The Turkish real estate market has increasingly attracted foreigners over the past 10 years. According to Nordic Monitor, the number of foreigners living in Turkey peaked in 2021 which represented a sevenfold increase since 2010.
Turkey is campaigning to attract foreign investment through the sale of properties to foreigners. This strategy enables the government to meet certain economic needs in a context of galloping inflation and a sluggish economy.
In 2017, Ankara implemented a policy allowing foreigners to obtain a one-year residence permit in exchange for buying property (at any price) in Turkey. Also, Turkish citizenship was available to any foreigner who purchased real estate worth a million dollars or more. In 2019, the real estate price qualification level for citizenship was reduced to $250,000. Subsequently, seeking to regulate the growing demand from foreigners for Turkish real estate, in May this year the level was set at a minimum of $400,000.
The conflict in Ukraine has greatly intensified the tendency of foreign buyers to grab Turkish properties. The depreciation suffered last year by the Turkish lira – it lost 44% against the dollar – has made the Turkish real estate market even more attractive for foreigners with hard currencies to spare. Russian and Ukrainian foreign nationals suffering the effects of the conflict have sought to secure their assets in Turkey.
Turkish citizenship available through property investments was a clear target for many foreign buyers, according to the Association for Promoting Turkish Real Estate Abroad (GIGDER).
Arab News reports indicated that Russians have become the third largest buyers of real estate in Turkey after Iranians and Iraqis. Since Russia’s invasion of Ukraine in February, Russians have bought 509 homes in Turkey, 111 of which have been sold to Ukrainians.
Tolga Idikat, CEO of Turkish real estate site Emlakjet.com, and Sergey Volchenkov, a Ukrainian investment expert, said Ukrainians and Russians have different expectations for their investments in Turkey. Russians, it seems, are willing to pay high real estate prices to acquire Turkish properties, with the acquisition of Turkish citizenship being their main motivation. Russian investors redirect assets from sanctioned Russia to Turkey where they can develop their financial activities. Ukrainians are more looking for short-term contracts in Turkey. They hope to return to Ukraine as soon as the conflict ends.
Turkish real estate website Turk.Estate said it saw 51% more searches from Russia and 63% more from Ukrainians since February 2021. Hakan Sabbagh, sales manager of Akzirve, estimated that demand Russian for Turkish properties would likely increase over the next few months. Nihat Tufan, CEO of Rest Property, based in Antalya, Alanya, Bodrum and Istanbul, said: “We expect a 70% increase in demand from the Russian Federation.”
The most requested locations by Russian and Ukrainian property clients in Turkey are Antalya, Istanbul, Izmir, Ankara and Bursa. Turk.Estate said that in February, Russians and Ukrainians bought 25% of properties sold in Antalya, representing an increase of 96% for Russians and 85% for Ukrainians. The war in Ukraine only increased Antalya’s popularity with Russians. Some 30,000 currently live there, along with 8,000 Ukrainians.
The International Wealth website indicates other attractive options for Russian property investors in Turkey. The province of Canakkale (formerly Dardanelles) has been presented as a promising alternative to Istanbul since the opening of the longest suspension bridge in the world between the districts of Lapseki and Gelibolu. Cannakale would be a good option for Russian investors looking for opportunities in logistics and industry. Russian analysts also predict the expansion of the towns of Lapseki, Gokceada and Bozcaada where Russian investors are already buying more properties. Naki Karaaslan, President of the Association of Russian and Turkish Entrepreneurs (RTIB), highlighted the potential of Izmir and Istanbul.
Turk.Estate suggested that Ukrainians might be drawn to Edirne, a province near Bulgaria. The region is presented as cheap in terms of short-term residences in Turkey. Its proximity to Bulgaria, a country where Ukrainians can enter visa-free, is convenient.
Foreign demand for Turkish properties has contributed to skyrocketing property prices in Turkey. According to the Turkish central bank, real estate prices have doubled in one year. Although Turkey, of course, has skyrocketing inflation. It reached an official level of 79% in June. Some independent estimates put it at more than double.
Pay above the odds
Investment analyst Volchenkov noted that the richest Russian investors in the Turkish real estate market are willing to pay more than the odds. They are ready and willing to pay more than the required threshold of $400,000 to obtain Turkish citizenship. Sometimes these investors jump into overpriced properties without even negotiating the price, Volchenkov said.
Russian investors are reportedly less and less attracted to the European market given the advantages of non-European destinations such as Turkey and the United Arab Emirates. The Turkish government relies on many comfortable services, provided at the same standards found in Europe but at cheaper prices and without negative attitudes towards Russians.
Zeynep Fıratoglu, director of Space, an Istanbul-based real estate company, pointed out that Turkey’s geographical location, at the gateway to Europe, and its neutral position towards Russian politics, as well as the mature Turkish banking system, make it an ideal destination for Russian investors.
The Turkish government has not imposed any sanctions on Russia since the start of the war in Ukraine, while the European countries that are the most permissive vis-à-vis foreign investors are tougher vis-à-vis Russian billionaires. According ForbesCyprus, which was an attractive destination as a tax haven for Russians, has revoked the passports of eight Russian billionaires.
Turkey also did not close its airspace to Russian airlines amid the Ukraine crisis. He takes the approach of trying to stay on good terms with Moscow and Kyiv in order to remain available as a trusted broker who can work for peace. Turkish real estate sales to foreigners are expected to grow as long as Western countries impose sanctions on Russia and Ankara remains neutral.
The richest Russian investors bought a lot of luxury goods in Turkey, especially in Istanbul. The Turkish government tried to create more incentives to attract them. Foreigners can obtain Turkish citizenship within 3-4 months if they invest $500,000 for three consecutive years in banking, Turkish government bonds, companies, investment funds or deposits. However, Şerif Nadi Varlı, real estate broker at Vartur Real Estate (Istanbul) indicates that rich Russian investors are not mainly looking for luxury properties but more Turkish nationality allowing them to invest heavily in the country.
Growth in other Turkish sectors is expected to occur alongside the growing presence of Russians in the Turkish real estate sector. Construction could win as more Russians come to Turkey to relocate or open businesses. According to Eray Sayin of Sayin Law & Consulting (Istanbul), Russians opened 64 new companies in Turkey in March 2022. According to her, the majority of these companies operate in the real estate and energy sectors.
According to the Turkish Union of Chambers and Commodity Exchanges, 136 Russian capital companies opened in Turkey in April, including 22 Ukrainian ones in the same month.
Observers, meanwhile, point to a major difficulty for Russian investors coming to Turkey. Most have seen their bank accounts blocked outside Russia, while the sanctions have also forced Russia out of the SWIFT international payment system. Most Russians arrive with cash or cryptocurrencies, hoping to make a quick property purchase.
Turkish banks remain reluctant to open formal bank accounts for Russian investors due to potential secondary sanctions that could be applied by the United States. Turkish state lender Halkbank is already facing legal action in the United States for allegedly participating in a sanctions evasion scheme to circumvent US sanctions on Iran. If U.S. sanctions officials target Turkey’s banking sector again, it could jeopardize foreign investors’ confidence in that market.
As for cryptocurrencies, Russian investors are increasingly using them to transfer assets from Russia to Turkey and buy properties. Turkish real estate companies usually accept these transfers. Caldas and Alex Cihanoglu, a real estate agent from Istanbul, said Russians were looking to convert cash into cryptocurrencies as financial transfers were seen as increasingly complicated for Russians in Turkey. Thus, the cryptocurrency market is also likely to grow in Turkey thanks to Russian interest in Turkish real estate.