Returns on real estate investment in Turkey worsening
Monthly housing sales close to lowest level in a decade
Property investments abroad have nearly quadrupled since 2021
Montenegro, Spain, Dubai and London are popular locations
Turks fear regulatory changes loom at home
By Ceyda Caglayan and Ezgi Erkoyun
ISTANBUL, July 30 (Reuters) –Traditionally fond of real estate investment, Turks are turning their attention increasingly to buying property abroad in response to surging domestic prices, worsening returns on investment and the prospect of regulatory changes.
The new trend highlights growing concern about the outlook for Turkey’s real estate market, which is feeling the impact of a transformed economic climate after a policy U-turn towards more orthodoxy in 2023 following years of easy money.
In recent years, currency depreciation and the low rates championed by President Tayyip Erdogan pushed Turks into assets like real estate, cars and forex to protect savings as inflation surged to a current level above 70%.
But Turks are now seeking properties in places such as Montenegro, Spain, Dubai and London as high prices, lessening supply, and high mortgage ratesdrive monthly housing sales in Turkey to the lowest level in a decade.
Property investments abroad have nearly quadrupled since 2021, rising to $2 billion last year, central bank data shows, and some sector experts say the trend may accelerate to $3-4 billion this year due to the lira’s recent real term appreciation and high domestic prices.
“House prices are very high, but house rental income remains low for those who want to own a house as an investment,” said 56-year-old Tolga, who works in the energy sector.
Last year, he decided to sell a property in Istanbul to buy a house in London to have a regular FX income and diversify his investments, but also due to regulatory uncertainty in Turkey.
“We also decided to buy something abroad due to uncertainty around real estate and income taxes, lack of rules in Turkey,” he said. “We do not know what will happen tomorrow, whether the value of our house will decrease, whether it will be destroyed or something else will be built right next to our house.”
Turks have had years of punishing inflation, combined with a sharp clampdown on credit over the last year, and a series of currency crashes.
Real estate prices rose much higher than inflation throughout 2022 and 2023, according to central bank data, although there has been a recent slowdown.
As inflation surged to a peak of 85% in 2022, the government imposed a 25% cap on rent hikes to protect tenants, triggering a backlash from landlords and thousands of legal disputes. The cap was lifted this month.
Against this background, there has been growing interest from Turks in the London housing market, according to Arzu Uygun, founder and managing director of Unique London, a real estate consultancy company operating in London.
She said Turkey’s rising real estate prices opened the door for Turkish investors to buy a house abroad as they aim to shorten their investment return and diversify risks.
According to sector representatives, the return on investment period is around 30 years in Turkey, less than 18 years in the UK and Spain for a comparable residence, and less than 12 years in Montenegro.
DEVELOPERS LAUNCH PROJECTS ABROAD
Seeing the increasing demand from Turks, Turkish developers are looking to expand their businesses abroad.
“I think real estate investment in Turkey will not provide good returns for the next five years. I don’t think people will buy property for long-term investment,” said Aycan Fenercioglu, chairman of construction company Fenercioglu, pointing to a price-to-rent ratio of 25-30 years.
“We have started to make investments abroad. We have obtained permits in Spain and will start construction there in the autumn,” Fenercioglu said.
The company has investments in Alicante and is set to start building in Montenegro, investments in Dubai are planned next year.
Recent media reports indicating possible new taxes for people who purchase houses for investment point to a change in the government’s view in real estate investments, he added.
“I think the government wants real estate to stop being an investment tool in Turkey. This will lead to more Turks heading abroad in the coming period.”
With recent changes in regulation, Turkish authorities have made it harder to offer properties for short-term rentals, increasing necessary permits and paperwork.
Real Estate Service Exporters Association head Bayram Tekce said inflation, rising real estate prices and an uncertain environment were worrying investors.
“Buying a house in another country used to be a feature of the upper income group. But since Turkey is so volatile, now middle-income people want to put their eggs in different baskets,” he said.
Reporting by Ezgi Erkoyun and Ceyda Caglayan;
Editing by Daren Butler, Alexandra Hudson