Prices went up by roughly 200% for the year. Are foreign nationals at fault?

Analysts are still in the process of concluding the outcomes for 2022. Even if the information for December has not yet been gathered, the increase in prices by the end of November is impressive. Those who have been able to invest in residential real estate in Turkey are delighted with the outcome.

According to Endeksa, a predictive real estate data analytics and insights platform, the annual price rise in Turkey's housing for-sale segment reached 185% by December 2022.

According to the Turkish Institute of Statistics (TÜİK), in November, 117,806 housing units were sold in Turkey which is 15% up from October.

Content:

• The 30 provinces with the largest sales volume in November 2022
• Things to pay attention to
• Sales to foreigners: should we wait for stricter terms of the purchase?
• Indeed, is it necessary to put these restrictions?

The appreciation of residential real estate rose by 185% in November 2022 compared to November 2021, with the average price per square metre in the country being 13,232 Turkish liras (TL). At the end of November, the national average price of a dwelling unit was higher than 1.7 million Turkish liras (1,720,160 TL). The majority of housing was commonly sold in Istanbul in November and throughout 2022. 17% of all home sales nationwide were sold in the city in November which amounted to 19,687 residences. The average return on the investment period for real estate investments is still 19 years.

According to statistics from November, the cities of Istanbul, Kocaeli and Antalya were the areas where immigrants flocked to this year and thus saw the biggest increases in housing costs. By the end of November 2022, the price of a housing unit in Istanbul had grown by an average of 2,645,880 TL, or 203% annually, with the average selling price per square meter of residential property being about 22,049 TL. This figure is nearly one million Turkish liras above the average for the country. In November, the average sales price for a square meter of residential real estate in Antalya was 19,254 TL, making this city first place and yielding a 217% yearly rise in value. Istanbul's average home cost is gradually approaching this benchmark, with a current indicator of 2,310,480 TL, making the gap only now roughly 10%.

The third medallist in the top three is Kocaeli. Kocaeli received a 207% price hike, an average cost per square meter of real estate of 11,361 TL and an average price of one dwelling in the province of 1,476,930 TL. The Kocaeli province has surpassed even the nation's capital in this aspect.

Although it did not place in the top three, the capital city of Ankara should be included for comparison as prices rose by 188% over the course of the statistically significant twelve-month period. The average cost of a unit was 1,278,290 TL, while the average selling price per square meter was 9,833 TL, making this one and a half times cheaper than Turkey's national average pricing.

The 30 provinces with the largest sales volume in November 2022

The 30 provinces with the largest sales volume in November 2022 were the subject of statistics presented by analysts. In decreasing order of the number of transactions, these are the outcomes:

Things to pay attention to:

• If the most populated provinces are excluded, Ordu (172%), Sakarya (174%), Trabzon (182%), Yalova (196%) and Tekirdag (201%) also experience intense value growth and are not far behind the top three leaders.
• Ankara now displays the quickest return at eighteen years, which is longer than the country's average.
• The investments that pay off the longest at the moment are those made in Elazig (44 years), Balikesir, Mersin (35 years each), Aydin (29 years), Mugla and Sanliurfa (28 years each).
• In Mugla, the most expensive square meter costs more than 31,000 TL and following Mula are Istanbul, Antalya and Aydin.
• At the beginning of December 2022, the provinces of Erzurum and Elazig (less than 6,000 TL) as well as Kayseri (less than 7,000 TL) had the lowest prices for housing units per one square meter.
• Elazig and Erzurum were also recognised as having the lowest average dwelling cost by December 2022 which is less than 0.95 million TL. The average lot price went over the one million TL mark in all other provinces from the top thirty in terms of sales.

Sales to foreigners: should we wait for stricter terms of the purchase?

Undoubtedly, the sale of residential real estate in Turkey to foreigners has acted as the year's core element and December's numbers will have little bearing on this trend.

Turkish real estate is selling like hotcakes to foreign investors. In November 2022 alone, 6,083 units were sold to citizens of other states. Throughout the year, the share of housing sales to foreign buyers in the total number of transactions increased substantially and reached 5% by November.

Antalya led the way in transactions involving foreign buyers in November which accounted for 2,616 residences at once, or roughly 40% of all sales in November. The Mersin province, which is rapidly getting more expensive, is also confidently gaining momentum. In Mersin, Turkey's first Akkuyu nuclear power plant is currently under development, which has resulted in a notable inflow of labour. Tourists and immigrants have experienced this resort, which was previously only vaguely known to Russians.

It should be noted that this year, Russian nationals are making new records, as since spring, they have been leading in terms of monthly transaction numbers. Every third Russian seeking to acquire a home abroad gives Turkey their top consideration when looking for overseas real estate.

The number of transactions involving foreigners exceeded 60,000 during the year. By the end of the year, once the statistics are released, one will be able to see if the record number of 70,000 transactions was beaten.

The boost in sales brought the nation more foreign funds for political and economic reasons. The high demand prompted an even faster rise in residential real estate prices, particularly rental rates, which led to some confusion and even complaints from locals. Therefore, locals in the province of Antalya, which is the most popular among immigrants, attempted to seek a restriction on the sale of housing to residents of other states by starting an online petition. Kemal Kilicdaroglu, one of the 2023 presidential candidates running for Turkey, agrees with this viewpoint. He added that if he wins, he will restrict the selling of housing to foreigners for several years. Even though many people may find this legislation controversial, the developers and other players in the building and real estate industries will likely support it.

There was a difference in opinion, particularly with the introduction of «restricted» zones for acquiring residence permits and the increase in the financial requirement for "citizenship by investment" to $400,000. Many market participants believe that these steps are more than adequate and that it will be irrational to introduce additional limitations on overseas investors as it can restrict the flow of foreign currency.

Consumer associations and representatives from a variety of industry sectors believe that a restriction on the sale of residential real estate to foreign nationals, even if it is only temporary, will help contain the increasing rents and bring the costs down to a more affordable level for the local population. After all, home prices in Turkey have risen nearly as quickly as anywhere else in the world in recent years.

Opponents have brought up the practices of several nations where the prohibitions were ineffective. Canada was specifically noted as for two years they prohibited the sale of housing to foreigners and the intended result was not accomplished.

Indeed, is it necessary to put these restrictions?

Statistics for the first eleven months of 2022 show that in Turkey, foreigners make up around 5% of all housing sales. Furthermore, sales to residents of other countries account for 10-15% of total sales in various parts of Istanbul, including Kadikoy, Besiktas, Esenyurt and Antalya. With the prices being so high, the local population is unlikely to be interested in these apartments, as foreigners purchase very expensive apartments in the most prestigious projects. Turkish citizens still buy housing primarily for personal use, however, this is exclusive and rare.

Experienced participants in the development sector emphasise that the restriction on the sale of housing to foreigners will not only decrease but most likely end the process of purchasing luxury homes. The Republic of Turkey will lose out on many billions of liras in annual income as a result.

The President of the Chamber of Realtors, Nizameddin Asa, agrees with the statement and emphasised that, particularly in recent years, foreigners are the ones purchasing Turkey's most costly real estate. When it comes to their influence on the property market over the previous ten years, foreigners have accounted for an average of between 1% and 1.5% of all transactions. Most recently, these numbers immediately increased to 4-5%.

The rising demand is focused on geographically key locations, therefore, regardless of how much foreigners spend, they will not win if we consider all the contributing factors.

Simultaneously, when international investors leave the market, there will be less demand for luxury housing. If the demand declines and prices for luxury properties are lowered to sell them, how will developers recover their costs? Will it also lower the nation's average price for residential real estate? Probably not.

Additionally, if the sale of real estate to foreign nationals is banned, fewer construction projects will be developed, which will leave many Turks without employment with is worrying. Businesspeople and several market participants, therefore, agree that regulation is key rather than prohibition!

Hakan Budjak, CEO of Mars Investment, agreed that it was crucial to address this matter as well. He noted that in Canada, even after the decision to stop foreign interested parties and re-evaluate sales goals following a more than 50% increase in house prices, real estate prices did not drop.

Mr Budjak stressed that for all months, the largest percentage of the sales numbers made to foreigners was 5.2%. However, Istanbul amounted to approximately ten per cent of deals and the region of Antalya amounting to ten to fifteen per cent of purchases are appealing to international purchasers. He went on to say that the sales of units in branded projects could decline if the Canadian model is adopted in our nation. This, in turn, signifies the suspension of the $10–$15 billion yearly flow of foreign currency.

A quota system, which was another potential alternative and lighter option, was also suggested by Hakan Budjak. The idea behind this alternative is that the Land Registry Office could keep a close eye on the number of transactions, validate incoming information, and, if needed, gradually raise the minimum rate of "citizenship by investment" in selected areas.

Another suggestion was made by Aydin Agaoglu who is President of the Confederation of Consumer Associations: He suggested that perhaps only luxury real estate should be sold to foreign investors, thus will benefit the industry and not interfering with the interests of common citizens.

However, in 2023, some legislative changes will be made to the requirements for the selling of Turkish real estate to foreign buyers. We, therefore, encourage anyone interested in buying a home in this area to make their decision as soon as possible before such legislature becomes effective. This is how individuals who were able to apply for "citizenship by investment" and had bought a home for $250,000 or more before mid-June 2022 weren’t affected, even though they had already begun discussing raising the financial requirement to $400,000 back in mid-April.