Foreign buyers flood Turkey’s struggling housing market
Foreign buyers swooped into Turkey’s property market in the wake of the historic lira crisis and purchased more homes in the last six months than in all of 2017. As Mansion Global reports, Last August, Turkey’s currency lost one-third of its value in a single week, making goods (and homes) that much cheaper to hordes of tourists and prospective home buyers overseas carrying anything from British pounds to Iraqi dinars. The lira stabilized to an extent in the following months, but as of late last week was still about 30% weaker than a year ago. The exchange rate is about US$1 to 5.3 Turkish lira.
The buying opportunity has not been lost on foreigners, who bought double the number of homes in September than they did in the pre-crisis month of July, according to government statistics published last week.
"We definitely made sales off the back of the currency movement, though for some people, it was just fortuitous that it happened at that moment," said Julian Walker, director of Spot Blue International Property Ltd., a London-based Turkish real estate portal targeting foreigner buyers. "It was an extra bonus."
For example, a grand coastal villa selling for 5.5 million lira would have cost a U.S. buyer roughly $1.146 million in July but only $859,000 in September off the exchange rate alone. It’s primarily been home buyers from the Middle East and North Africa driving the spike in foreign activity, with Iraqis—the biggest buyers of Turkish real estate—doubling in 2018 compared to the previous year, according to the new government data.
Sales to Iranian buyers more than quadrupled in that time, making them the second largest cohort of foreign buyers in 2018. Meanwhile, the number of sales to both Algerians and Jordanians tripled. Besides the discount foreigners are getting on the exchange rate, the Turkish government has also eliminated a pricey 18% value-added-tax on real estate purchased with foreign currency.
Turkey also saw an influx of buyers from the West. Germans more than doubled their activity in the Turkish housing market, as did Americans, who landed in Turkey’s top 20 for the first time in at least four years, according to the government data.
The financial incentives drove some sales, but the boom in Arab and Middle Eastern buyers is also the result of a so-called "golden visa" scheme that offers Turkish citizenship in exchange for real estate investment, Mr. Walker said. In September, the government lowered the investment threshold from US$1 million to only $250,000—which could also account for the surge in buyers that month. "I think there’s been a more significant reaction to that than the currency," Mr. Walker added.
Foreign buyers have given Ankara, Turkey’s landlocked capital, the biggest boost, with sales to such buyers soaring 160% in 2018. Istanbul saw a 74% uptick in sales to foreigners, according to government data.
Away from the hustle and bustle, sales to foreigners jumped roughly 70% in the Mediterranean resort area of Antalya. Sales to affluent foreigners have also increased in Bodrum, a peninsula on the Aegean Sea dotted with luxury villas, said Heike Tanbay, managing partner of the Bodrum office for agency Engel & Voelkers.
"With foreigner buyers, it’s not just that property is less expensive, it’s also been calm and stable in the country for the past two years," Ms. Tanbay said. In 2016, Turkey was hit was a spate of political and national security threats that included a failed coup and a terrorist attack at Ataturk Airport in Istanbul that killed more than 40 people.
"In 2016, there was really a drop in the market with only about 20% foreign buyers in Bodrum," compared to the typical 50/50 split, Ms. Tanbay said. The ratio is now moving back to normality, she said. The decline in the lira has made luxury home sellers resistant to lowering asking prices, Ms. Tanbay said.
Still, the boom in foreign buying has not alleviated a broad slowdown in the Turkish real estate market or filled the stockpiles of empty homes left from years of overzealous development. Home sales across the country slipped 2% nationwide in 2018 compared to 2017.
Halfway between Ankara and Istanbul, in a remote area, a surreal dreamscape of more than 700 identical castles with turreted roofs and Juliet balconies comes into view. Sarot Group, the developer of these Disney-like chateaus meant for Arab buyers, has filed for bankruptcy amid rising construction costs and its Arab clients pulling out of deals, Agence France-Presse reported this month. In fact, buyers from Saudi Arabia were the only cohort to retreat from the Turkish market in 2018, with sales to them down about 20%.
The story is also cloudier in Istanbul, where the bump foreign buyers did not offset the decline in activity amid the country’s economic downturn. Luxury prices were down about 6% in the third quarter of 2018, according to the most recent data from Knight Frank. "Activity in the city’s high-end property market is very shallow, with very little transactions," said Cindy Uriona, of Luxurion Real Estate Group. Municipal elections in March will only add to the slowdown in the city, as buyers hold off from major investments, she added.
For this year, luxury sales in Istanbul may decrease as much as 20%, said Ms. Uriona, who predicted the market would start to recover in 2020. That creates an opportune moment for investors with a long-term interest in Turkey.
"If studied and researched carefully, great investment opportunities can be found for long-term investors," she said.