Buying property in Turkey: a value trap?


Spending the minimum of USD 250,000 required to obtain Turkish citizenship will allow you to acquire a sizable apartment in Istanbul with a view of the Bosphorus. It sounds like a great place to live, but is it a good investment?

When Turkey launched its citizenship by investment program, you had to buy property worth at least US $ 1 million. Shortly thereafter, the minimum fell to a much more reasonable US $ 250,000.

Since the minimum investment was lowered, Turkey’s citizenship program has become very popular. It is now competitive with other citizenship and Golden Visa programs in the region, including Portugal and Malta.

And if your ultimate goal is to obtain Turkish citizenship with a second passport, you don’t necessarily have to buy property here.

Turkey’s citizenship by investment program includes two other options besides real estate: making a bank deposit or contributing to the capital of a business in Turkey.

Note that the investment required for these two options is US $ 500,000, which is double the amount required as a real estate investor.

Property taxes and fees in Turkey

There are several property taxes that you will have to pay if you are investing in real estate in Turkey. The purchase tax, or title tax, represents a fairly substantial amount of 4% of its selling price. Normally it is split with half paid by the buyer while the seller pays the remaining 2%.

VAT, or value added tax, is also applied to real estate in Turkey. Commercial properties have 18% VAT. Meanwhile, residential properties have a lower VAT which can range from 1% to 18%, but is generally at the bottom of that scale.

Foreign investors have the option of waiving VAT if they meet specific conditions, such as agreeing not to sell the property for at least one year.

You are also required to pay annual property taxes in Turkey. They are cheaper than in most other countries, ranging from 0.1% to 0.6% of a property’s total value. Nonetheless, annual taxes are an ongoing cost that you should consider before investing here.

How much does real estate cost in Turkey?

Before buying real estate in Turkey, or making an investment for that matter, there are several questions you should consider.

Is the property worth your investment? Are rental yields high enough? In the future, will it appreciate or depreciate?

We don’t have a crystal ball to predict the future with 100% accuracy, but you can look at other factors and get a good idea of ​​what Turkey’s economic future has in store for us.

One thing to consider is the value of the Turkish Lira against other currencies. Since 2010, the Turkish lira has fallen from 1.50 against the US dollar to around 8.50. That’s a drop of over 500%!

A steadily depreciating pound has made Turkey one of the cheapest emerging markets in the world to invest in real estate.

In fact, Turkey’s real estate market ranks among the cheapest in all of Asia despite its status as an upper middle income nation.

Istanbul is the country’s largest city with almost 20% of Turkey’s total population residing here. You can buy a refurbished apartment in downtown Istanbul for a low price of just 1000 USD per square meter.

Compare that to US $ 6,000 per square meter in Moscow, or US $ 3,000 in Belgrade, and Istanbul property values ​​may seem like a steal at first glance.

Like everywhere else, property prices in Istanbul vary depending on the location of the property. The European side of Istanbul is more expensive than the Asian side.

Istanbul’s cheapest properties can be found in the Esenyurt district, along the city’s western suburbs. Meanwhile, Istanbul’s most expensive neighborhoods are Nisantasi and Besiktas, both of which are prime areas located in the city center.

The question is: whether it is by renting your property or possibly selling it, can you make a return on your investment in the future?

Turkey’s economic problems: a deal-killer?

Turkey is a rather wealthy nation and ranks at the top of the Human Development Index. That said, while it is by no means a ‘third world country’, the Turkish economy is not at its peak either.

Unfortunately, the reading is in free fall. The rapid and continued depreciation of the currency is not in sight.

Keep in mind that when you buy real estate in a country, you are not just investing in a physical structure or land. You are also making a bet on the future of a country’s currency – and reading it is not worth betting just yet.

Turkish corporate debt levels represent over 70% of the country’s GDP. Much of this debt is owed in US dollars, not Turkish Lira. Due to the depreciated value of the lira, the amount of lira they will need to pay off their debt increases.

This is a bad sign for anyone investing in Turkish real estate. House prices in Turkey may seem cheap, but their value is falling along with that of the Turkish lira.

Meanwhile, the recent presidential elections have given Erdogan broad power and he controls almost every aspect of Turkey, including major financial decisions related to the country’s economy.

President Erdogan is not a banker or an economist, however, and he has an unconventional view that high interest rates lead to inflation.

He continues to insist that interest rates must be lowered, despite the potentially disastrous effects that a lax monetary policy would likely have on the lira. Erdogan even fires central bank chiefs and finance ministers if they hesitate to cut interest rates.

Turkey also suffers from one of the biggest trade deficits in the world – around $ 50 billion to be precise. The country’s industrial sector cannot easily compete in terms of price or quality with countries in East and Southeast Asia.

Simply put, Turkey does not have a competitive manufacturing industry like Thailand or China, especially when it comes to its imports. So, in addition to all of its other problems, Turkey lacks the flexibility to properly handle an economic crisis.

Should you buy property in Turkey?

Your first impression might be that buying real estate in Turkey is a good deal. Despite low prices and relatively high rental yields around 5%, the risk is high.

It is likely that you will end up losing money rather than getting a return on your investment due to the decline in the value of the read.

Don’t expect your net returns to actually approach 5% either. Vacancy rates are generally high in Turkey, so after deducting repairs, damage and the fact that you probably won’t have a tenant all the time, expect lower returns. Not to mention that you will be paid in Turkish Lira.

Either way, Turkey offers one of the most attractive investment citizenship programs in the region. Don’t let that stop you if your goal is to buy a second home or get another passport.

Buying real estate in Turkey therefore remains a solid choice if you are looking to obtain a second nationality. If having another passport is your top priority instead of profit, then real estate in Turkey may be worth it – don’t expect optimal investment.

About Louis Miller

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