Keith’s Weekly Property News December 21-2021

If ever there were any doubt that we were in a full-blown currency crisis, last week put that to rest. As the USD lurched past 17, Turks let out a mutual gasp of horror. The USD had doubled in just a few months, with most of the damage in the past 30 days or so. Now, looking forward is of no use; nobody knows what will come day to day. In a bold move, the minimum wage was doubled almost overnight, a move that did nothing to revive hopes in the currency. Anyone who has debts or commitments in USD must feel this rather acutely as their burden would have exactly doubled in a short span of time.For our little corner of the world, downtown Istanbul real estate, it has indeed caused havoc. Most of the budget properties are snapped up right away as Turks seek safe havens and the overwhelming majority of sellers are sitting on the fence. Many, of course, have been raising prices, but that hardly matters as it seems unlikely that they will find buyers, foreign or otherwise. In my 15+ years in the market I have never seen anything like it, have never witnessed such a paralysis. We make 50 calls and we end of with two viable and real sellers. That is surely an all-time low. As I have said in previous weeks, there needs to be a stabilisation period before some sense can be made out of what is happening and for the market to return to whatever kind of new norm it will be. There was certainly no evidence of that this week.

There were articles highlighting record numbers of sales to foreigners, and perhaps there were, but one wonders where those properties were being sold. I would imagine that would be bargain hunters snapped up what appeared to be discounted properties in developments in the far outlying reached of the city. The kind of properties that had been virtually unsellable a short time ago probably became irresistible for a certain segment of buyers. But what kinds of yields will they produce? What are the future prospects of some of those locations? It is anyone’s guess. It is more like gambling than real estate investment purchasing in those remote areas where transportation to the city is a vast and time-consuming endeavour Also, probably those stats were bolstered by numbers of sales on the coastal regions where property values often appear to be cheap and particularly so these days. But anyone who knows the coastal areas knows that good locations there are often expensive and largely is a hard currency denominated market. Nonetheless, it is a fact that more Turks than ever are buying right now. They fear housing prices, along with everything else, will soar. I have not seen the breakdowns but I would imagine the first-time buyers are also at record levels. Given all of the above, we should certainly expect to see rather large Lira increases in pricing. In the end savvy USD holders should experience some benefit from the chaos.

We also must link our contracts to USD at time of signing if we want to hold deals together. In a nasty twist fate, work at the registry and with valuations all appears to be much slower these days, so our average closing time has jumped from 7-10 days to perhaps 20 days, which is more or less an eternity these days with ever-changing landscape. Stabilising USD price with deposit agreement is a must use tool these days. Speeding up the processing of deals is largely out of our hands and the waits can be agonising, knowing full well sellers can back out at any moment after a lot of effort has been put in to get to that point.

As some solace, I try to take a long term view on matters. Will you still be able to purchase real estate in solid downtown locations for under 1500USD/sqm in 3-5 years from now? If so, surely this will be the cheapest global mega-city in the world to purchase real estate, probably on par with downtown Quito. Does that even make sense? If the past few weeks had not knocked the bravado out of me, that would be a bet I would still take. I think it will prove to be true, but a lot of patience and fortitude will be required to ride out the storm.

In this environment, writing anything with an optimistic note would seem an act of oblivious madness to what is going on around. All I can really muster myself to say is that I have experienced every kind of crisis under the sun in my tenure here in Turkey. Somehow, Istanbul real estate makes a come back each time. Is this an existential crisis for the country or for the property market? I just am not sure. Will it result in profound and hitherto unthinkable changes? Also, I just am not sure. Rather than making sweeping claims to having any of the answers, as is the fashion with this little community, I am going to float the above questions and the essential dilemma to the group and see what we can come up with collectively; a collective response to the current maelstrom that we, in one way or another, all find ourselves in, being Turkey lovers, hard-nosed real estate investors, or simply those seeking Plan A/B/Cs in favourable climes.

I am sharing far fewer links than usual this week as there is a strong likelihood that many of these will be invalid by the time we hit the phones tomorrow.

Property links to be distributed during Zoom session.

Keith’s Weekly Property News December 12-2021

The notes will be light in content this week, reflecting the generally moribundl state of the property market. Followed by a few off weeks, this was easily the slowest week of the year for us. I might have inadvertently copied and pasted this comment right out of last week’s notes. 

Sellers are staying away from the market and our supply of viable properties has been reduced to a trickle. I suppose in many ways, the important event will be the Central Bank meeting next Thursday. Will the government flinch on its path to cut rates, or go full steam ahead, as has been pretty clearly indicated? Has this been more or less priced in at this point or is there more pain ahead?  This could be yet another critical week for the much beleaguered local currency.

Our strategy this week will be to take a broader survey of the market and try to get a sense of the direction it may take. How soon will people adapt to what seems to be the new norm?  I am always surprised by my local counterpart agents who just see it is as quite normal that prices would follow up the dollar so quickly. I always ask, “Do you think you can find buyers at this level?”

Usually, that is met with a shoulder shrug or some kind of non-committal comment lacking any analysis. I usually cajole them into dropping the listing, citing that throwing up unrealistic prices on the internet can only negatively distort the market. But in an already fragmented market, where agents typically only have a small stock of properties, they seem reluctant to do so. I am seeing some of these over-priced items staying on the market for months and months, then suddenly to have their prices raised again. A big “No. thank you” to those.  Many clients have sent me links with these repeat offenders and I shoot them down quickly,  noting that they were asking 1 million lira in September, could not sell, and are now asking 1.4 million. It is just impossible for me to view these as “actionable” properties. I have been pretty brutal about quashing these. I try to be open minded and not too dismissive, but I know the price history of many of these laggards very well. They were properties we passed on during the old price regime, so accepting them back into the fold at even higher lira prices seems like pure folly.

We think enough time has past, however, that we might want to take a look again at some of those properties that have remained on the market, but have not raised prices. If the prices were to be raised, surely the agents have had enough time to adjust those, or at least have had some dialogue with the owners since the currency debacle intensified 3 weeks ago. The heuristic of my arithmetic has me deducting 20% in lira terms and if that number makes sense, perhaps we can engage. It is a kind of meeting in the middle and rejection of moving up the full 40 to 50%. It, in theory, means the USD buyer will have achieved some discount vis-à-vis a month ago. 

If I look at the non-property factors, I see some tail winds for the property market. Tourism is massive and looks set to continue, with Istanbul bringing in record numbers of tourists from every corner of the planet. As one of our leading Digital Nomads Andreas Gerdes notes, we will soon have 400 million Indonesians with right to visa free travel to Turkey. This is fairly epic. Indonesians who have the financial ability to travel to Istanbul will certainly be enticed by this, not to mention the cultural, religious, and social ties between the two countries. 

Exports seem to break records every month. Several big ticket contracts have been signed with GCC countries, notably with the UAE, perhaps portending a thaw in the relations between the two countries, which had been a bit icy after the events surrounding the removal of the Muslim Brotherhood from power in Egypt. Qatar and Turkey surge forward with unprecedented levels of cooperation. Will Saudi, with infinite petro-bucks, be included in the charm offensive of President Erdogan?

Mortgage rates are going down, yet still not enough to stimulate serious buying.  A meaningful reduction will surely bolster property prices if millions of Turks are able to extend loan periods from, say, an average of 5 years to 10 years.

There was much talk of mass protests a week or two ago, though I have seen no sustained evidence of this. I have always maintained that the summer  months are more conducive for these types of protests. Nothing cools the revolutionary fervour faster than getting a blast from a water cannon on a windy and cool December day.

On an anecdotal level, the inflation feels outrageously high. Taxis and Starbucks are still a great deal, so added to your itinerary should be an afternoon driving around the city in the back of a cab, sipping lattes and taking it all in. It will cost you surprisingly little. As one of our other distinguished members Terry quipped, he has become a more generous tipper. I mean 5 lira is like 30 cents, so how could you grudge a hardworking taxi driver that after a 20 minute ride that might cost 3 0r 4 bucks? Also, I am stockpiling on T shirts, as they seem relatively good value lol. Did I just use “lol” without the slightest bit of irony? It must be a lagging indicator for a perturbed state of mind.

So with your cheap T-shirt -and hopefully some pants for the sake of modesty -1 buck Latte, and souped up taxi at 15 bucks an hour, where on earth do you go to look for properties? 

Again, let us go then, you and I, while the Istanbul evening is stretched out against the sky….

Property links to be distributed during zoom session.

Keith’s weekly property news December 5 2021

This past week we just slammed on the breaks. We cut back heavily on our daily property tours. We focused mainly on new listings from 3-7 days, and the offerings were bleak. Nothing looked actionable and, when we made the calls, the picture was even grimmer … .owner had Covid, somebody’s dog ran off with the key, tenant was uncooperative, or, rather more frequently, the price had been raised.

 I think I made it til Wednesday before throwing in the towel, moving my focus away from sourcing properties, towards the many emergent growing pains that have been brought about by the sudden CBI stimulus that probably really only began to be felt by me just a little over  a year ago. During that time,  I felt very in touch with, and even in control of, every organizational aspect of my business. We had a very small team and a manageable load in every respect. My whatsapp had not become a battlefield and the idea of not running the daily show was unfathomable to me. I was often having long discussions with new clients and I felt positively energized about the period ahead.  We had a steady, if unsensational, flow of clients and I was spreading the word enthusiastically about my new passions Mesrutiyet, Kurtulus and Merkez. I was sure prices were about to surge and indeed, since that time they have, in lira terms.

I was jumping on zoom sessions with anyone and everyone who wanted. Sellers increasing their prices mid-way was unheard of. I would have just hung up on them.  Fast forward a year. Now I find myself coaxing and wheedling them to reconsider.

As the Lira rattled around the 13-14 band most of the week, all assumptions and calculations from the past year seem to have gone out the window. The property market has been making a lot of sense for me for the past  1 and a half years at least. After the declines from roughly 2015-2018, I felt we had seen a real bottoming out and prices were again very attractive, yields were in sync and all was right with the world. Alas, in Turkey, getting too comfortable is usually a perilous stance, at best. If nothing else, Turkey teaches adaptive strategies.

President Erdogan has doubled –down for real this time and waged an all out war against high rates. This time, none of it seems contrived. I feel that literally everything is now on the table. Now, we just wait for the cards to be revealed. It is that tense moment in every poker game where the winning hand is about to be laid down…read ‘em n weep.

 Does Erdogan’s widely critiqued economic policy, often dubbed ‘unorthodox’, bring Turkey to her knees or is there an outcome other than what seems to be the inevitable? Most of the analysts that I follow are prognosticating doom: runs on banks, food shortages, and riots.

In light of the above, it is little wonder we temporarily put the brakes on. 

I have too many numbers not making sense rattling around my head. What if the Lira goes to 20 or beyond and my clients buy in at this level? What kind of price increase in Lira is acceptable…10%? 20? Surely, we cannot accept prices to follow the dollar the full way up, or 40% in the past few months. That just does not make sense to me. What the heck does yield even mean in this context?  I know I will get past all this and do some mental re-calibration and be looking hard at the new listings on Monday to see what sort of value there is to be squeezed out of what is on offer, or perhaps reviewing the old stock to see if something suddenly makes sense.

A note on renovations.

Although I am very removed from the day to day operations, I personally review all of the estimates and spot check for prices or any inconsistencies. I have always maintained that we carry out A-Z renovations, with all fittings, for approximately 300-350 USD per square meter. This has not changed at all. In theory, I would expect that the price may be slightly lower in USD terms than this, as labour costs will not have increased so much. However, there is zero doubt that we have experienced large lira increases for materials. For future renovations, we will ensure that there is Lira and USD equivalent given at the outset. You may want to consider converting the hard currency in tranches to protect yourself from increases. I am going back through a few of the estimates where clients have been caught in the middle of this unprecedented swing, and seeing where the actual price increases have occurred. This is a time consuming process and often easier said than done, but I should be able to illustrate in further detail some time this week. If I have time before the meeting, I may take a case in hand and review it entirely.

The new build market

Developers seem to be in a bit of a bind. In very real terms, their costs are skyrocketing and they will, as much as possible, want to pass that on to the consumer. However, the full brunt of it cannot be borne by the consumer. I expect a slowdown in the sector and for prices to stagnate during this time. There should be some opportunities there for USD holders, so we will keep a close eye open for that. As I outlined last week, we are going to steer clear of projects with a long delivery date. As always, we will be mindful of the ‘wall of local affordability’. If we see Turks buying somewhere, we will be trying to buy there, too.

Ed. note

I looked at some listings after I wrote this. Some hope has been restored. The mission to find value amidst madness will go on. We can make some good deals this week. I am sure of that.

Property links to be distributed during zoom session.