Keith’s Weekly Property News January 23-2022

A proper spell of winter weather in Istanbul, with back to back days of snow. Istanbul is uniquely beautiful while snow-capped…for about 24 hours. Then it turns into a chaotic mess, so let us hope it clears up this week.
As we have had a surge in incoming inquiries, I thought it might be a good idea to give an overview of how we operate.

In terms of property sales and management, we are a 6 person team. Generally, I vet all the properties that we sell and look for new opportunities wherever they may be. I am also often involved in the negotiations. If not me, then usually Selin. Selin also handles most of the procedures leading up to the sale; organizing deposits/contracts, ordering valuations, online banking procedures and follow up with the Land Registry and other municipal offices. At any one time, she is engaged with a handful of negotiations, so if you want to learn the general tenor of how that is going these days, you can reach out to her.

I also try to handle client intake as much as possible. I like to have 1 to 1 zoom sessions, but if that is not always possible we try to offer drop-ins, group sessions and semi-private.

What is needed from the client in this process?

1- Of course, we need as detailed as possible brief on your property needs. If you are not sure or have no idea, that is fine. Just let us know that.
2- We definitely need a time-line. If you are an online buyer, we also need to know that. If you are planning a viewing visit, please keep us updated on your travel plans.
3- You should also be added to one of the whatsapp groups.
4- Attending the weekly Sunday zoom sessions at 8PM Istanbul time is probably the most necessary step in getting connected to the system. It provides a great base of information and many of your questions will likely be answered there. In addition, there is an amazing cast of supporting and dazzling characters who frequently stop by. It is the best time of the week for me as well, where I feel I can connect with a lot of people efficiently. We usually have some sort of theme which stems from my weekly zoom notes (https://www.mybricksrealestate.com/category/keith-weekly-property-news/ ), followed up by a preview of a dozen or so properties. Finally, we have an open Q&A.
5- If you need one on one consultation, please contact me and we will arrange a zoom session. For the foreseeable future, we will be hosting informal drop in sessions over several hours on Thursdays, so you might want to make note of that.
6- We put out pretty regular videos of representative properties on the whatsapp channel. If you see something you like, just ask me for details.

7- If you are in Istanbul, you can join daily property tours. We try to tailor these for specific requests for clients, but it can also be useful to see all different kinds of properties to gain insight into the market.
8- We have CBI lawyers who can answer your CBI specific questions. I can provide contact details.
9- If you are planning a viewing trip, we suggest a minimum of 5 days.
10-We cannot source properties for every client, but we certainly try. It really is a collaborative effort and we rely on clear signals from you.

On the renovation side, Angelina has two full-time designer/architects and two full construction teams working on anywhere from 5-7 projects at any given time. Doing renovations on this scale is a very hard job anywhere in the world. You can see some sample projects on the link provided below.
https://www.mybricksrealestate.com/istanbul-real-estate/istanbul-properties-renovations/

We are working to revamp the website, as it is more or less useless in terms of actionable properties. The whatsapp experience is much more immediate in my opinion. The really good deals just do not stay around long enough to even make it to the website, so I am thinking how to deal with this. Also with the wild currency swings, prices there become outdated in a matter of weeks.

We have an office on 38 Baytar Ahmet St in the Meşrutiyet neighborhood, very close to Nişantaşi. In reality, we often meet with clients in cafes or hotels and are a pretty mobile operation.

We often have informal social gatherings and as the community of property owners grows, we also want to increase everyone’s opportunities to network and socialize. I think it will be a great Spring, with many owners returning and many new clients coming in. There is no better way to gain knowledge than to reach out to some of my past clients.
More and more, I feel the need for feedback from past clients on how to move forward. As you know, there have been many struggles and challenges in the past few months and we want to continue to operate transparently and fairly, while getting solid deals for our clients. We also need to figure out how to meet the immediate needs of the day.

Yet, in some ways, I have to come to terms with failure to source some properties for clients. It is very agitating. We have at least 10-20 people ready to pull the trigger at any given time, but sometimes I find myself back-pedalling, sitting on offers, not pushing them through to conclusion. I know I should be just bulldozing through them, but when I see some of the risks – currency shifts, making decisions for people buying remotely, general uncertainty related to what is going on in Turkey – I get a bit trigger-shy. And for people trying to get their CBIs done, I know this can be exasperating. Also add to it that we have had an inordinate amount of negotiations breaking down in the past months. And the real circuit-breaker, ‘Would I buy this myself?’ is the ultimate joy-killer and one which I often inject into any deal. I probably need to re-set that mindset, but it is to some extent hard-wired.

My tendency is more to defence these days; not how to maximize profit on a client investment, but rather what is the most likely path to avoid loss and the most likely path to attain a decent profit. It is pretty cautious, but still leaves many doors open. Buy in those neighborhoods that are beaten up badly in USD terms or buy safe haven properties. Those are the two options in a nutshell. It is all a bit paradoxical. I think any international property investor who does not have a foot in Istanbul should have their head examined. And then, on the other hand, I have this pessimistic streak in me.

As many of you know, when you come to my ‘shop’, I do not often actively try to sell you something. I want people to browse, to lean on me for an opinion or for some numbers, but to ultimately make their own choices. I often give hints about what I would buy if I had the capacity; a promising new build with sweeping views in Izmir, a fixer-upper in Bomonti, Mesrutiyet, Ingridstan, Kurtulus, etc, a low sqm price in Kagithane on a new-ish property. Maybe a place with a great view in Uskudar. I’m a bit cold on property in Beyoglu. Try finding a good deal there. Not easy. I like Beşiktaş, too, but it has become harder to pick up properties there.
Zeytinburnu has something to offer if you accept to invest in area out of the center. I think the Financial Center has been over-hyped and outlook is uncertain.
In the end, I suppose, it will either go north or south.

Now on to preview this week’s properties (Links shared in meeting).

Keith’s Weekly Property News January 16-2021

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)

Keith’s weekly property News January 9-2022

Another arduous week in the market to open the New Year. Still plenty of hesitation as the USD creeps back up near the 14 level. Many question marks as to whether the government’s bold currency gamble will pay off. It seems the jury is still out there and, as always, this causes sclerosis in the property market. We will update you regularly on the impact it has on the frontier. Suffice to say, for the time being, it is creating huge challenges for sourcing properties.

Rather than belabour the above ad nauseam, this week I would like to return to some fundamentals, with a closer look at sqm pricing and the advantages and disadvantages of new/old buildings. P

Historical USD pricing is actually quite helpful, as it allows us to quite easily tell where we are today in relation to 5-10 years ago. The good news is that when we look at the historical USD pricing, I feel we can clearly see we are nowhere near bubble territory. Good days ahead on the Istanbul property market are not out of the question. Why would they be? If you are waiting for the currency crisis to get worse, that is probably a mistaken approach. 

Now is as good a time as any. And the historical data on USD pricing shows that. Prices are still cheap. Finding the properties is hard, but there is no other mega-city that I know of that can match Istanbul in terms of affordability. If you want luxury, we have that, too. But that never comes cheap. I have visited places like Belgrade and Bucharest and saw places for 3-4K/sqm. These are relative backwaters compared to Istanbul (my apologies to any Romanians/Serbs). 

Paying 3k/sqm in Belgrade for a nice neighbourhood just seems pricey, when you look at the economic fundamentals. I see this throughout many European countries. 3K/sqm in Bratislava? I am sure I would prefer to own comparable property in Istanbul for that price. 3k/sqm for a nice neighbourhood in Sofia? Big pass. 3k/sqm for decent neighbourhood in Tehran? I would expect much less. Istanbul is still a bargain when I compare to most cities I have visited in the last 10-15 years. Decent neighbourhood in Budapest? Now about 3K/sqm. Tbilisi, 2.5k+/sqm (rip off), We do not even really need to mention Northern Europe.

We have had a fair bit of demand for properties in newer buildings lately, built in the past 20 years, so I thought I would address the different options at this point and mention some of the challenges in sorting this type of property.

First of all, a quick review of the type of new buildings to be found on the market:

1- ’Mom and Pop’. These are much smaller buildings and may offer nothing extra in the way of facilities. Perhaps, at most, they have underground parking. The finishes are usually not great. The entry price on these can be lower, but still we increasingly see that 1750USD or lira equivalent is the entry mark. If it is in a favourable neighbourhood, you can expect to pay much more, perhaps up to 2500-3000 USD/sqm.

In the outer areas of the city, you could expect to see prices as low as 1000-1250USD/sqm. These are usually in neighbourhoods that most of us would agree, are not attractive. You probably would not want to live there yourself and can only be considered from an investment perspective. Given energy costs and long commutes, it seems more central options are better, even if you have to pay more.

2- Hotel-style comfort. These properties usually offer a range of facilities from underground parking to fitness areas, concierge, shops and more. In the downtown area it is getting increasingly hard to find these projects for under 2750USD/sqm. The prices range from 2750-3750USD/sqm for projects in the central parts of the city.

3- Luxury projects (Zorlu, Rotana, Sapphire, Divan Bomonti, Istinye Park).

The absolute lowest entry point for these projects is 4-5000USD/sqm. Expect to pay significantly more if there is a great view or a Bosphorous view. Zorlu probably tops out the market at 8-10K. The facilities are beyond 5 start hotel; shopping centre, cinemas, performing arts theatres and much, much more. Probably more luxury than most Western tastes are accustomed to. Popular with Middle Eastern buyers and affluent Turks. High quality finishing and good locations. Usually these properties are not purchased for yield and capital appreciation is expected to be low.

Challenges to buying newer buildings

Newer building more frequently come up with ‘tax issues’. For the uninitiated, what this effectively means is that 70-80% of the properties online cannot be used for CBI. There is nothing intrinsically wrong with the properties that would make them non-CBI compliant. The issue is that if the owner has owned it for less than 5 years – and has under-declared on the original sales price – again a very widespread phenomenon – then they are unlikely to sell to a buyer that needs, or wants, to declare the full sales value. 

Unfortunately, for our purposes, most of the time, we need to declare the full value. Therefore, we lose access right away to a huge amount of properties. I mean really huge. So, when you research online, keep this in mind. When we make our calls and do our initial due diligence, it is the very first question we ask, ‘Has the deed passed 5 years?’ If it has not, we more often that not are left with an un-actionable property. That is a great pity as it sharply reduces the amount of properties that are eligible for foreign buyers, or at least for CBI buyers. 

Again, I must emphasise that there is NOTHİNG fundamentally non-CBI compliant about these properties. It is purely the sellers unwillingness to declare full value that makes them unsuitable.

Many disreputable agencies will tell you that all secondary market properties are unsuitable for CBI. That is pure misinformation. Almost ALL secondary market properties are suitable for CBI – if the owners agree to show full sales price. The agencies who say this just do not want to deal with the complexity and inefficiency of the secondary markets, not to mention the lower paydays.

SQM prices on older properties

As the market in Istanbul is so asymmetric, with values jumping all over the place from street to street, talking even generally about sqm pricing is always perilous. However, I think with the help of a few descriptors, we can bring some clarity to the picture. 

Mostly in core downtown (Şişli, Beşiktaş, Beyoglu, and Kagithane), your prices for unrenovated properties run about 1K USD/sqm, a bit more in Beyoglu and Beşiktaş and a bit less in Kagithane. If it has a decent city view, a balcony, or a lift, this could go up to 1500USD/sqm. 

These are for quite decent locations, though certainly not prime. Many areas in Mesrutiyet, Kurtulus, Merkez, Bomonti fit into this range. 

Most properties in desirable parts of Beyoglu and Besşitaş are well beyond this price tag, more likely upwards of 2K/sqm. Prime areas in all of the above neighbourhoods are MUCH higher. If we think prime Cihangir, prime Beşiktaş and prime Nişantaşi, we seriously should be thinking around 3k/sqm. Perhaps add on about 750USD/sqm for a renovated property, the standard and aesthetic of which varies greatly. Generally, we like the play of buying very close to the prime areas and wait for gentrification to perform its secret ministry. Nowadays, a good-looking price tag for an unrenovated property, with decent characteristics, in an area which is close to a prime area, should run around 1250-1500USD/sqm range.

Older properties VS newer?

This is one of the most frequent questions I get asked. For me, personally, I prefer older. There are many reasons why; I like to take on renovation projects where value can be added, the entry point is much lower, there is a lot to choose from, and sometimes you find neglected properties at great prices. 

However, having said that, I also really love some quality new build projects, with the simplicity, convenience and often, the architecture. In the end, it is really a matter of personal choice. Many people worry about the earthquake factor. In that case, I suggest a newer building. 

From a hard-nosed investment perspective, my math leads me to the conclusion that, given a slightly longer investment time frame, even destruction of your property in an earthquake will not materially affect your investment. It would be a tragedy, pure and simple. 

But keep in mind, much of the value of the property lies in its location and the land share. Add to that the premium of having a new building (min 40%), part of the re-build being covered by earthquake insurance, and, post-apocalypse scenario, you can see that investment-wise, it is not a doomsday scenario. Factor in the likelihood of the building actually collapsing in a low risk seismic area and you see a different picture.

In the end, we are happy to look at all different kinds of properties, yet we certainly avoid older buildings in higher earthquake risk zones, or buildings that are shoddily constructed or completely unkempt. Newer properties tend to carry a 40% minimum price premium. If your investment amount is low, these may be off the table for budgets under 1 or maybe even 1.5 mil lira.

Just a quick preview of what we may look at this week. Links to be shared in zoom session

Properties will be viewed in zoom session

Keith’s Weekly Property News January 2-2022

Reflecting on the past year is a bit like reflecting on a lifetime. That is how much happened. The year started out with great hope, and the hope turned to full-on reality as the CBI program brought investors from every corner of the globe. As early on as March, it was obvious that this would not be just another year. Covid measures mostly dropped off, Turkey seemed to be kicking it into high gear and the property market seemed to be following. Prices had been beaten down for years and foreign interest was being meaningfully felt for the first time in a half decade. The market was mostly predictable, as were yields, capital growth projections and expectations. I felt buoyed by all of this and, in fact, quite bullish. Reasonable deals were aplenty and closing them was not a monumental task each time. Things were functioning smoothly. This lasted well through to late September.But as from time to time happens in Turkey, a great blur descended on the property market; the currency crisis of 2021. Closing deals became nearly impossible. Even cash-hungry developers seemed reluctant to sell, or at least felt forced to increase their prices as the sceptre of hugely increasing costs must have been intimidating to say the least. All of their projections and calculations must have been discarded and projects newly started likely were delayed. The secondary market, often plagued by inefficiency due to the whims of individual sellers, became nothing less than a fiasco in November and December. We probably had a ratio of 10 broken deals to every 1 ending in success. The moving targets of CBI demands with evaluations and amounts needed to close out CBIs, made for even more diabolically unpredictable scenarios. In the end, a year that had been steaming forward, ended with a fizzle and a big question mark.

I am also slowly coming to terms with rising prices….everywhere. And I am starting to make adjustments to new realities, one of which is much higher lira pricing for property. There are many reasons for this; reduced loan rates, property in demand as inflation hedge and continued foreign interest (a much lower impact, albeit).
I believe when all this currency mess comes out in the wash, we will see a surge in TRY housing costs, but a slight fall in USD pricing. But as I have said many times, this will not be obvious until the dust settles and stability returns. I expect yields is where the bit hit will be felt, as local affordability will trump all other market forces. Real estate prices in mega-cities can soar, particularly if housing loans become more affordable, but these very same forces will also chip away at yields.
In light of that, we may want to put the yield play on the back burner for now and focus on properties that look to be good bets over, say, 5 years for appreciation. Keep in mind, there was a pretty steady decline in USD prices from about 2015 onwards right up til 2019. Istanbul had become absurdly cheap in some areas. It could become quite pricey in 5 years. That would mean a lot of appreciation. There is no certainty about this, but one thing is for sure, we are nowhere near a bubble. When everywhere else seems to be in a bubble of some sort or another, I am still a buyer here, under the right conditions. So for those who have patience and nerve to ride the roller coaster that is Turkey, the risk/reward profile might not be nearly as dire as you may have thought. It is an uncertain start to the New year, but we would do well to remind ourselves of the many advantages Turkey possesses.

Just to round those out:

1- young population.
2-production base.
3-tourism and important geographical position/hub.
4- Great destination for digital nomads and remote workers.
5- Regional powerhouse.

Properties will be viewed in zoom session