Keith’s weekly property news November 28-2021

As had been anticipated, this was a very choppy week on the market again, with the Lira continuing on its chaotic journey into unknown lands. In the battle between, fight, flight and freeze, it seems that ‘freeze’ won out and the progress seemed sclerotic. Of course, that should come as no surprise.

Nonetheless, towards the end of the week, we started to get a few bites and managed to get a few deposits in through perseverance and flexibility on closing terms (offering to backstop in USD, etc).

I still feel it will take some weeks for things to return to any kind of norm, and that is also assuming a period of relative calm. After much wrangling with the numbers, particularly with the projected yields, I have decided for the time being to focus on the USD-based sqm prices. If those still look good, we may consider those properties actionable and defer on yield calculation reports ( : for another day. That is mainly due to the fact that it will take time for me to assess the latest numbers in the context of the rental market. Also, we will be leaning a bit more towards expat tenants during this time and USD-backed contracts, where possible. 

We are also trying to put together a plan for renting short to mid-term tenancies, where there is strong demand. This seems like an ideal approach during the turbulence; not getting locked into contracts that a few short months later look less attractive. This should work for a certain percentage of our properties, though not all. It also will require a strong marketing drive, though ultimately this can be a very productive direction for our clients. I have already received some offers of help in this regard (most notably, Ingrid and Andreas)

We are also going to experiment with a CBI package: 2-3 properties that are all CBI compliant and are investment grade. It is not as easy as it seems due to the many moving parts, but if we can come up with 1 or 2 a week, it can be interesting for clients who want to proceed a bit more quickly with the CBI process. Also, with the new CBI amount at closer to 3 million (in many ways a good thing for buyers), we may have to accept that getting just 1 property is becoming more challenging. Why is that? Many properties in the above 3 million lira range feel frothy, er, spicy. These fit more into the lifestyle category and are not as attractive investment-wise, though often function rather as safe havens.

As I mentioned in past week’s notes, we are encouraging clients to look at the 1 plus 1 model (one in new build market and one in secondary). I had been hoping to present new build alternatives by this week, but that plan was upset by the market tumult. Several developers that I had been in discussion with rather arbitrarily raised their prices 20-30%. So the search on that end continues, inshallah, the results will come this week. As I have mentioned in past weeks, it is a case of finding GoldiLocks environment where price/availability of good units/location/anticipated yields and appreciation and delivery time all come together. This is a real task.

I am also very keen to exploit the potential arbitrage opportunities of Kagithane. I really feel clients need to be looking there to free up the log-jam. I have had a few individuals who have expressed interest, but I expected more. It makes for a safe investment at the low entry point it offers and seems to present strong upside as well. It is well beyond speculative in nature now; big things are happening there. How it will look in 10 years is unimaginable. I said the same thing about Bomonti about 8 years ago in a blog.

 I think we need to park ourselves there for a few days this week and see what shakes loose. Perhaps I will let the Tiger loose on some of those nasty hills!

President Erdogan has gone ‘all in’ against high interest rates. While always a well-known fact, his dislike of high rates, it seems that we are at a point of no return in this war. I feel it has gone much beyond rhetoric and it is unlikely that he will back down now. The market is trying to break knuckles, as is the won’t of markets. What does this mean for the Lira? I think the volatility will be a constant feature for the short to mid-term. This will take some time to play out.

Putting all of this to the side for the moment, what about the property market? With reduced borrowing costs, the Turkish consumer’s return to the scene is imminent. I think, on a small scale, we have seen it already. We made a lot of calls in the past week and got answers that deposits have already been taken. I am pretty sure those went to Turkish buyers. Some of them were properties we really wanted to size up. This trend will likely only accelerate, with bricks and mortar seen as a reliable investment during asset tempest. The stock market is at record highs, so likely people will be nervous about putting money into that. Gold and USD, the same. I think any Turk who can buy real estate will buy it these days. I wish I had numbers on searches in Sahibinden and Hepsiemlak. I am sure they are way up (side note; I think sites such as Zingat are less up to date and PropStar should be avoided at all costs).

On a broader note, I suppose this evening we can discuss the imbalances, opportunities, distortions, and asymmetry that the past few week’s events have thrust into our ken.

Property links to be distributed during zoom session.

Keith’s weekly property news November 17-2021

If I had known what kind of week it was going to be, I probably would have planned a vacation. The rapid deterioration of the lira left sellers, myself and just about everyone feeling anxious and disoriented. Most deals that we were working on collapsed. New property arrivals on the market have been very limited in the past few weeks; many owners opted to raise their prices.

I am still trying to process it and have been hesitant to accept a re-set on prices. I believe that things have to stabilise before I can sift through the detritus and see the way forward. At this point, all I can say is that the volatility has caused a significant dislocation in the market and it might not be sorted out for an undetermined period of time.

Developers are also facing huge price increases in their costs in lira terms and are raising their prices across the board. But will there be buyers at those prices? For currency holders, you will certainly not be paying more, but the fact is, you should probably be paying less. As I have maintained in the past, house price increases can only close a portion of the gap in currency depreciation. So, if we posit that the currency has depreciated 20% in a matter of weeks, we could allow for a 10% increase in housing, but certainly not 20%. Some sellers even overcompensate and put their prices even higher. This is untenable for us and we will not transact under those conditions.

The silver lining playbook? Adapt. Keep focussed on value. Move lightning fast when opportunity appears and also adjust the way we frame deposit contracts. From now, we will be fixing the contracts at USD at the time of the deposit agreement. In that way, if something slows up the closing, the sellers will not panic and we will be able to close the deal. It seems like an equitable solution.

How else can we adapt? Istanbul is a mega-city with 20 million people. We mostly focus on neighbourhoods where our clients would enjoy living. We are making a combination of lifestyle plus good, common-sense real estate investments. 

Perhaps we have to modify this somewhat. Could a percentage of our clients just go where the good deals are, regardless of the lifestyle component? This is tough in practice. Most people invest by emotion and want to identify with the property they are purchasing. I am in favour of a more pragmatic, opportunity-driven strategy, at least for that percentage of clients who prioritise the investment angle.

 I think places like Kagithane, on the secondary market, will see less increase in lira pricing. This can be a great opportunity. We should be snapping up properties there that are close to large development projects and transportation links. That neighbourhood will be unrecognisable in 5-7 years. Of course, it takes time to source deals there, but if a client commits to my proposal, I will try to find a basket of new build properties there that offer 6-7 % yield with good capital appreciation prospects. I have even considered opening a small office there in order to make it a new base. Beyoglu, Besiktas, and to a lesser extent, Şişli, will continue to be tough deal making environments if this latest madness continues.

Owners in these areas are often Western-leaning and certainly view the world through USD terms. In Kagithane and Eyup we can say that it is less the case. That is an arbitrage moment.

I certainly make no promises, but it seems that crisis often brings opportunity. It would be a pity to miss it because we were asleep while at the wheel or fearful when we should have been greedy. I hope we can address this head-on in tonight’s meeting and , as always, I am counting on the brilliant minds in our community to help me tackle the issues hand in hand, as we are all in this together and seek not only the best outcome for ourselves, but also keeping a mind’s eye on the future welfare of the country we have chosen to invest in.

What other arbitrage possibilities exist? Perhaps focusing on developers who have almost completed projects, but not sold all their units. Negotiate bulk purchases at previous lira prices? They will effectively be taking a USD loss, but this might be palatable if other alternatives for them are less appealing. Their overall costs will have already been paid for (labour and materials costs will have already been booked). They might adopt a GMTHO attitude (get me the hell out)

Hunting for distressed developers seems to be a perilous task and one I am not really confident enough to seek out in this milieu of uncertainty. Developers who have just started projects seem also to be risky. Undoubtedly, their preference would be to delay projects as much as possible as their budget projections must have run amok in the past few weeks. Therefore, a projected finish of January 2023 looks unattractive as that might very well be July 2023 or beyond. It seems foolhardy to tie up your money over such a period.

I have been in close contact with 2 developers in particular to try to strike a deal on group purchase, but rather predictably one fell through last week. Hopefully, I will have good news on that front  this week.

Forgive a rough Canadian colloquialism, but the past week was mostly pi%+ing in the breeze. Much of what we tried to do just blew back at us without any result. Next week, we are going to slow things down a bit, take a broader look at the market, and then when we feel we have our bearings set, move forward with sure steps.

I feel confident an opportunity will present itself. We just need to keep finely attuned so that we can catch it.

There were several other news-worthy items from the week, but we can discuss those in the zoom session.

Property links to be distributed during zoom session.

Keith’s weekly property news November 14-2021

Even compared to challenges in the past weeks, this week was hands-down the most arduous week for sourcing properties in the secondary market. Every single factor seemed to lean towards a poor deal making environment; super slow execution of valuation reports, the USD cracked the psychological barrier of 10, generally higher prices, sellers who either turned out not wanting to sell or to sell very reluctantly, and the inefficiency of some of the agencies we by necessity have to work with to find additional properties.

We had lots of last-minute calculations, were taken to locations very far from what pin maps indicated, and taken to properties that hardly resembled the photos. In one instance, we were even taken to a nursing home, only to have one of us allowed entrance due to health risk. Obviously that property was not going to work out for us as I would not even want to touch negotiating the termination of the rental agreement. That episode had me thinking it was just not going to be our week.

In addition, I suspect that many would-be sellers held off on putting their properties on the market in such an uncertain market. The property market, I have always maintained, functions more smoothly and efficiently when the environment is stable and people are able to have some visibility on large financial decisions and transactions. We are clearly not experiencing that at the moment. Therefore, I expect sourcing of properties on the secondary market to remain challenging during these volatile days when inflation is rearing its ugly head and currency depreciation has been extreme.

For CBI buyers who want multiple properties on the secondary market, all of the above can slow down the process of finding 2-3 quality properties. Therefore, a bit more insistently, we are encouraging our clients to consider the 1+1 model; one property on the secondary market and one from a new build project. With that in mind, I have over a dozen visits to new build projects planned for this week alone. I hope to have 2 viable alternatives by the end of the week. We already have one, but the unit size and entry price may be high for some investors, so we want to also offer one where there are a decent selection of studio or 1 bedroom properties at lower entry level prices. Our standards of what we expect are quite high; we need properties that value well, that are not very far from the city centre or at least part of a new emerging city centre, offer prices where there is some expectation of growth, and where yield expectations are at least moderate. I do not think we will be so lucky as last time, where we managed to do a bulk purchase with USD backed rental guarantees. However, I think we will have some attractive units to propose.

Of course, if clients have a strong preference for the secondary market, we are trying to accommodate that. It is, after all, our signature play. Yet, given the USD/Try dynamic and rising prices/reduced stock on the secondary market, we would also do well by trying to get the best of what the new build market has to offer. This video Ladislas, The Wandering Investor, yet to be made live, sums up my thoughts on the subject.

Now, to end on a very positive note. The valuation system is changing back to the old system, effective tomorrow. Why is this such good news? The new system was beleaguered with inconsistencies and was painfully slow. That slowness led to broken deals especially when currency shifts of 10% plus were occurring in the time between ordering the valuations and receiving them. Also, in that system, the process was entirely out of our hands. Now, we are back in the driver’s seat and can get the reports lightning fast, once again. Also, we can have a dialogue with our chosen appraiser. In the case of the gentleman I work with, if something comes in lower than I expect, I simply pick up the phone and request the rationale behind the discrepancy.

In almost all cases, we end of seeing eye to eye, as this individual knows our particular neighbourhood very well and is attuned to real market prices. In the centralised system that they experimented, I heard stories of appraisers from Ankara giving very low valuations. The real estate prices in Ankara are quite low, so it is not that surprising. In the end, the main issues were the clunkiness of the system; we could not get reports issued or they were rejected because the owner of the property owed a few dollars to the municipality, or they could not work out how to even pay for the report and we were sometimes only notifies a few days or week later. Some owners just got frustrated and said they would prefer to sell to a local than go through the headache. Now, all that is changed again. We will have reports issued mostly within 48 hours.

And now a peak at next week’s hopefuls.

Property links to be distributed during zoom session.

Keith’s weekly property news November 7-2021 

Very short notes this week; it was a busy Sunday.

‘Close only counts with hand grenades’. In a week where we got so close on a couple of deals, USD pressures collapsed a few transactions. Well, that was the first part of the week. The second half of the week saw a feeding frenzy as we picked off some good properties and ones that had been kicking around on my hit list for a few weeks. Always good to get those under the belt. I feel the market is too competitive to miss on many of those, as good opportunities are not unlimited.

Although lending rates have been slashed, they are still high and there has not been a noticeable impact…yet. I think that will start to be felt in the coming weeks as people start hitting the streets scouring for property. The budget range, 400-700.000 Try, will be the most active, being in the range of the majority of the buyers who often use finance as a supplement to personal savings or loans organised within the family.

I expect a lot of this activity will further put upward pressures on prices on the secondary market. Luckily, we still seem to be moving in on deals around the 10.000Try/sqm mark, though of course a fair bit higher if there are views, terraces or a new or historical building.

On the tourism front, there seems to be huge surge in numbers, with no sign of abating. Barring any unforeseen events, next year could be another record-breaking year.

On a practical note, again whatsapp was a bit overwhelming for me this week. My apologies for delayed response time. We are working on solutions for this and also for trying to increase our capacity for dealing with clients 1 to 1. 

Also please join the semi-private zooms as they can be a good way to gather information.

Property links to be distributed during zoom session.