The growing and increasing demand for real estate in Turkey in general and in Istanbul in particular has led to the increase in real estate prices and their clear rise today, despite the depreciation of the Turkish lira against the dollar and other factors that some may see as negative, such as global inflation and the war between Russia and Ukraine, but the real estate investor realizes that the most profitable investment opportunities are formed when the demand for investment is declining due to concerns that have nothing to do with real estate investment.
The reasons that we will discuss today justify the rise in prices in real estate and confirm that this rise will be sustainable and growing as long as demand continues to grow, and this has been confirmed by all the past years.
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Yesterday’s opportunity reaps its results yesterday’s investor rtoday. As for today’s investor, he will reap the results of his investment in the near future. That is why the foreign investor Will Rogers said:
“Don't wait to buy real estate. Buy real estate and wait.”
That is, do not wait to buy a property, but buy a property and then wait. He indicates that the real estate sector in general has investment opportunities that are constantly renewed, and therefore it is important to start this investment as soon as the possibility becomes available.
Let us start from this introduction, which expresses what is going on in the minds of a number of real estate investors today in the Turkish real estate market:
A large number of investors today who are still looking for a suitable property in Istanbul, whether for housing or investment, must have been in contact with real estate brokers during the second half of last year 2021, and perhaps part of them visited Istanbul by themselves in the middle of last year and saw some real estate offers and didn't make a decision to purchase any of them at that time.
Today, with the approaching of spring season, investors' requests for new offers are renewed, because of the ability to schedule a close visit and choose the right properties, but these investors are surprised by the new prices of the properties, which have increased by no less than 70% during the past nine months. The property that was worth $ 100.000 in June 2021 today in March 2022 its value ranging between $ 170.000 to $ 200.000, so what happened during this relatively short period and greatly affected real estate prices?
Is it because real estate brokers try to mislead customers with exaggerated prices?
Or is the reason being illogically raised prices by real estate projects to increase profits?
Or is this rise logical and justified beyond the control of real estate brokers and developers?
Why are real estate prices rising in Turkey
Whatever the real reasons, we noticed from the beginning of 2022 until the date of writing this article that hundreds of customers do not accept the new prices of real estate in Istanbul and after field tours, most of them take a decision to postpone the idea of ownership again, perhaps real estate prices will return to what they were, will the future of real estate prices in Istanbul return to what they were before, or is the rise inevitable and the coming period will carry more real estate prices?
It is not possible to correctly predict the future of real estate prices in Turkey in general and in Istanbul in particular without answering the questions we raised above, and through which we can expect the progress of the real estate price scheme.
What are the reasons for the rise in real estate prices 2022?
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Reasons related to the exchange rate:
If we go back to 2017, we will find that the exchange rate of the Turkish lira against the US dollar was equivalent to each dollar about 3.4 Turkish liras, and at that time the price of a 3-room residential property in western Istanbul in an area like Beylikduzu within a residential complex was in average about 610.000 TL, equivalent to approximately $ 180.000 and the price of the same property today, with the average exchange rate of the Turkish lira against the US dollar approaching to 15 liras for every dollar equivalent to approximately 2.5 million Turkish liras, which is equivalent to approximately $ 165.000, practically increasing the price of residential real estate on the basis of the Turkish lira doesn't change its price significantly if the calculation is made for foreign currencies such as dollars.
As for the period between late 2018 and until mid 2021, when the Turkish lira witnessed a strong decline against the dollar, the prices of residential real estate were almost constant, and this means that the previous property that we were talking about at a price of 610.000 TL experienced a slight increase in its price to reach 720.000 TL, which is equivalent to about $ 90.000 if we calculate the exchange rate of the lira against the dollar, each dollar equals 8 Turkish liras (certainly the exchange rate and the price of real estate during this period were not fixed, but if we calculate for the dollar, we will find the price approximately $ 90.000 on average).
This means that during this period (end of 2018 and mid 2021) real estate prices were very attractive and amounted to half the real price of the property if the calculation is made for foreign currencies such as dollars.
Notes:
- A large part of residential real estate is not suitable for investment, and this means that the property in terms of features can be suitable for your family to live in, but when reselling later, if the calculation is done in a foreign currency, we will find the selling price close to the purchase price or even less than it, so we always in Right Home warn, there are investment properties that aim to achieve a higher price when reselling them, regardless of their area and number of rooms. If you are interested, you can contact us for more information.
- Current real estate prices are not considered high if they are compared to prices before the start of the strong decline of the Turkish lira in late 2018.
- The reduced prices during that period (late 2018 and mid 2021) are considered an investment opportunity even for residential properties to cover the price gap during the past months and return to their true value.
And here we have the following important question: Why didn't real estate prices rise directly when the value of the Turkish lira fell against the dollar?
In fact, we have repeatedly mentioned in previous articles that the real estate market is a local market par excellence, and the Turkish investor is aware of the change in the value of the Turkish lira against the dollar, but his investment plan is mostly based on the Turkish lira, and therefore when the value of the Turkish lira halves within a short period, it does not make sense in this local market to raise the real estate prices 100% immediately, but this rise will certainly need a period of time, not short.
We must also not forget the emergence of the Corona virus and its negative impact on the field of real estate investment, which in turn postponed the further price hike.
But today, with the increase in the prices of building materials, as we will see later in the following points, the price difference has appeared very quickly.
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Reasons related to building materials:
Although Turkey is an exporter of many materials used in construction, such as kitchens, marble, doors, and locks, it imports a large part of primary construction materials such as iron and cement. Let's see the price chart of iron and building materials in recent years:
By the middle of 2021, the sharp increase in the prices of iron and construction materials reached about 80% for iron and 25% for other construction materials.
The sharp rise in the prices of construction materials will not only affect the projects under construction, but also the prices of ready-to-move-in real estate, because the developer who sells ready-made real estate needs to pay the new prices for construction materials to start his new project.
Even the offers of resale and used properties are slowly approaching the prices of new properties due to the high demand for cheap properties and the low demand for high-priced properties, which will inevitably lead to a balance in the market during the next few months.
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Reasons related to the rise in rental prices:
Raising real estate prices in order to qualify them to attract a higher rental return is an incorrect equation, but its opposite is true, meaning that the high rental return for any property qualifies it to be sold at a higher price.
Turkey in general and Istanbul in particular have witnessed during the past months a sharp rise in rental prices, reaching more than 120% in some areas, and on average 84%, according to government statistics.
This means that most of the properties became eligible within one year to attract double the rent that they were qualified to achieve in previous years, and in fact there is no value to raise the rent of any property without a real demand for this property at the new price, and this was clear in most areas of Istanbul, which is the presence of tenants willing to rent these properties, even if they were twice the price of last year.
The rental return in previous years before the rise in real estate prices was approximately equivalent to 4% to 5% on average, and now after doubling the rental return, it becomes logical to double the property price to maintain this same percentage.
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Reasons related to supply and demand:
The negative effects of the Corona virus and the economic recession that affected the world greatly affected the movement of establishing new projects, and therefore for Istanbul, the demand has become higher than the supply, and this is a reason that certainly leads to a rise in the prices of real estate originally offered in the market today.
In addition, the lack of suitable land for construction near important infrastructure makes suitable land for construction in high demand, and this in turn leads to an already high land price even before construction begins.
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Economic reasons:
High rates of inflation in America, which will soon be accompanied by raising interest rates by the US Federal Reserve, which will lead to currencies falling against the dollar, which will gain temporarily greater strength and weakening in the long run its purchasing power.
The world has not yet recovered from the negative economic effects of the Corona virus, whether on manufacturing or supply chains, and this in turn leads to higher costs in general, including construction costs, and thus real estate prices.
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Politics reasons:
The recent war between Russia and Ukraine led to a significant increase in oil prices on the one hand, and also secondarily made investors resort to safe havens for investment such as owning real estate instead of opening commercial activities that the development of the war may lead to a complete halt.
There must be other reasons that we did not mention today, but these are the main reasons that justify the kind of sudden rise in real estate prices that Turkey in general and Istanbul in particular are witnessing.
As for the future of real estate prices in Turkey, it can be predicted by evaluating the basic factors we mentioned, and will they continue to affect the rise in real estate prices, or will they decline in the coming years?
To benefit from the experience of our specialists in Right Home, you can get a free consultation by contacting us.
