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. |
General Factors |
