Many more foreigners are buying apartments and houses in Turkey. Developers hope that 2021 will be a record year for real estate sales to foreign investors. This is for good reason: the average cost of a house or apartment owned by foreigners has almost reached $0.2 million.
A large reason for this was because buyers-residents of other countries bring dollars and euro to the country and the steady exchange rate of both currencies is profitable.
Content:
- Istanbul is gradually turning into a conglomerate of mini-states
- How will the new rules for housing sales to foreigners affect sales?
- Altan Elmas, President of the Association of Developers and Investors of Housing Construction (KONUTDER)
- What measures are being taken now?
- The prospects are encouraging
Because these foreign currencies are better than the Turkish lira (TL), housing sales to foreigners will be guaranteed to grow. As of December 09, 2021, the dollar exchange rate already reached 13.65 TL and 15.62 TL for the euro. Market players are already talking about the many foreign buyers. These buyers often want several expensive properties. The Turkish lira is losing ground and investors from other countries are paying more attention to Turkey. This will still happen if inflation doesn’t quickly slow down.
Housing sales to foreigners in September increased by 25.8% compared to the same month of the previous year. 6,630 units were sold. Istanbul took first place with 2,995 transactions; followed by Antalya (1,358) and Ankara (408). In all major cities, experts say that the number of purchase and sale agreements will grow monthly. Istanbul is the most in-demand.
Increases in real estate prices were less than 30% over the past year. August was one of the best months for real estate transactions - apartments and houses in this metropolis were sold for a total of 17,600,000,000 Turkish lira (TL). This is almost twice the long-term average of 8,500,000,000 TL per month. In September, sales to foreign investors were 2,028 units higher than the historical average.
Istanbul is gradually turning into a conglomerate of mini-states
Some neighborhoods in the metropolis house almost only foreigners, as the well-known real estate broker Songul Toprak Ozsan noted: «Some properties in regions such as Beylikduzu, Esenyurt and Bakhchesehir are sold entirely to foreigners».
Market players believe that this isn’t good. Ms. Ozsan also believes that there have to be some restrictions like no more than 10% of real estate must be sold to foreign buyers. This is difficult to do because the complexes are popular and Turkish citizens can’t always able buy all the residences in one elite complex.
This is how mini-states form. Foreigners can live in Turkey and still be surrounded by their compatriots or at least citizens of neighboring EU countries.
Songul Toprak Ozsan also explained the reasons that encourage residents from other countries to buy housing in Turkey: «Jordanians and Saudis buy apartments and houses mainly for investment purposes. The Chinese are focused on obtaining citizenship as soon as possible because Turkey is one of the countries whose citizens can easily enter Europe and America». Ms. Ozsan admitted that in the new Chinatown in Istanbul, prices rose sharply just when a Chinese company held a meeting about possibly buying hundreds of apartments at once. Mass sales of housing to foreigners is a problem because fewer Turkish citizens can afford to buy apartments that they really need. A solution is to refocus foreign investors from housing to buying vacant offices and shops as these are now oversupplied, «... And this excess supply should be eliminated as soon as possible. It won’t be possible to get a higher income - injections into the economy – and solve the problem of finding housing for citizens», the broker believes.
But to do this, foreigners will somehow need some benefits similar to if they purchased an apartment or house.
This problem of foreigners' preferences for housing in Turkey has been discussed for a long time. On September 20, 2021, all apartments and houses abroad are also evaluated by an independent commission to avoid fraud as transactions of $250,000 come with quick citizenship.
How will the new rules for housing sales to foreigners affect sales?
Real estate agents have already proposed some restrictions. One measure replaces fast-track citizenship with a residence permit. Potential buyers were upset by this. So has there been any middle ground?
Starting in 2018, revaluating sales to foreigners is done by an independent examination. Since September 20, housing under transaction is reassessed by third-party specialists (appointed through a special TADEBIS-WEB TAPU system). This is done when the seller and buyer can’t agree on the cost of an apartment or house. The number of transactions has dropped at the expense of those who expected to suggest an inflated amount in the contract for accelerated citizenship and pay less in the end. Because of this, income received from sales to foreigners in residential real estate decreased. The state also lost tax revenues from failed transactions.
It's already clear that the total amount of transactions canceled or suspended as a result of the new resolution for an independent housing evaluation reached at least 1,800,000,000 TL in just 15 days.
Altan Elmas, President of the Association of Developers and Investors of Housing Construction (KONUTDER)
Altan Elmas, President of the Association of Developers and Investors of Housing Construction (KONUTDER), personally explained the problem to President Recep Tayyip Erdogan, as well as to the Minister of Environment and Urbanization, Mr. Murat Kurum. On behalf of the entire sector. Mr. Elmas believes that the measures for an independent assessment were reasonable and will bring benefit. Because of data automation, now information about all transactions is received immediately by authorities. Some losses from housing sales aren’t noted but «... it seems that a reasonable compromise, a kind of middle way, has been found». However, the President of the Association for the Promotion of Foreign Real Estate (GIGDER) strongly disagrees with Omer Farouk Akbal. It’s estimating 1,800,000,000 TL was lost:
«We are doing our best to raise the value of real estate with state and expert help. The construction industry is trying to increase profits for itself and the state as a whole by increasing the volume of exported goods. I would like developers and Turkey to earn more by selling real estate to foreigners at a higher price. In our opinion, there is no need for an independent assessment. So, our association is categorically against this practice».
EYG Group Chairman Omer Faruk Celik, one of the most experienced market players and a construction and real estate sector veteran, took an intermediate position. Reporting that 3000-5000 companies selling real estate don’t have a good reputation. They are suspicious and their work must be verified and controlled. Yes, it needs to be done but do not put restrictions on potential buyers from abroad.
The chairman of BOSS4 Gayrimenkul Abdulkadir Akkush said: «At least 10% of foreign customers refused our services as a result of the innovation. Some contractors, for their part, were also forced to cancel sales. We also have 15-20% of refusals from foreign buyers in new construction projects.
An independent assessment (in its current version – note Turk.Estate) isn’t enough. The appraiser looks at the square footage of the apartment but many other important features increase the housing cost. Another appraisal flaw is that many of them work closely with banks and are used to thinking that underestimation is right. This is not true». Because of this, investors from abroad sometimes refuse transactions and rather look for real estate in other countries. This can’t be allowed, the expert says.
Ihsan Chulkhalyk, Chairman of the Board of Insay Yapı, said: «If the right decision isn’t made in this matter, sales to foreigners will fall and the construction sector as a whole will suffer greatly. We must return the apartments we sell to the market for foreigners. Their interest is extremely important in the current period when domestic demand has subsided; we must not forget about this».
The CEO of Bahaş Holding, Abdusamet Bahadir, complains: «With a noticeable acceleration in real estate sales to foreigners starting in March 2021, we could reach the figure of 50,000 transactions by the end of the year. But, the new provision on independent evaluation caused a number of cancellations of transactions, and the percentage is quite serious. Contractors are disappointed and the country's economy is suffering losses. There’s an urgent need to resolve the evaluation method. Otherwise, we won’t achieve the desired targets by the end of 2021».
The Chairman of the Board of Özyurtlar Holding, Tamer Özyurt, added that the resolution was initially to protect against fraud. But, many appraisers underestimated the selling value of houses by about 40%. «Evaluation practices should be changed as soon as possible and new alternatives should be developed. If urgent measures aren’t taken to solve this problem, the damage to the industry will increase many times and sales will fall sharply».
Many developers who build elite residential complexes sell up to 80% of residences in each building, complex or sieve to foreigners. Underestimating the cost of an apartment by inattentive or incompetent appraisers by 40-45% forces a fair percentage of buyers to abandon the transaction.
What measures are being taken now?
The issue of creating a special commission to check an appraisers' work is being discussed. When market players became seriously worried, they referred this issue to the Minister of Environment and Urbanization Murat Kurum, who gave instructions to reorganize (optimize) the electronic portal for real estate valuation. Information from officials of the Ministry, under the new decree, said companies can choose an appraisal firm from a list approved by the state.
And, appraisers will work in their own region. This is very important because an expert from Istanbul can’t accurately assess the advantages of a particular apartment in a resort on the Mediterranean or Aegean coast – they wouldn’t be familiar with the local region and demand there.
The regulatory authorities will continue inspections to prevent fraudulent transactions (at a deliberately inflated price of almost 30-50% for accelerated citizenship).
The authorities said: «In case of possible abuses, the companies conducting the assessment will be punished with closure and the buyer will lose their Turkish passports from the transaction».
The prospects are encouraging
The impact of this rule on the construction sector consequences is that after some innovation, the process of selling housing to foreigners is slowly on the right «track» for buyers and the market.
Buyers will be protected, documents will be verified, and you’ll no longer worry about suddenly losing citizenship if you aren’t at fault.
The still-blurry work of independent experts is being fully adjusted and authorities are controlling it.
According to the statistical Agency TÜIK, in September 2021, house sales to foreigners increased by 25.8% compared to Sep 2020 (a total of 6630 transactions), and in January-September, the number increased to 43.2% at 37 479.
In October, home sales to foreign buyers increased by 12.1% compared to the same month last year, at 5893 transactions. From January to October 2021, transactions by foreign investors increased by 38% compared to the same period last year and reached 43,372 units.
From the data, the President of the Association for the Promotion of Foreign Real Estate (GIGDER) Omer Faruk Akbal stressed: «The growth rate of sales to foreigners in September amounted to 25.8% compared to the same month last year, and 43.2% for the period January-September 2020. Yes, we see that when the evaluation system changed, the negative effect of the new system was partially reflected in sales in October with a decrease in sales growth rates».
But the Ministry of Environment and Urbanization’s decision to change the provision to an automatic assessment for housing sales to foreigners prevents further damage crises in this sector.
Changing from automatic to manual with an appraisal company will better the process and prevent fraud. The Association of Valuation Experts of Turkey and the Capital Markets Council monitor appraisals. If they note anything wrong, serious fines are handed to the appraisal company. The GIGDER President expressed gratitude to Minister Murat Kurum and representatives of the Ministry of Finance, «... who listened to us and cooperated with GIGDER at all stages of working to a new resolution. We also thank the Investment Office under the President of Turkey, the Land Cadastre Office, the organizations SPK, TDUB, MUSIAD, KONUTDER, GYODER and INDER – all those important institutions and non-governmental organizations of the construction sector have demonstrated successful cooperation. By supporting the representatives of the sector and faithfully providing it, we solved the urgent issue quickly.» (quotes Omer Faruk Akbal portal Emlakgundemi).
«If the Ministry of Environment and Urbanization didn’t propose such a constructive solution to the problem, it wouldn’t have been possible to dream about the previous goal of 50,000 transactions with foreigners in 2021. And, GIGDER predicted that the volume of transactions in 2022 could decrease to about 30,000.
But these measures give us hope again to see 50,000 transactions with foreign buyers by the end of 2021. Now we can talk about a new goal like sales worth $10,000,000,000 in 2022», the president of GIGDER said.
According to GIGDEKS, the average selling price of housing for foreigners is up to $196,037. Russians interested in international real estate always prefer Turkey for good reason.
