Due to time constraints during this unusually frenetic period, I will give brief notes once again this week, hopefully with less typos than last week.
Everything is a bit unclear at this point. When the news broke that there would be a move from investment level of 250K to 400K most industry experts expected the announcement in the Official Gazette to happen almost right away. 10 days later it still has not been published and thus ramps up the speculation mill. Most experts still believe it is inevitable, with many predicting before or after the Bayram Holiday (starts May 2. But because of the weekend and the May 1 holiday, it actually means earlier. Others seemed to have pulled the date of June 1 out of the hat. The truth is nobody seems to know for sure and the ones who do know are not talking. So that is all I really have to say about that. If you do want to do CBI at 250K, you should be in full hunt mode to find properties. I outlined the time frames for that in detail in last weeks notes.
I often try to address many of the issues that get brought up in the whatsapp chats. This week a few people pointed out that people who signed on tenants in lira contracts last year probably took a haircut in terms of USD based yields. That is indeed true, yet we should be non-alarmist in our assessment. 2021 was indeed a truly remarkable year in every sense for Turkeys property market. Certainly not every year will follow that trajectory, from Lira 8 to Lira 15. The consolation for lower yields due to lira collapse is that the properties appreciated anywhere from 20-40%…in USD terms. That is phenomenal and came as a great surprise to me. All we can do with under-performing lira rentals is to jack up the rent each year according to inflation index. Luckily, we did not sign so many of such contracts, but we definitely did some. We are doing many more now and we are much more cautious in our approach, Where possible, and if the property lends itself to it, we are trying to secure currency contracts. This is not possible for every type of property. Difficult, for example, if it is commercial property which has wider appeal to Turkish market. I believe we will find our way and these issues will not materially impact the quality of the investment over the long term. We are now also focusing more on securing expat tenants. I have wide experience with this and know all of the places to market, plus the ability to network with key agents in high density expat neighborhoods such as Beyoglu and parts of Sisli. We should be able to, going forward, secure perhaps 75% of our contracts in USD. Mid term rentals will comprise a certain percentage more.
Finally, on that point, we do have to accept some currency risk while investing in Turkey. Entry and exit points are not irrelevant. We need to buy in at the right price, with the time being less of a knowable element. We want to buy at the right price, end of story. Then you will need to exit at the right time. Give it 5 years, is my view, though longer term can be very sensible as well. Turkey has the ability to soar, why would you want to pull out early? Besides, it is a lot of fun and a wild ride, where hardly anyone gets hurt in the long run. Call it the “Pirate Ship” of international property investing. Lots of gut-wrenching swings, but a safe off ramp is mostly there. I am sure we cannot say the same for many other international real estate markets. I have not heard many success stories from many EM markets in the past 5 years. No doubt they exist, but…
Don’t fight the demographic. Turkey has that and it will matter more and more in the years to come.
Last week was an interesting week, as in our bid to close out some CBIs, we hunted high and low and looked in places we had never considered. Fruitful, but punishing on the whole staff, We have 1 more week until the Bayram Holiday, so we will try to sustain the pace until that period, after which there will be a slowdown from at least May 1 to May 6.
The people who are getting the job done are the “squeaky wheels” who give us clear directives and time lines. Don’t be shy about that.
Regarding renovations, the long used 300 to 350 USD per sqm model that I re-iterated for the past several years seems to be quickly getting outdated. Rising labour and material costs are contributing to this, as has the property boom. The property boom, as evidenced by record sales in March to Turkish nationals and foreigners alike, leads to pretty intense competition to retain good tradesman, which I believe we have. Our decision to use Turkish materials wherever possible (a wise choice in my view), allows us to keep pricing within the 4000USD per sqm mark, still remarkably cheap by Western standards. These are based on the net sqm, footprint of the property. Additions, such as terraces and balconies that did not previously exist, will of course push this number upwards, as will Franke kitchens and Gaggeneau fittings.
Prices seem to have stabilized for the time being and we are seeing good opportunities pop up sporadically. Those usually have to be moved on quite quickly in terms of execution, if we want to capitalize. I have set aside some cash to fast-track deposits on the properties I like. We do the initial due diligence and if all looks good, I am ok with backstopping a deposit til a buyer teps in. It is often an effective way of speeding up the process. We are typically getting evaluations returned within 48 hours and are doing our best to get Land Registry appointments as fast as possible. Average time looks like 5 days if there are no procedural snags.
There is a always a lot more to say, but I am sure it will come up in the zoom discussion.
Here is a shorter than usual list of viewings we hope to have this week, subject to availability and initial CBI checks. (distributed in meeting).
Properties will be distributed in meeting. If you like, PM me and I will send them to you directly.
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