I will go light on the notes this week as the storyline remains largely unchanged in the second week of the year. Sourcing properties at all-time low due to sellers hesitation. Compounding this, many Turks are looking to pick up any real estate they can as a hedge against inflation. This trend, too, is expected to continue. Despite the drastically rising cost of production, this week many developers unveiled new projects. However, the completion dates are far away and possibly will be plagued by delays. Nonetheless, I am sure they will sell well due to large local demand. As housing sales to foreigners account for a relatively small 3% of the greater pie, it will be Turks who lead an inevitable surge in prices.
So who remains a seller on the secondary market? Always those who really need to sell will be selling. Also, those who re-adjust their prices in line will sell if they get the price they are asking. Finally, another small group; those who are looking to upgrade might be sellers. The largest category, those who are in no great rush to sell, will mostly remain on the sidelines for the time being. Until that changes, our options will be reduced and the job of finding standouts will be much harder. That is purely due to the fallout from the currency crisis.
This week was the first week in perhaps 6-8 weeks were there were not huge shifts in the currency, which traded in the 13.2-138 band for the entire week. It feels shaky and poses challenges all around. If USD rises very much or if it falls considerably, it materially impacts deals. We have to be ever mindful of that when entering into contracts. Suddenly, that average 2 week closing period seems like an eternity. We do our best to keep the paper work moving speedily along, but are sometimes hit with unforeseen delays that may even push closings to 3 weeks. There is not much that can be done about that. Given that Turkish buyers can close in a matter of days, this is somewhat of a disadvantage. I have even had sellers tell me they prefer to sell to a Turk as there is less uncertainty. This is again, largely misinformation, with agencies trying to deter an owner from accepting an offer from a foreign client, while they try to buy time to find another client. Keep in mind, many listings are not exclusive in Turkey. Gees, even the guy in the corner store is often a broker of sorts, as are the tea sellers in the bottom of many buildings.
One of our so-called ‘instruments’ to level the playing field has been to ‘stabilise’ the price in USD at time of deposit payment. This seems like a good approach. It guarantees that the seller will get X amount of dollars, no matter where the USD goes between time of signing the deposit contract and closing, 2-3 weeks out. The default amount is still lira, so if the lira gains in that time, the buyer ends up paying more USD and the same amount of lira as was used as baseline in the contract. This offers a lot of protection for the seller and has often been absolutely necessary to keep deals alive, especially ones where we have had to ask the seller to wait for POAs, bank account openings, extra paper work etc. But all of this currency volatility poses risks for buyers and we need to be ever vigilant about that.
For at least the past month I have been using 14 as a rather arbitrary but seemingly useful number when doing my calculations about what constitutes a reasonable deal or not. You have to jump in somewhere and for me, this appears to be the ‘mean’ number. I then revert back to USD to see if the numbers add up. In practice it works pretty well. Unfortunately, if the USD goes to 11 or to 18, it again becomes less useful. Such is the nature of the dilemma and I do not see much way out of it. Before, when there was less volatility, I would tentatively counsel clients to start converting the money in tranches prior to a sale, or if they wanted, they could convert it all when they saw a rate they deemed favourable. Many would wait right up to sale date to convert. There really is no right answer or certainly not one that I am aware of. I suppose if it were me, I would do the tranche approach; a kind of ‘dollar cost averaging’. But the risk with that is if the deal collapses for one reason or another, you might get ‘trapped’ in lira if the lira loses value. If it strengthens, you will have made a nice carry trade…but that is not really our business and we assume most of our clients are just seeking the best deal they can get on a particular real estate item. So plenty to think about in this topsy-turvy market.
Some of the above about the difficulty of sourcing properties may sound counter-intuitive to those who read about record-breaking numbers of sales to both foreigners and locals alike in December. Keep in mind that 80% of our business is in the core downtown areas of Kagithane, Besiktas, Şişli, and Beyoglu. I am almost 100% sure that sales have slumped markedly in these areas and that has in fact been supported by random discussions with officials in the land registries of those municipalities. This neatly coincides with the neighbourhoods that we looked at in last week’s zoom session, and that had high USD ‘immunity’, or at least in the prices being asked. You could put Kadikoy into that mix and, apparently Uskudar, though possibly for different reasons. Obviously, throughout much of Turkey sales are very brisk, as well as in some parts of Istanbul.
This week I will also be doing a small survey on the zoom session to get feedback about what type of things could be added to the zoom sessions. I enjoy doing them immensely, but a little shake up there might be a good idea, so I certainly welcome feedback.
Links preview for the upcoming week (distributed in meeting)