Buyers and sellers in housing turned abroad

High inflation and the resulting sharp increase in housing prices, high loan interest rates, prolonged investment payback periods and the anxiety created by legal regulations regarding the housing sector have changed investor preferences in Turkey, where housing is a traditional investment tool.

While housing sales fell to their lowest levels in the last 10 years on a monthly basis, housing investors turned abroad, especially to Montenegro, Spain, Dubai and London.

IT COULD REACH 4 BILLION DOLLARS THIS YEAR

While the real estate investments of Turkish residents abroad, which were 2.1 billion dollars last year, are expected to reach 3-4 billion dollars this year, Turkish construction and real estate companies, seeing the interest of Turkish investors in the foreign real estate market, have also set course abroad to take advantage of this opportunity.

According to information provided by sector representatives, foreign investments of Turkish construction companies, especially in Spain, Montenegro and TRNC, increased by more than 400 percent in the first 5 months.

One of those who turned to abroad as housing investment lost its appeal in Turkey is 56-year-old Tolga, who sold his house in Istanbul and bought a house in London.

THE PURPOSE IS TO EARN FOREIGN EXCHANGE INCOME

Tolga, who works in the energy sector and did not want his last name to be used, stated that he aims to diversify his investments and earn foreign currency income by doing so, and said, “Housing prices are very high in Turkey, but rental income is low for those who want to own a house as an investment vehicle. When you rent a house in Turkey, the return on investment is somewhere around 30 years. In London, this is around 15-20 years,” he said, adding:

“And the rules are clear and precise there. We sold a property in Turkey and used some of our own savings to buy a house in London.”

According to TCMB data, real estate investments abroad by residents increased by 164 percent to $2.09 billion in 2023. According to the latest data released, in the first 5 months of this year, the same item increased by 51 percent compared to the same period last year, reaching $1 billion 62 million. The last year's figure was $2 billion 444 million.

FALLING IN TURKEY, INCREASING IN LONDON

In contrast, housing sales in Turkey continue to decline, which began last year. According to TÜİK data, housing sales fell to 75,569 units in April, the lowest level in the last 10 years. Housing sales in June were slightly above the historical low of 79,313 units.

Arzu Uygun, Founder of Unique London Consultancy, a real estate consultancy company operating in London, drew attention to the fact that Turks' interest in the London housing market has increased exponentially in recent times and pointed to the high real estate prices and long return periods in Turkey.

Comparing similarly priced houses in central areas of Istanbul and London, Uygun said, “While the payback period for a property you rent in Istanbul is 26 years, a similarly priced house in London is around 17 years.”

According to TCMB data, housing price increases across Turkey peaked at 189 percent in September 2022. Although the rate of price increases slowed down afterward, they continued to remain above inflation in 2023. According to the latest data released, the increase in housing prices stood at 45 percent in May this year.

INVESTOR INTEREST HAS ALSO DIRECTED TURKISH CONSTRUCTIONERS ABROAD

Operating in the fields of construction and real estate, Fenercioğlu Group of Companies is one of the companies that decided to focus their projects abroad after seeing the interest of Turkish investors in the foreign real estate market.

Stating that they have started housing projects in 6 different locations in the TRNC and will start construction in the Alicante region of Spain in the fall, where they have completed the permit processes, Chairman of the Board Aycan Fenercioğlu stated that they will start housing investments in Montenegro, which has shown great interest from the Turks, until the New Year and then in Dubai.

Fenercioğlu, who stated that he does not think housing will provide returns as an investment vehicle in Turkey in the next five years, said, “Housing in Turkey is no longer an investment for most citizens. Turkish investors are currently searching for something. TL interest is currently high, but investors predict that interest will decrease in the coming period. People are now searching for 'both keeping their money in foreign currency and making a profit from foreign currency'” and added:

“People's purchasing power in Turkey has decreased, very high interest rates have emerged. Construction production has stopped, the sector has come to a dead end. However, the construction sector is like a bicycle; if you stop, you fall. We saw the opportunity and turned abroad.”

GOVERNMENT SAYS 'DO NOT BUY FOR INVESTMENT PURPOSES'

Fenercioğlu said, “The government's current policy is that people buy houses only for shelter. They say 'They shouldn't buy them for investment purposes'… They want houses to cease being an investment tool. This will cause Turks to turn more to foreign countries in the coming period.”

In the media in recent weeks, it was stated that the government was preparing to impose an additional property tax on those who own more than one home as part of its tax studies; and that the practice of not collecting tax from those who sell their homes after the fifth year would also be abolished. However, the enacted tax law did not include any such regulation.

Industry representatives stated that even rumors in this direction worry housing investors and cause them to move further away from the market.

LEGAL REGULATIONS MAKE RESIDENTIAL INVESTORS WORRIED

“If the first reason for Turkish housing investors to turn abroad is inflation and the sharp increase in housing prices, the second reason is legal reasons,” said Bayram Tekçe, Chairman of the Real Estate Services Exporters Association (GİGDER), and continued as follows:

“The rent ceiling was a big problem for housing investors. It was removed. However, this time rumors about the tax system emerged… Even if the law is not passed, even rumors are enough.”

Stating that Turkish housing investments abroad are expected to increase by at least 50 percent this year, reaching 3 billion dollars, and that this amount could go up to 4 billion dollars, Tekçe said, “The investments of Turkish construction companies that want to catch up with Turks going abroad and create an alternative to the stagnant market have reached 249 million dollars in the first 5 months. This figure was at 47 million dollars in the first 5 months of last year.”

Tekçe indicated that other important factors in Turkish investors' turning abroad are to obtain foreign currency-based rental income in an environment where the Turkish lira is constantly depreciating and that investment return periods are shorter abroad.

According to information provided by sector representatives, investment return periods in Turkey are around 30 years, while in the UK and Spain, for a comparable residence, they are below 18 years, and in Montenegro, which is preparing to join the EU, they are below 12 years.

The 25 percent ceiling restriction on housing rent increases, which the government implemented for two years and ended at the beginning of this month, was also one of the factors that extended investment return periods in Turkey.

Tolga, who invested in housing in London, said that one of the factors in his decision was the legal regulations that have recently been implemented or are expected to be implemented in Turkey:

“Limiting rents to 25 percent increases, property and income taxes, lack of rules… We don't know what will happen tomorrow. Will the value of our homes go down or up? Or will something else be built next to our homes?”