they could be able to own local real estate , and also collect rental income.
Population pressure is a major factor in the appeal to this particular market. Istanbul is home to more than 15 million people and is predicted to grow significantly over time thanks to the positive national demographics and urbanization. As per the World Bank, Turkey’s fertility rate is 2.1 kids per woman. This compares very favorably with its arch-rival Greece which has the rate of 1.4 babies per female.
2. The number one trap to avoid when you make a real estate investment in Istanbul
I have to start with this since it’s typical for foreigners to get played this way. You came across some excellent real estate websites. The salesperson speaks perfect English and is willing an airport pickup the airport and shows you a variety of new developments with flashy brochures, rental guarantee, and promises of high-quality yields in the future.
Run away. You’re about being scammed!
3. To make money in Istanbul property, you must invest as the Turk
Locals are aware that a lot development are too expensive. In reality, the best prices can be found on the secondary market. You should consider buying a secondhand property in a thriving neighborhood and make sure to renovate it in accordance with Western standards. This is how you will probably get better returns and capital gains, thanks to the remodeling work. Remember, however, that you have to think as if you were born here. So, if you want to profit from real estate investments in Istanbul then you must be one of them and think like a Turk.
There’s two methods to participate in the market.
It is possible to purchase high-end real estate with a stunning view of the Bosphorus. As the economy grows and these apartments are in prime locations, they will become the first to increase in value. But, you can expect lower gross rental yields, which are around 2-3 percent.
It is possible to buy property in up and up and coming areas near to premium neighborhood. This way, you get more rental income (double) as well as capital appreciation when the area continues to become gentrified, and general appreciation if the overall market gets better (though lower than prime location).
4. Investing on the European or the Anatolian (Asian) side of Istanbul?
Istanbul is famously split into two parts: the Asian part and then the European side. Though both sides are growing most of the important catalysts are located on the European side.
The new Istanbul airport which was launched in 2019 is the biggest airport in the world. It is located on the European part of the city.
A massive new Canal is being constructed that will replace Bosphorus as a shipment route. Nearly 48,000 ships traverse the Bosphorus every year. The result is overcrowding and huge environmental risks. To minimize risk and generate more revenues, Turkey plans on creating a new canal along its European side.
These two projects will be a huge job-creation opportunity, and will lead to further infrastructure development factories, logistics hubs and more.
It’s not that there’s nothing to be excited about on the Anatolian side, because there are activities there also. For instance, an international financial center is being built there, including Turkey’s Central Bank. Turkish Central Bank, the primary regulator of banking in the country, as well as the headquarters of a handful of the largest private and public banks.
While this is encouraging, the two other projects are massive and could trigger more economic activity. It’s not that I believe there are no pockets of good investments from the Anatolian side, but I can see more clearly for this side than the European side.
5. Which neighbourhoods should you consider investing in this European part of Istanbul?
The first step is to look over the seismic map and avoid any area that appears dark red. Every homeowner must have earthquake insurance, so that at least you are somewhat covered in case this happens. Typically, when there’s earthquakes in Turkey it is the homes that are of poor quality that fail. The buildings built in the 1960s and earlier are more sturdy than the typical ones and are better able to withstand unexpected events.
Additionally, after having been to every European portion of Istanbul, I would avoid the more affluent areas. I’m not interested in purchasing rows of newly constructed buildings that will look ugly in 10 years’ time, especially because they’re not at a discount to near-prime locations in the center of European Istanbul.
This leaves us with the old core area of Istanbul.
Taksim, Cihangir, Galata The area is very touristy, however many locals live here too. Clubs, bars, and artistic region. Moderate prices and moderate yields.
Sultanahmet (right part of the red circle) The area in the region where the world-famous Hagia Sophia is located. It’s a touristy area and has lots of Airbnbs and not a lot of appeal to locals. Overpriced.
Besiktas is a local middle class with low yields despite the fact that prices are not extremely high.
Nisantasi and Macka: Premium area. Hotels, restaurants with high end shopping and bars. High yields.
Kurtulus, Bomonti, Osmanbey local up and coming areas. The area was originally a working class, but is now rapidly becoming gentrifying. High yields and low prices
6. A case study of a real property investment in Istanbul
This loft house is intriguing. It is in Sisli/Osmanbey, an attractive area in the European side. Its speciality is the fact that it is located on the street that is lined with textile factories. It is therefore during the daytime it’s lively, but it’s not too noisy. In the evenings it’s very quiet, yet a two-minute walk away from all the fashionable, trendy bars. There’s an aura of a certain glamour to this particular area.
You’ll need to take into account seismic insurance, but the sums are negligible. One of the great advantages of making a real investment in real estate within Istanbul is that landlords do not usually pay for finding tenants. It’s the other way around that tenants pay the agents to find they an apartment. The building’s typical charges are paid by the tenants. Importantly, tenant demand is extremely high, so the process of finding a new tenant usually takes a week or so.
If you have more rental properties in Turkey the country, you should expect to pay more tax on your income rate.
7. You can even receive a your passport for free from it
If you purchase $400,000 or more worth of real estate in Turkey the owner along with your spouse and your children younger than 18 can be granted Turkish citizenship. It’s a great plan B and is a good travel document.
8. Real estate taxes in Turkey
Personal income tax rates vary from 15% to 40%. If you invest the minimum amount to qualify for citizenship by investment, make a gross return of 5%-6 percent, and then deduct all allowable expenses (most) and you’ll likely pay around 20 percent.
Find out more about me and my International Tax Consulting for more details.
There is no capital gain tax if you have real property for five or more years. If you are able to sell it prior and pay capital gains tax, these taxes get added to your yearly income (after a deduction of TRY 18,000) as well as taking CPI indexing into consideration. In reality, the capital gains taxes are not that much.
There is a yearly property tax of approximately 0.2 percent from the appraised value of property in Istanbul this is less than in most Western markets.
Additionally, there’s around 4percent in stamp duty when buying real estate in Turkey. In many instances, this percent is divided between buyer and the seller, however there are times when it’s not. It all comes down to the negotiations that occur at the time of signing the contract.
There’s VAT in certain situations, however it does not apply to the first real estate acquisition in Turkey. In the majority of cases, it can be avoided, especially when buying on the secondary market.
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