Making a Real Estate Investment in Istanbul

Turkey is often featured in Western media, and is often portrayed in a negative image. I attempted to present an alternative perspective in my initial article about Turkey that can be seen as an antecedent to this one (Is the idea of investing into Turkey feasible?). The process of buying a house for sale in Istanbul, Turkey, is simple with the multitude of agents offering flashy new developments on the internet. However, is this the most effective method to do it?

1. The overall state of the market for real estate investment is Istanbul, Turkey

The main concern is the Turkish Lira/USD exchange rate.

It is interesting to note the fact that prices for real estate have actually beaten inflation in real sense.

As of now, after years of declining prices due to the deleveraging process and deleveraging, the Turkish real property market is booming once more as buyers see real estate as the best protection against rising inflation rates.

What this graph doesn’t reveal is that prices are increasing regardless of USD terms.

As an Turkish saver, you’re better off with affordable, local real estate investments rather than USD at a bank particularly with the current rate of inflation across the US and currently at more than 8.

Turks think about inflation has changed. Since the USD is becoming less of a store worth, the Turks could also own local real estate and earn rent.

The pressure from demographics adds to the attraction to this particular market. Istanbul is currently home to 15 million residents, and is predicted to grow rapidly over time due to the positive demographics of the country and urbanization. As per the World Bank, Turkey’s fertility rate is around 2.1 women per child. This is very comparable to its arch-rival Greece which has an average of 1.4 women per child.

2. The most common trap to avoid is an investment in real estate in Istanbul

I’ll start by addressing this because it’s not uncommon for foreigners to be manipulated in this manner. You came across some excellent real estate websites. The salesperson speaks flawless English and offers the opportunity to take you to the airport, and then offers you numerous properties with attractive brochures, rental guarantee, and promises of big return on investment in the future.

Run away. You’re about to be swindled!

3. To earn money from Istanbul property, you must invest as the Turk

Locals are aware that many development are priced too high. However, the most affordable deals can find on the second market. It is best to purchase an unoccupied property that is located in a popular neighborhood and then renovate it according to Western standards. This is the way you can probably get better returns and capital gainsdue to the work you have done. However, remember to think as if you were born here. If you’re looking to profit from real property investments in Istanbul it is essential to be one of the people who think like the typical Turk.

Two ways to participate in the market.

You can purchase top-quality property with a view over the Bosphorus. If the economy picks up and these apartments are in prime locations, they will be the first ones to appreciate in value. But, you can expect lower gross rental yields, which are around 3 to 5 percent.
You can buy into up and emerging areas that are close to luxury neighborhood. In this way, you will get better rental yields (double) and capital appreciation in the event that the area continues to grow gentrifying, and general appreciation when the overall market is improving (though not as much as prime locations).

4. Are you investing in the European or the Anatolian (Asian) part of Istanbul?

Istanbul is famously divided into two parts: it is divided into two parts: the Asian part and then the European side. While both sides are growing however, the majority of the important catalysts are located on the European side.

The brand new Istanbul airport that was opened in the year 2019 is the largest airport in the world. It is situated on the European side of Istanbul.
A huge new Canal is planned in order to take over the Bosphorus as a shipping route. Around 48,000 ships travel through the Bosphorus each year. This results in overcrowding and a huge risk to the environment. To lessen the risk and to increase revenues, Turkey plans on creating an additional canal on its European side.

The two projects will be a huge attraction for employment, as well as infrastructure development logistics hubs, manufacturing and more.

However, that doesn’t mean there’s no activity on the Anatolian side, as there are activities there too. For instance, an international financial center is being constructed on this side, and it will include an office of the Turkish Central Bank, the principal regulator of banks and the headquarters of some of the largest private and public banks.

Although this is positive, the other two projects are huge and will drive an increase in economic activity. I’m not saying there isn’t a plethora of worthwhile investment opportunities in both sides of the Anatolian side, but I can see more clearly regarding that European side.

5. Which neighborhoods should you consider investing in Istanbul’s European part of Istanbul?

The first step is to look over the seismic map, and stay clear of any region that is dark red. Every homeowner must have earthquake insurance so that at least you’re covered in the event of an earthquake. In the past, when there are earthquakes in Turkey the buildings are with poor construction that fall. The buildings built in the 1960s and earlier are more sturdy than the typical and can withstand these tragic circumstances.

Additionally, after having been to every European portion of Istanbul I would steer clear of the areas that are further out. I’m not interested in purchasing rows of newly constructed blocks that look shabby within 10 years, particularly because they are not sold at a bargain compared to prime areas in central European Istanbul.

We are left with the historic core of Istanbul.

Taksim, Cihangir, Galata The area is very touristy, however there are many locals who live here too. Clubs, bars, and artistic zone. Average prices and moderate yields.
Sultanahmet (right part of the red circle) It is the place the place where the famous Hagia Sophia is located. It’s a touristy area with a lot of Airbnbs and is not very appealing for locals. Overpriced.
Besiktas local, middle-class and, for some reason, low yields despite the fact that the prices aren’t too high.
Nisantasi and Macka: Premium area. Hotels, restaurants as well as high-end shopping bars. Very low yields.
Kurtulus, Bomonti, Osmanbey local up and coming regions. The area was originally a working class, but is now rapidly becoming gentrifying. High yields and low prices

6. A study of a real property investment in Istanbul

The loft is fascinating. It is located in Osmanbey/Sisli, an area that is quite nice located on the European side. Its uniqueness is that it is situated in a busy street lined with textile factories. This means that during the day, it’s lively, but it isn’t a noisy place, and in the evenings, it’s extremely peaceful, but only a 2-minute walk from the fashionable, trendy bars. There’s a certain glitz to this particular area.

It is necessary to consider seismic insurance, however the cost is minimal. One of the major benefits of making a real property investment within Istanbul is that landlords do not usually pay for finding tenants. The reverse is true tenants pay agents to locate the right apartment. Additionally, the common costs are paid through the tenant. In addition, demand for tenants is high, which means that the process of finding a new tenant usually can take a week or more.

If you have more than a rental property in Turkey and you are a resident of Turkey, then you will be paying a higher tax on income rate.

7. You can even receive a an unrestricted passport from it

If you purchase $400,000 or more worth of real property in Turkey the owner as well as your spouse and your children under 18 can be granted Turkish citizenship. This is a fantastic plan B and is not a bad travel document.

8. Real estate taxes in Turkey

Tax rates for personal income range between 15% and 40 percent. If you make the minimum investment required for citizenship through investment, and earn an average return of 5-6 percent, and then take all expenses allowed (most) and you’ll likely pay around 20 percent.

Learn more about me and my International Tax Consulting for more details.

Capital gains are not subject to taxes if you own real property for five or more years. If you decide to sell it prior to and pay capital gains tax, these taxes are added to your annual income (after the deduction of TRY 18,000) and take CPI indexing into consideration. In reality, the capital gains taxes are not that much.

The annual property tax of around 0.2 percent on the value of assessed of properties in Istanbul that is less than the majority of Western markets.

In addition, there’s about 4percent in stamp duty costs when buying real property in Turkey. In most cases, this 4 percent is split between buyers and sellers, however often it’s not. It all comes down to the negotiation process before securing the deal.

There is VAT in certain situations, however it does not apply to first foreign real property purchase in Turkey. Most of the time, it can be avoided, especially when you purchase on the second market.