A few more mortgages

A few weeks back, I made the comparison between the factors driving real estate price growth in Budapest and Istanbul. Following up with this over the next couple of blogs, I would like to offer a few thoughts on why prices in Istanbul may be set to move considerably higher in the future. Firstly let’s try and predict property purchase credit.

Currently, mortgages are a growing part of the housing situation in Istanbul, yet home buyers are left with few options. The banks generally offer mortgage rates that are hovering around ten percent yearly and in a lot of cases more. Obviously, this affects purchasing power greatly and means that if somebody buys a property, they would be well-advised to put in quite a bit of cash and also to keep the loan period as short as possible. The average loan term, I would guess is 7-8 years and often 50 percent or more is put down in cash. This makes the monthly payments bearable but also restricts the property market to the relatively well off. Most people now are very aware of the Western property crisis causes; the availability of cheap financing options, very low deposits and slack mortgage customer due diligence. When consumers were able to get loans at two, three and four percent with little down-payment, their purchasing power went through the roof, and hence property prices did, too…. for a while!

With this kind of (lack of) credit back story in Istanbul you’d be forgiven for predicting a property market stagnation or drop. But Western World economic calculations don’t work in Turkey, as we’ve seen good growth with respectable property inflation over the past 5 years. At the same time the Western world skidded off the rails bloated with a sack load of credit that pinned up the economy.

Credit Western stylee

Turkey, on the other hand has powered on without the need of artificial life support. There’s a lot more to the Turkish economy than a few cheap loans!

Now that Turkey’s Fitch rating has come in at investable grade (Financial Times vid), there is expectation that this will make borrowing cheaper and more widespread. Maybe this won’t happen universally in Turkey as cash down-payments aren’t set to drop radically but that may not be a bad thing as the Western world property implosion has taught us.
However, even if it removes two percent of the costs, bringing it down into the 8 percent vicinity, one would expect that this will have a knock on effect for housing prices. It’s unlikely that we will see low single digits that prevailed in the western world, yet it could be enough so that the Turkish buyer can lengthen the terms of the loans, buy a property and make monthly payments that are more or less similar to current rental prices. In this case, of course, many people who have the ability, will opt to buy over rent as a good chunk of the money will stay with them in the form of equity.
This might not affect all areas equally, especially in the short-term. Some high-end properties like a Bosphorous view in Cihangir, might not be as affected as a budget new build on the Istanbul outskirts as the Cihangir property is probably less reliant on loans for the purchase. However and needless to say, the youthful population and the growing economy will be additional tailwinds for home prices and this will eventually have a positive knock on effect throughout the whole market.

My view, and for a good few years yet, is that it would be a seriously risky move to short Istanbul property prices.

www.lilimont-istanbul-realestate.com

What’s going on in Istanbul this fall?

Wondering what you can do in Istanbul during the last warm days of an Indian summer? Well, if the hundreds of trendy new cafes and restaurants that have sprouted up throughout the city don’t keep you busy enough, why not take in one of the many festivals that enrich the city’s cultural life so much?

In October there is a jazz festival, it’s not huge with little commercialism, but very low key and delivering great jazz. Archie Shepp and Cecil Taylor have turned out in the past so dont miss it as they’ll be some laid back legends jamming around. For more info: 0212 334 010. http://www.pozitif.info/tr/festival/2012/akbank-22-caz-festivali/228/

Social Inclusion Band

If you are one of the growing legions who enjoy documentary films check out this festival which runs in November. Most of the venues are located around Beyoglu, so you can just give me a ring when the film is finished! http://www.1001belgesel.net/en/Default.aspx  Admission is free.

Also in November is the popular Istanbul International Short Film Festival (Uluslararası Istanbul Kısa Film Festivali), which has showings in Beyoglu and at the wonderful Istanbul Modern (which is a venue worth whiling away a half day or so in its own right). Admission is free. Who said you need to have millions to enjoy Istanbul?
0212 252 5700  http://www.istanbulfilmfestival.com/

Istanbul Modern

Drop me a line if you know of any other great events coming up and I will be sure to add it to our space. Enjoy, folks!

The Renovation Trap

I often walk into a property that a client or friend has recently renovated with a slight degree of trepidation. I have many things to consider, is it worth telling the truth and alienating a friend…or a client? Have they done what is logical in relation to the market and should I tone down any subjective reaction I may have to what they have done with the property? I rarely enter into detail about what they have spent. That is of less concern. I worry about the final product.

At times, I have had good reason for this fear, as I have seen many a fine property degraded by a poor or personalized renovation. But, happily to say, in Beyoglu particularly in the past few years, I have mostly been happily surprised with property renovations rather than disappointed. There are a lot of creative and bright people around and they invariably come up with something great, at times even jaw dropping and inspirational.

Here’s an example – 

This property is simple with easy clean design, without getting to engrossed in high design. Please see the full listing and photos on http://www.lilimont-istanbul-realestate.com/for-sell/residential-apartment-cihangir-3/

The problem with a poor renovation is that in addition to the expense, it often actually decreases the value or salability of a property. Quite often, it would have been better to leave the property un-renovated and to sell it as is. The paradox, too, is that the same people who implement a poor renovation are the ones who also expect a high premium for their dubious efforts. Of course, there exists a fine line between having a renovation budget and cutting corners. It is also a combination of the quality of materials and the workmanship involved. As finishing and design standards can be a bit low, it is imperative to ensure that the these are in line with the value and location of the property and that the materials used are neither too far above the market norm, nor too far below. Unless the owner has zero need for a future resale it is imperative to assess the salability of a property before embarking on a costly renovation.

Here’s another good one – 

This apartment utilizes a lot of the Turk Ottoman influence invoking an Agatha Christie era without getting too fussy. http://www.lilimont-istanbul-realestate.com/for-sell/residential-apartment-aynali-cesme-3/

I work with a group of International developers who have developed properties throughout Europe and their view is that in an area experiencing redevelopment, such as central Istanbul, an influx of owners from different countries tend to raise the stakes regarding renovation and quality finish. For example, an owner from Berlin may insist on a very high finish level and a Roman owner will quite possibly want to utilize a higher degree of design. This has happened in central Istanbul over the past 10 years and it’s readily evident that local tradesmen and architects are upping their game to meet these requirements. An International influence will also help direct the design trend in-line with the current ‘zeitgeist’ as opposed to lagging behind, which in itself will attract buyers. It is a combination of current International design with a Turkish cultural foundation that provides the most salable properties.

To undertake a renovation project without paying heed to current trends is to invite potential disaster. It is a bit like a surgeon performing surgery without being updated on current research in his or her field.

As a team, my partners and I have now renovated countless properties over the past 15 years, we can confidently say we know how to refurbish an apartment economically and to a degree that allows an easy onward sale. http://www.lilimont-istanbul-realestate.com/

Turkish V Foreigners Part 1 + spot Johnny Foreigner

As a 2 part study over the next 2 weeks I will assess the differences between Turkish and foreign buyers, with a liittle game at the end!

While selling real estate in İstanbul,  it can be quite interesting to observe the differences in how Turkish and foreign clients arrive at their decisions to buy a piece of Istanbul real estate. No doubt it is a bricks and mortar world, but the psychology of the buyer is much more liminal and indeterminate than we may often imagine.

Firstly, after much experience, when I meet for the first time with a Turkish client, I do not go out of my way to demonstrate any particular knowledge on property in Istanbul, which is quite odd when you think of it. But one must understand the cultural context of the encounter. As a Real Estate Agent, the bestowed social status in Turkey is quite low, with probably about the same status given as to any tradesman (or lady). Many of my clients are newly minted rich and on the rise fast, and they have a few ideas of their own. Realty and property, as a profession, used to be to a large extent the domain of early-retired government workers, or in many cases the Kapici (bldg superintendent), who get their start by doing side deals with the properties under their management.

Needless to say, the profession as a whole is very much in its infancy. There are wide, sweeping reforms being discussed that would probably make it the playground of smartly dressed, multi-lingual young college grads. But for now, it is certainly not that. Think playground, Congo-style.

So with the Turkish “musteri” ( client, pronounced mooshteri) I opt for a low key profile and a certain humility (veiled, anyway) in front of my chirpy Turkish buyers. They usually assume that as a foreigner that your knowledge is very incomprehensive and incomplete. They also frequently come armed with a an extended crowd of relatives and it is not uncommon to have three generations being towed along on the tour. Now, I am hardly going to dive into a headlong debate on the merits or demerits of a particular property, being outnumbered as it were.

And the clients seem to play along well with this game, hardly deigning to ask me a question throughout, while they squabble and generally offer plenty of rich commentary amongst themselves during the process.

The really peculiar part of it all is… and I will contrast this with your typical foreign property buyer later…that Turkish buyers seem strangely oblivious to most of the normal metrics on real estate; rental yields, types of mortgages, property appraisals, square meter prices, interest rates, and so on. And this happens to be where I shine.

That is not to say they make poor decisions. They do not, they just arrive at them a different way. They are more intuitive and quite perceptive. They don’t use data to make their decisions (these are of course all generalizations). They seem to have a natural ‘feel’ about the location and price dynamic for a property.

And they do not seem to take well to the hard sell or the used car seller’s methods. They seem to like to be left alone to make their decisions whether they be with clan or solo for the day. And I respect that; in some ways even like it, though it does leave me feeling like the Maytag repairman at times.

So while Kemal, his wife and her brother and father enter the penthouse flat on the Bosphorous, I stand obsequiously in the backdrop somewhere, getting a positive jab in every now and then, “My, lovely original flooring, isn’t it?”

To be continued next week.

As a little light relief after that “highly” informative blog I’ve devised a game. I’m now exceptionally adept at spotting where a potential client hails from at 100 paces, feel free to have a go yourself and see if you can spot their great nation:

The Tarlabasi File (Part 2)

In this weeks blog I will follow on from my last blog/report and try and breakdown the micro zones of Tarlabasi and offer my view of their future potential.

Currently, the Tarlabasi neighbourhood consists of three distinct small zones: the section that is closest to Taksim square (see map below A), where much organic property regeneration has already occurred, the Municipality backed regeneration zone (see map below B) in the centre where the demolition and construction of the real estate is underway and the last part being the lower area that lies closest to Galatasaray and the Golden Horn (see map below C).

The areas all have a markedly different feel and will all no doubt be influenced by the project.

First of all, perhaps the easiest to predict will be the outcome in the project area (marked B on map). The project company has already set up a sales office on Tarlabasi Blvd and the prices they are quoting for the end product are $5000 per square meter, plus VAT. The brochures are full of glossy pictures of pristine buildings, with plenty of glass and steel and resembling the old style buildings with their signature bay windows ( http://www.tarlabasiyenileniyor.com/)

Currently being flattened and…….

….this is what’s going in

The project is mixed-use, with offices, hotels, commercial, and residential. At these prices, their target market is likely to be wealthy Turks, Western investors and wealthy Arabs. Rumour has it that the marketing is being heavily directed towards the Middle East. We have been buying a few properties on the outskirts of the regeneration for a few years and expect to make an exceptional return. We believe that there are still opportunities especially if you, like us, do believe in an extended price hike once the project is finished.

One of ours bordering the regeneration project

İn the area next to Taksim (marked A on map), there has been a small explosion of property restorations over the past 5 years. Walking through this neighborhood, you can already see the presence of at least twenty apartment style hotels, as well as various short-term residences. Side by side with relatively run-down buildings, these stand out with their newly plastered and painted exteriors. There is also a vibrant rental market here. İt is looking less and less like the old Tarlabasi and fast becoming more like a mini Cihangir everyday.

İn the final area (marked C on map), extending from main artery of Kalyoncu Street to Omer Hayyam the regeneration has been less rapid, but now with a couple of hotel projects underway, as well as the regeneration project itself, it seems set to take off. The prices here are about 20 percent cheaper than non-project Tarlabasi, so we feel it is the target for investment. İn addition, it is within a few yards of İstiklal Street and the highly trendy neighborhoods of Tunel, Galata, and Asmali Mescit.

Bargains to be had here

Needless to say, the mega project will bring much needed infrastructure to the whole Tarlabasi area which will enhance Tarlabasi greatly. Whichever way you look at it, it seems very likely that the area as a whole will smash through the current property price levels of $1250- $1500per square metre very soon and will head Northwards on a steep price trajectory for a good 5-10 years hence.

The Tarlabasi File (part 1)

A stones throw North of Istiklal Street in central Istanbul lies the Tarlabasi neighborhood comprising of over a 1000 relatively small buildings and quaint townhouses. Many years ago these properties were inhabited by Greeks, Armenians, the Jewish community, and a host of other ethnic minorities. Created in the latter half of the 19th Century by the trading classes from these far flung places who dealt in the bazaars by day and in the evening returned to their families in the close knit Tarlabasi community.  Major political events led to the emptying out of these neighbourhoods and further events in Turkey, mainly massive inward immigration to Istanbul from the countryside, led to this becoming an area predominantly inhabited by Kurdish\Anatolian\ Roma (gypsy). The Tarlabasi neighborhood went into a long period of decline as the new immigrants did not have the financial means to keep the building stock well maintained. Many were also unaware of the original features in the properties and painted over, knocked down or otherwise degraded the historical integrity.

Historically ornate Tarlabasi

Up until the last 5-7 years, it appeared that the decay of the neighborhood was irreversible. It became a no-go zone for most Turks. It was the ‘Bronx” of Istanbul.

  

But then fortune’s wheel started to spin slowly in favour of regeneration. Brave local buyers with some International experience saw run-down neighborhoods abroad that were this close to the centre of a major city were subject to similar cyclical rises and falls and found the prices for this real estate in the city center too good to pass up. Also, due to the classical Greek, French and Italian architecture of the properties in the area, English men, mad dogs, and a few persistent French nationals started to invest in the future of this goth-land.

Tarlabasi has always been an interesting, yet controversy-plagued area. And throughout this so-called gentrification period ( I prefer the term regeneration), it has been no different.

The construction giant, Calik Holding, has joined forces with the Beyoglu Municipality and has purchased over 270 buildings over 8 blocks (Tarlabasi re-generation scheme www.tarlabasiyenileniyor.com/ ). The plan is to give Tarlabasi a massive face lift and raise its profile on par with many of the most chic neighborhoods worldwide. The mayor of Beyoglu, Ahmet Demircan, has called it Turkey’ s Champs De Elysee. Salesmanship and bravado aside, it is a mega-project the likes of which Turkey has never seen.

click on the master plan below for a larger view-

But, alas, as in the past, Tarlabasi has has been a harsh master and has often shone its light on some only to leave others in its shade. Many local residents have opposed the development, although it should be noted that many are also in favour of it, a lot have sold their properties directly to the developer. In an area where rumours spread like cricketeers on a patch of green on a mild punjabi afternoon, the municipality probably could have handled the PR end of matters with more aplomb.

There were lots of questions about where displaced peoples would end up. And some rumours persisted over the total final build area.

In any event, it is hard to imagine a perfect solution to the problems that have dominated this neighborhood for so long. As one local resident, Mustafa, said to me a couple of years ago, ” What should happen? Should nothing be done until the buildings turn to brick dust? Already, they are almost falling down on our heads. If something is not done soon, there will be nothing left to protect.”

In my blog next week, we will leave aside the thorny issues of the past and do our best to soothsay Tarlabasi’s future, however quixotic our enterprise may be.

The Tarlabasi Gang!