If you are an investor interested in real estate ownership in Turkey in general and in Istanbul in particular, it is likely that you have read many articles and watched a lot of videos that confirm that the rental and resale guarantee is really profitable and also at the same time I have read and heard a lot about this being a trick for foreign investors, and, in reality, both cases exist in the real estate market, sometimes the rental guarantee is real, and sometimes it is a fraud.
When the rental and resale guarantee is real? And when it is a trick? We will discuss both cases in detail in today's article, but before that, it is necessary to first introduce the regions of Istanbul and look at some important statistics.
Istanbul is the best investment city in Turkey without a competitor and more than half of the properties that are sold to foreigners in Turkey are in Istanbul, and more than 80% of the properties sold in Istanbul to foreigners are on the European side of Istanbul and the small percentage is on the Asian side, and we detailed in our previous articles the reasons, and we can quickly say here that the Asian part of Istanbul is a non-incubating environment for foreigners as it is in the European section.
To facilitate the explanation process, we have divided the European side of Istanbul into 3 main sectors, as shown in the drawings below:
Sector A: It mainly includes the areas close to the Bosphorus such as Sisli, Maslak, and Beyoglu in addition to the coastline at Zeytinburnu, Bakirkoy, and Florya. Kagithane, Fateh, Topkapi, and Eyup can be attached to this sector as a second degree since these areas have fewer advantages and are further from the Bosphorus and the Sea of Marmara.
Sector A, especially in its main areas, Beyoglu, the historical heart of Istanbul, Sisli, the business centre, and the artery of Istanbul, in addition to Maslak, the extension of Sisli, where modernity meets the beauty of the Bosphorus and Belgrade forests, characterized by the presence of a few new projects in it, whether ready or under construction, and this is the key to successful real estate investment As we will detail later, of course, with regard to the features in the real estate in this sector, the prices will be the highest, and therefore the investment returns are definitely the highest.
Sector B: It mainly includes the residential area of Basaksehir, which is the closest suburb of Istanbul to the centre, in addition to the Basin Express Street connecting between the E5 and TEM roads, which are the two main roads in Istanbul, also the real estate of Bagcilar, Gunesli, Kucukcekmece, and Halkali regions can be attached to this sector.
In terms of location, this sector has good investment advantages, but the fact that its main areas were built in a non-investment manner weakened its real value significantly, and here are the details:
Basaksehir district, whose projects are designed and planned to be a residential area par excellence, thus we will find in it modern urban life and wide roads suitable for families to live in, where schools and universities are available and everything they may need, and it is also the closest suburb to the centre of Istanbul, and thus it is a residential area in which there are very few investment opportunities.
Basin Express Street has a really distinctive central location, although its importance has decreased dramatically after the closure of Ataturk Airport and the opening of the new Istanbul Airport, which is an industrial area that is gradually transforming to include many hotels and commercial towers in particular and sometimes residential, but the main problem here is the presence of more than 30 new projects under-construction or recently delivered on this street, and this is the basic principle that makes investing in Basin Express Street dangerous due to the large supply and lack of demand. However, it can be a profitable investment but in the long term, in more than 7 years.
Sector C: It includes the suburbs of Istanbul relatively far from the centre, firstly Avcilar, then Beylikduzu, Esenyurt, Bahcesehir, and finally Buyukcekmece. This sector is characterized as an emerging sector and the prices in it are cheap compared to the previous sectors, especially in the Esenyurt area, but at the same time it is an emerging sector in many parts of it, it lacks metro stations and dense transportation links between neighbourhoods.
However, the fact that the prices are cheap and the rapidly developing emerging sector, there are investment opportunities in it for those with medium and small budgets.
Also, there is a negative point in this sector, which is a large number of modern offered projects in it, as there are 48 new projects in Beylikduzu alone between ready and under construction, and therefore in all areas of the sector shown in the drawing below, we have more than 250 new projects, and this makes the demand relatively small for the large supply.
Now, after we got acquainted with the sectors of Istanbul, we will summarize what we are interested in so far:
The first sector: Beyoglu, Sisli, and Maslak includes less than 20 new projects that have been recently delivered or are still under construction
The second sector: Basaksehir, Basin Express, and its surroundings, includes more than 90 modern projects under construction or recently delivered.
The third sector: Avcilar, Beylikduzu, Esenyurt, Bahcesehir, and Buyukcekmece includes more than 250 projects under construction or recently delivered and still includes new units.
By looking only at the definition of regions and the summary above, we can immediately notice the following:
Regarding rental yield and subsequent resale:
1- The first sector includes the fewest number of new projects and therefore the rental return is the highest and the possibility of resale later is easy.
2- The second sector includes a large number of new projects concentrated in a relatively small geographical area compared to the second sectors, and thus the large supply means the lack of demand and thus the rental return is average as a value and low as a percentage of the property price, because prices in the second sector are much higher than the third sector, and also the possibility of reselling is relatively difficult.
3- The third sector includes the largest number of new projects, and thus the rental yield is low in value and average, such as the percentage of real estate prices in this sector being the cheapest, and the possibility of resale with almost impossible profits.
Regarding infrastructure:
1- The first sector: It is clear that the density of transportation lines of all kinds is very high in this sector, and this means that there are no great opportunities for the growth of the infrastructure more than that in the future, and yet the Istanbul Centre remains with high investment value for the following points:
- The investment is subject to a specific time, and the closer to the centre of Istanbul, the easier it is to finish the investment and sell the property again with additional profits.
- New projects in the centre of Istanbul are limited, and therefore the demand for them is great now and in the future, and therefore when sold again, the profit rate will be high.
- The rental yield for real estate in the centre of Istanbul is higher than the rental return for real estate far from the centre.
- If the project is under construction, this is also more profitable for a short-term investment.
- The areas of the centre of Istanbul never lose their value, the more urban expansion extends throughout Istanbul, east and west, the greater the importance of central areas, and the higher their investment value.
2- The second sector: It has less infrastructure density than the first sector, but it is relatively high, and consequently the development of infrastructure in the future will be at a medium level and thus the chances of resale in the future with a high-profit collection that are not high in this sector.
3- The third sector: It is clear that it is a modern sector and the transportation is built in it very few and therefore there is a great opportunity for prices to grow and develop only due to the completion of the infrastructure in the future, and this in itself gives an investment advantage, but the fact that there is a lot of supply in this sector makes it an area full of the winner and the loser investment opportunities at the same time, an expert in the real estate market who has followed the development of regions for several years must intervene to actually get investment offers in it.
We may have lengthened the explanation in the introduction before answering the real question, which is, is the rental guarantee and the resale guarantee real, or a marketing trick?
In fact, we indirectly answered this question through the previous explanation, so now we can summarize the answer clearly in a simple way through the following points:
1- The rental return in Istanbul (which is the highest in all of Turkey) ranges between 2% and up7% in the best case, and therefore every increase over 7% in general, is an unrealistic inflating process of the rental return, but this is provided that the property qualifies for a return of 7%, but when we find a non-investment project, the rental return is expected to be 3% provides a rental guarantee of 8% or 10%, especially if the project is still under construction (meaning there is no real tenant within the project). Here lies the marketing trick, as a property worth $ 100.000 is sold, for example, at an 8% return for 3 years and thus within three years the investor can get $ 24.000, and so far things look good, so where is the trick?
The trick is that after the end of these 3 years, the investor will face two big problems:
The rental return for the fourth year will not exceed 3% after it was 8% in the first three years.
If the investor wants to sell the property and assuming that the property's value remains constant, he will find that its price will not exceed $ 80.000, and therefore the high rental return that he was taking is his money that he previously paid to the construction company and it returns it in the form of a high rental return.
2- The high rental return if it is based on correct investment bases then it is real. If it is a non-investment property, then all rental returns are a marketing ploy, but what are the investment bases?
If the location of the real estate is in the first sector, and therefore there is a great demand, whether to buy or rent the property and thus the return is real (most of the first sector projects do not provide a rental guarantee because they are projects that do not need a guarantee).
The fact that the property is outside the first sector does not mean that it is not an investment, it is possible that it will be a commercial store in an area that has developed greatly, as happened in the Cumhuriyet Mahallesi area in Esenyurt, as it witnessed a great development during only 5 years, and therefore the shops in it achieved really high rental returns. The drawings below are for illustration.
Cumhuriyet Mahellesi 2014
Cumhuriyet Mahallesi 2019
Also one of the investment bases is that the property is in a vibrant, emerging area, especially in the third sector real estate, which metro stations are expected to be built near it, or it is originally in a modern area close to highways.
The high rental return outside the first sector, we can roughly limit it to offices and shops, as for homes outside the first sector, their rental income is often low.
3- As for the resale guarantee after 3 years, often as it is presented, it is a contract that is signed with the construction company and from the legal point of view there is no problem in it and the agreed percentage usually ranges from 20% to 40% according to the project, which means the guarantee of reselling the property after this period by the construction company with the realization of these profits in a guaranteed way, but here we have two important questions:
How can I choose a reliable construction company that delivers on its promises? How can I choose an investment project that does not offer a resale guarantee?
The real estate market in Istanbul is very large and rapidly changing, so the answer to these two questions is better to leave to our qualified consulting team, you only have to contact us to get a professional and free real estate advice.
