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Investors Zone
Turkey's fast growing economy and
government incentives help make it a highly attractive investment
location, while international exposure regarding its possible EU
inclusion brings with it a growing number of tourists and investors.
General Factors
Turkey offers visitors a heady mix of
European, Arabic and Asian influences. Purchasers of investment property
in Turkey generally buy into one of two markets: the vast majority
purchase on the coast where prices in popular seaside resorts have risen
by as much as 52% in the last 12 months. Increasing numbers of other
canny investors are today looking to the expanding city of Istanbul
which is also currently enjoying a strong and growing economy, bringing
on a resulting building boom to supply a strong demand for commercial
and residential properties.
In common with many emerging markets on the threshold of full EU
membership, Turkey's city investment arena is now taking a strong hold,
where increased foreign investment and new commercial activity in
centres such as Istanbul are prompting some great investment
opportunities in both residential and commercial property - Ikea opened
a store in Istanbul in 2005 and has been followed this year by Harvey
Nichols. Currently there is currently an annual unit shortfall in
Istanbul property totaling some 250,000, translating to a strong
opportunity for timely investors into the retail property market.
As in many countries today, golf is one of the driving forces in the
tourist economy and Turkey makes no exception, offering very well priced
off-plan options within stunning golf courses. Investors seek to profit
from high growth figures and reliable buy-to-let rental yields. Turkey
currently attracts some 25 million tourists per annum, indicating an
enormous demand for tourist amenities and accommodation. Solid rental
yields can be obtained by investors who carefully purchase in buy-to-let
properties in the hotspot locations along the coastal strips of the
Mediterranean Sea such as Bodrum, Izmir, Antalya, Kas and Fetiye, and
these are well served by airports at Izmir, Dalaman and Antalya.
Istanbul simply bursts with culture and beauty, also giving it immense
tourist appeal and investors are wisely snapping up carefully selected
off-plan properties to boost a growing market for city residential and
commercial investments.
The transport infrastructure in Turkey has seen much improvement in
recent years in anticipation of meeting EU standards, while air links
are second to none, welcoming international flights laden with holiday
makers to serve the buy-to-let investments of wise purchasers in key
tourist locations.
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Economic Factors
A major indication of the current state of any property market is the
tourist trade. In Turkey this market is expanding massively as the
country gains more exposure, international flights and package deals
become more widely available and the possibility of Turkey becoming an
EU member country begins to take hold.
Currently on the road to possible EU inclusion, Turkey needs to address
many factors before incorporation. With strong backers for its entry,
Turkey's eventual inclusion will doubtless bring with it an increase in
property prices, in line with a surge in overall economic activity. Many
investors are purchasing in Turkey and eventual EU inclusion is a major
driving force, allowing them to take full advantage of the current low
property prices and growing rental market.
As the 22nd largest economy in the world, Turkey is currently strong and
undergoing much further growth. After an average growth of only 2.8 %
for ten years from 1993 to 2002, Turkey was able to achieve a growth
rate of 5.9 % in 2003 and a substantially higher rate in 2004. According
to the Economist GDP growth is "forecast to be around 5% in 2007 and
2008 before picking up slightly to about 5.5% in 2009 on the back of a
pick up in domestic demand growth and continued robust export growth".
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Political Factors
As a founder member of the United Nations and a member of NATO since
1952, Turkey is considered to be a politically stable country, despite
ongoing squabbles with Greece over the divided island of Cyprus and
various air and sea boundaries of the Aegean Sea. The Cyprus issue has
been an ongoing problem for many years and has now become one of the
main points of contention in Turkey's accession negotiations with the EU.
The Turkish government has much interest therefore in coming to a
resolution with Greece and concerted efforts are being put into place to
put an end to the dispute, while working at a diplomatic solution with
Greece. Greece is seen to actively support Turkey in its bid, since 2005
for EU accession. This process is thought to take at least 15 years due
to the great size of Turkey and its political situation.
Despite continuing to foster relations with the Eastern world,
Turkey is progressively integrated with the West and is currently
proactively implementing necessary measures to qualify it for EU
membership in the near future.
Turkey is a parliamentary representative democracy with a President,
currently Ahmet Necdet Sezer, at the head of state elected in 2000 for a
seven year term. Executive power is however given to the Prime Minister
and the council of ministers that make up the government, while
legislative power is given to the Grand National Assembly of Turkey.
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Natural Factors
Turkey is famed for its unique and diverse natural features. Turquoise
water laps the beaches of the Mediterranean and Aegean as they bask in
the hot summer sunshine, while the hot springs at Pammukele and the
volcanic terrain of Cappadocia offer great contrasts to all who visit
Turkey.
The diversity of the Turkish landscape allows for a varied, though
chiefly Mediterranean climate, averaging more than 300 days of sunshine
per year. Along the Mediterranean and Aegean coasts, summers are long
and dry with temperatures topping 44°C. In contrast, Istanbul sits on
the Black Sea coast where temperatures are a little milder, and even has
occasional snow falls in winter. Temperatures in the mountains running
parallel with the coasts can be quite a bit harsher, more arid and
cooler than in coastal regions, and heavy snow is a common sight during
winter months.
Due to weather conditions, the Turkish tourist season is considered to
be from June to September and concentrates on the fashionable coastal
resorts of the south and west.
With a large population of over 70 million and a growing economy, the
Turkey property market is now open to the Turkish people as a new
wealthier, professional population sector is now in a position to
purchase property, particularly with the introduction of new mortgage
rules allowing Turks to use finance for property purchase. The Turkish
population continues to grow at the rate of 2% per annum while 70% of
this population is under 30 years of age. New finance laws and possible
inclusion into the EU mean the average Turkish citizen will be generally
wealthier. The future therefore looks bright for the domestic property
market in Turkey and therefore it is equally promising for overseas
investors in prime locations.
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Logistical Factors
Turkey now sits firmly on the tourist map,
with its main international airports located at Bodrum, Dalaman and
Antalya. Flight time of approximately 3½ hours from the UK and a time
difference of only two hours make Turkey a close and easy destination to
reach, while visitors enjoy an exotic culture quite removed from life
back home.
During summer, flights go to Bodrum direct from most UK airports, making
it a highly popular holiday option. Turkish Airlines and British Airways
also fly direct to Istanbul and Izmir all year round. During peak season
(May to October) cheap charter flights can be snapped up from operators
such as Thomas Cook, First Choice and My Travel, flying into coastal
holiday resort airports such as Dalaman, Antalaya and Bodrum.
Turkish Airlines also provides a large network of domestic flights from
the international airports of Istanbul, Ankara, Izmir, Adana, Trabzon,
Dalaman and Antalya to all of the major Turkish cities. Excellent bus
connections serve all airports and city terminals. Major airports in
Turkey include: Istanbul (Atatürk and Sabiha Gökcen), Ankara (Esenboga),
Izmir (Adnan Menderes), Adana, Trabzon, Van Erzurum, Bursa, Samsun,
Antalya, Dalaman and Milas-Bodrum.
Turkey can also be accessed via any of its 15 major state-owned ports on
the Mediterranean and Black Seas running along its 8,430 km of
coastline. These giants are to be found at Samsun, Haydarpasa
(Istanbul), Izmir, Izmit, Trabzon, Mersin, and Iskenderun, all of which
run extensive passenger ferry services.
The quality of Turkey's infrastructures has its strengths and weaknesses
and the Turks have some way to go to reach EU standards in terms of some
social infrastructure, and reform measures are underway in order to
bring these up to expected levels. Roads are a high priority in Turkey
and they are well constructed in accordance with Asian and Middle
Eastern international road standards. Unlike in many emerging markets,
Turkey has a very adequate road infrastructure in place and at the ready
to cope with the rapid growth is it set to undergo.
Roads are well complemented by a wide network of the Turkish State
Railways, extending some 8,697 km, and connecting most major cities.
Turkish trains are very comfortable and new with couchettes,
restaurants, and lounge cars offering first and second class services to
modern European standards.
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Short Term
Investment Strategy
Key Opportunity
As an aspiring member of the EU, Turkey
attracts investors looking to profit from a success story in the making.
Shrewd buyers are acting fast in this emerging market, while the country
undergoes rapid growth and reforms to bring it up to the standards
required for eventual EU membership. Turkey is currently among the top
ten destinations for those looking to invest in overseas property,
according some independent property advisors.
The Turkish government is addressing its enormous housing deficit.
Currently this stands at 600,000 houses in Turkey's main cities (and
around 250,000 in Istanbul itself) and the government aims to raise the
standard of living and foreign investment in city property such as
Istanbul is regarded as a positive step towards that goal. With
increased economic activity and demand well outstripping supply, it is
clear that short term investment in carefully selected Turkish property
will bring significant returns - last year alone prices in some popular
seaside resorts rose by as much as 52% and the country's capital growth
rate ranged from 25% to 40 %.
With strong GDP growth at 5% in 2006 and as a member of the G20, Turkey
already figures 22nd amongst the economic giants of the world. A dynamic
emerging market equipped with a well-developed infrastructure, Turkey is
working hard to accelerate performance and foreign direct investment
(currently circa USD 1 billion per annum), which is expected to increase
dramatically over the coming years with the implementation of further
economic and judicial reforms.
Turkey is home to a thriving and rapidly growing tourist industry and
boasts an increasing amount of budget flights to encourage foreign
visitors and buyers alike. Off-plan beach and golf property in and
around the many popular coastal resorts generates much foreign interest
and is a firm favourite amongst short term investors looking for
reliably high returns on investment.
Timescale
Investors in Turkish off-plan developments factor in between 18 and 24
months for construction from reservation to completion stages. Short
term investors normally look to profit from a carefully selected,
promising market, selling on their unit to mid or long term investors
approximately 14 to18 months after making their initial reservation,
regardless of whether or not the project is yet completed.
Payment terms will vary; good projects will often offer terms of around
30% deposit with a further stage payment during construction and the
balance payable upon completion. This allows short term investors to
operate their strategy with minimum capital outlay. Of course, the
earlier the investment is made, the greater the investment returns. As
importantly by entering the project at the earliest possible stage,
investors get the best choice of units which will always be first to
attract buyers in the future.
Level of Complexity
Short term strategies offer the lowest level of complexity as the
purchase has not yet been officially made; therefore, no property taxes
or maintenance or management charges are due. This is a simple capital
investment, often with no need to proceed to Purchase Contract, or make
any mortgage finance arrangements. Remember to check with the developer
if there are any charges made to "flip", or reassign your contract, and
at what stage you are permitted to do so, before you proceed
Risk Assessment
All investors must carefully assess the particular project and units in
which they wish to invest. In many cases a wide range of other projects
will be under construction and a choice will need to be made. A decision
will need to be based on how a particular development or project will
outshine its competitors in terms of appearance, location, on-site
facilities and the unit itself. Investors will also need to consider
issues such as the number of other units available within the particular
development, predicted demand as well as competition for the type of
property they wish to invest in.
To curb risk, a short-term investor should normally seek to buy the best
possible unit, ie. a corner unit, a penthouse or ground floor unit with
a private garden, which will always sell in preference to a standard
first floor unit.
Investors need to be clear how their exit strategy is to run. How will
the unit be marketed and by whom? How much will the selling agents
charge in commission? Should a buyer not be found prior to completion of
the property, investors must be confident they can cover payment to
completion of the unit and adapt their strategy if necessary.
TurkeyRealEstate.ORG offers a substantial Investor Care package, which
adds significantly to investors' chances of a successful exit.
Short term "flip" investments are undoubtedly more risky than longer
term strategies, but, with careful research and planning in place,
off-plan purchase in well located Portuguese projects offers a sound
investment with lucrative returns.
Return
Turkish property offers high capital appreciation of up to 40% per
annum, depending on location. Shrewd investors have the opportunity to
reach the highest figures by selecting prime developments in cities or
resorts at pre-release pricing levels, allowing them to invest at below
market value.
By reserving at pre-release stage, investors profit from discounted
prices and, in many cases, these are subject to successful planning
applications, allowing for additional pricing uplift. Reservations on
this type of TurkeyRealEstate.ORG recommended project allow for full
refunds if necessary and secure escrow accounts are in place to protect
investors' funds. An earlier than normal reservation of course affords
the maximum possible returns on investment on any given project.
Financing
The short term investment strategy is purely based on capital outlay
as mortgages cannot generally be raised against property that is not yet
built. In order to cover all eventualities, investors MUST be confident
they can complete the purchase if necessary, even if using a buy to flip
strategy. Developer's mortgages are sometimes available to fund around
80% of the purchase price.
If necessary, Turkey Real Estate .ORG can help its investors arrange
equity release from their existing property to fund the initial capital
payments, which could later be covered by a mortgage once the
construction period is completed.
The imminent general introduction of the Turkish mortgages will
doubtless increase the desirability and pricing levels of Turkish
property in the near future. For now, finance can also be raised by
overseas mortgage brokers, normally to a value of 80% of the property
price.
Taxation
Purchasing a property and then re-selling prior to completion is a
tax-efficient way to invest as it allows buyers in Turkey to avoid any
property transfer taxes and side-steps many taxes, including capital
gains tax, should they choose to sell on the contract prior to project
completion.
we always recommend research into any double taxation treaties in place
between Turkey and the investor's country of residence.
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Medium to Long
Term Investment Strategy
Key Opportunity
Turkey hosts a thriving tourist industry and
rapidly growing property market, attracting huge foreign interest and
investment potential. Its strong economic climate and intent to become
an EU member all bode very well for today's timely mid to long term
investors in Turkey.
Until now, the absence of finance from Turkish banks has been a sticking
point amongst many investors. However in late 2006 the introduction of
Turkish mortgages for up to 80% loan to value was at last confirmed.
Shrewd purchasers are now jumping at the opportunity to buy real estate,
still at rock bottom prices, in a bid to act now before prices are
inevitably driven upwards by the very imminent wide availability of
Turkish lending facilities.
A significant tourist market (some 25,000,000 p.a.) creates solid rental
yields for investors in key locations. Although Turkey boasts an
excellent Mediterranean style climate, many of its resort investments,
particularly on the northernmost Black Sea, rely purely on a peak summer
tourist season to cash in on rental returns. Turkey's highly popular
"Golf Valley" surrounding the region of Antalya is a Godsend to buyers
seeking a further investment vehicle from which to benefit from both sea
and golf trades, adding year-round investment appeal to this
Mediterranean region.
In line with a drive to encourage foreign business to Turkey, the level
of foreign investment in Istanbul is duly on the up, with financial
institutions such as Morgan Stanley, UBS, Deutsche Bank and Credit
Suisse actively researching Istanbul's potential in the commercial
sector while Dubai Holding has already committed five billion US dollars
to the development of various commercial property projects in Istanbul.
Increased commercial investment in Istanbul is having the effect of
pushing up demand for both commercial and residential property and, as a
result investment potential continues to ride high as demand way
outstrips supply.
Timescale
Average construction time on International Property Investment Network (TurkeyRealEstate.ORG)
recommended Turkish off-plan developments, from project sales release to
completion of construction, is approximately one year. Mid to long term
investors look to hold onto their units after construction, normally for
at least 18 months from initial reservation, either to rent it out
and/or benefit from capital appreciation upon eventual resale. Many long
term investors use hotspot locations on Turkey's Mediterranean coast or
in city centers such as Istanbul to generate significant and reliable
rental income over a period of time as sustained rental returns are
their main focus, followed by capital appreciation over time.
Capital appreciation is expected to perform exceptionally well over the
next 5 years, and the longer investors are able to leave capital in
their purchase, the higher their potential long term returns will be.
High tourist numbers, a boom in city business and the resulting strength
in the buy-to-let market allows investors to reap in solid capital
growth from their properties, all the while supplementing this income
with high rental yields in key Turkish locations.
TurkeyRealEstate.ORG strongly recommends consulting an
TurkeyRealEstate.ORG advisor to discuss your particular mid to long-term
investment strategy in Turkey in order to ensure your chosen location
best suits your needs.
Level of Complexity
In the case of off-plan purchase, full payment for the property
needs to be completed at various stages of construction, prior to final
completion of the purchase.
For mid to long term investors, all costs will be applicable, of around
10% of the purchase price while ongoing costs such as maintenance,
community fees and utility bills will also need to be factored into the
strategy finance plan. Bear in mind it's advisable to open a local bank
account in order to pay for the property's utilities and other ongoing
expenses.
Beneficial arrangements are often to be made with local property
management and rental companies that are usually conveniently based on
or near the site. These ensure that such ongoing costs are covered and
that your unit is rented out regularly. Managed properly, maintaining a
property in Turkey can become no more complex than an investment closer
to home.
Key Risks
A medium to long term investment strategy entails much lower
financial risk than a short term plan which relies on finding a buyer
within a very short time frame. Provided the right investment is made on
a quality, well located project with multiple facilities, establishing a
rental market and eventually a buyer for your investment should not be
difficult. However, as with any investment, patience and money is
sometimes required until the end user is found.
Turkey's ongoing popularity as a major holiday destination is a positive
factor for buy-to-let investors. As the property investment market
continues to grow in Turkey, there is now a huge demand for more flights
to all main tourist destinations in Turkey. Low cost airlines such as
Turkish Airlines are already planning new routes, lower fares and
increased services to cater for the increased numbers of visitors. As
accessibility increases, Turkish property will become even more sought
after and investors will inevitably see encouraging capital
appreciation.
TurkeyRealEstate.ORG recommended projects in Turkey have bank guarantees
in place to ensure that should the developer go bankrupt before
completion of your property, your money is 100% safe. In Turkey this is
not yet a general legal requirement and, owing to the early stage of the
overseas property market in Turkey and the comparatively immature
banking system, provisions such guarantees are sometimes impossible or
very expensive to achieve. This makes it doubly important to work with
developers of substance with proven track records that can offer quality
property and who run no risk of running out of capital during the
construction phase of a project.
By appointing independent legal representation, the client can be sure
that all the necessary paperwork is in place and title ownership is
clear before signing the purchase contract. TurkeyRealEstate.ORG ensures
recommended legal services are always offered independently from project
developers, therefore exclusively representing the client's interest at
all times.
Property ownership in Turkey is mostly sold Freehold, leaving no room
for ownership disputes.
Return
Both short and long term investments in Turkey are attracting high
growth figures. As a long term investor, you will be waiting on your
laurels for Turkey's promised membership of the EU while profiting from
high rental yields in the meantime. An increase in the number of
overseas nationals purchasing in Turkey has helped house prices to rise
by 15-22% in the past 12 months and with interest set to continue prior
to EU membership, it is unlikely that prices have yet reached their
peak.
Many people seeking Turkish property are buying for investment purposes.
Some look for a holiday home with the aim of also making a little money
along the way, bit others want a dedicated investment property that they
may never even visit. Buy-to-let investments are hugely popular in
booming tourist hotspots and in cities suffering a short supply of
accommodation such as Istanbul, and off-plan buy-to-let investments are
offering very encouraging returns and rental yields:
Depending on the area and property in which you choose to invest, growth
figures will vary from 25-40%. Average rental yields in key rental
locations currently reaches between 5 and 10% depending upon the
property.
Taking an average of 25% capital growth, a property purchased at GBP
60,000 with sustained growth over five years will have a market value of
GBP 183,105, entailing a huge 305% return on investment.
Recent research shows that by comparison, investments made since 1994
have now yielded the following average returns: Stock market - 18%
(gross), Turkish property - 568% (net), pension plans significant loss
(net).
Financing
Turkish mortgages were agreed in late 2006 and their general
introduction is slowly increasing the desirability and pricing levels of
Turkish property. Mortgages can also be raised via overseas mortgage
brokers, normally to a value of 80% of the property price.
Developer's mortgages are sometimes available to fund around 80% of the
purchase price. Charges applicable will vary according to developer and
repayments are index linked. Although these deals can sometimes be
highly beneficial, it is always advisable to shop around for the best
mortgage or other finance arrangement to suit your needs.
If necessary, TurkeyRealEstate.ORG can help its investors arrange equity
release from their existing property to fund their purchase.
Taxation
Turkey offers some beneficial capital gains tax incentives: if you sell
your property after four years, no capital gains tax will be charged.
Property sold before the period is over will be charged at the standard
rate of income tax (between 15% and 35%), calculated on the difference
between the buying and selling price.
Property acquired as a gift or through inheritance is subject to taxes
of between 1% and 30% of the valuation. Tax paid in another country on
inherited property is deducted from the taxable value of the asset.
Inheritance tax is payable over the period of three years and in two
installments per year.
Property taxes include:
Initial purchase/transfer tax: normally 1.5% of the declared
purchase price
Annual purchase tax: approx. 0.5% of the declared purchase price
Annual community tax: approx. GBP 8
Government tax: approx. GBP 100
Stamp duty: depends upon the value of the document and is charged from
0.15% to 0.75%.
Value added tax (VAT) was introduced in Turkey in 1985, the
implementation of which is similar to that of other European Union
countries. VAT rate in Turkey is generally 18% with a few exceptions.
Tax on rental income: Net rental income is taxed as ordinary taxable
income. However, if the net rental income from property let out as a
residence does not exceed YTL2,200 (1,095), the said income is not
subject to a declaration and the income is not liable for VAT.
Withholding tax: levied on rent payments for non-residents who only earn
rental income in Turkey. The taxpayer would not have to file a tax
return on income from his Turkish property.
Property tax: Residential premises and land are taxed at 0.1% of their
value. This tax rate is doubled if the property is in a metropolitan
area.
For more detailed information regarding the complexities of tax in
Turkey, we strongly advise you to contact TurkeyRealEstate.ORG who will
help put you in touch with a professional tax advisor to discuss your
particular circumstances.
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