Comparison of property purchase returns in Turkey with Iranian markets / loss of property buyers in Turkey

According to Tejarat News, Iranian purchases in the Turkish housing market hit a record. Data from the Turkish Economic Statistics Center show that in September 2021, Iranians bought more than 1,300 homes in the country, which is about 2.5 times the average monthly purchase volume of the same group over the past five years.

Was this buying excitement shaped by the knowledge of the “Turkish economic reality” or was it a “mass movement”? The results of the research show that people who have bought a house in Turkey in the last five years, if they sell it now and convert it into dollars, will lose because of the heavy fall of the lira against the dollar, which was faster than the growth of Turkish property prices during this period. .

Of course, the “calculated loss” is without “deduction of 4 types of property taxes”, and if all costs, including the “capital gains tax of about 35%” are included, the loss figure will be higher.

Now the more important question is “the fate of home buyers in recent months in Turkey.” If the lira continues to fall faster than housing inflation (most experts believe in this scenario), current buyers will also lose. Only in a weak scenario – housing inflation outperforms the dollar in Turkey – can we talk about not losing, which in terms of taxes, even this loss turns into a loss. Read the research report on the profits and losses of this market and alternative options.

The purchase of houses and apartments by Iranians in Turkey recorded two growth records last month, ranking Iranians – who have always been among the top 10 foreign buyers of Turkish real estate – as the number one foreign real estate investor in the country.

Iranians who buy a house in Turkey, their first main goal is to “invest for a positive return” and in this direction, they often move by “looking at the past trend of the real estate market” and “following the behavior of others, without analyzing the outcome of their actions.” However, have current investors in the Turkish housing market won or lost?

To answer this question, “World Economy” surveys show that an investor who entered Turkey in 2016 by converting his capital in Iran into lira and bought a property worth 100,000 lira, today considers the “heavy fall in the value of the lira in “Against the dollar” and “Turkey’s annual housing inflation” has “lost” at least 27%.

This means that “investors who have bought real estate in the country for the past five years, ignoring the deviation of the Turkish economy from the path of development under the influence of Erdogan’s wrong policies, with only a previous mental background, have lost in practice.” Of course, these people had other options to protect the real value of their assets against public inflation, but they also deprived themselves of them.

When did the excitement of buying Iranian real estate in Turkey start?

Official statistics recorded on the website of the Turkish Statistics Center show that in September 2021, 1,323 residential properties, including houses and apartments, were purchased by Iranians in this country. It has been unprecedented in terms of “high volume” and “large share” during the current year, and even based on the average monthly purchase of Iranians over the past 5 years, it has been historic.

Last month, Iranians’ purchases accounted for 20 percent of total foreign purchases in the Turkish real estate market. The unit is reported to be much lower than the September trading record for the month. Thus, the two records indicate a recent increase in the speed of purchases.

Iranians, of course, have not been customers of Turkish real estate recently, but their speed and desire to buy in this market has increased, right from the end of 2017 and significantly since mid-2018.

In 2018, the volume of transactions for the purchase of Turkish real estate by Iranian buyers increased exactly 4.5 times compared to 2017, and during 2019 and 2020, it grew by more than 100% per year. This trend is the effect of “inflation expectations” inside Shows the behavior of investors, how some people choose a foreign market for “profitable investment and positive return”.

But in contrast to this behavior, the trend of variables in the same foreign market also indicates, “If the choice of investment location is not based on the perspective of that market (instead of the past of that market) as well as external factors, it will lead to the loss of buyers.”

Although both economies have suffered from “inflation” over the years, it is important for foreign market investors to consider the “deviation” factor as well as the “prospect of continuing or returning to the mainstream” of the Turkish economy.

Of course, over the years, some real estate investors have invested in this market, not only for the purpose of “gaining a positive return” but also for the purpose of “permanent residence or tourist residence”, for whom the profits and losses of this market may not be a criterion.

Lear falls as the economy derails

Over the past five years, the Turkish economy has stagnated due to domestic and regional ambitions of President Recep Tayyip Erdogan and the growing budget deficit and trade deficit. The situation of key variables in the country’s economy has worsened.

The key evidence of Turkey’s dire economic situation is the rise in inflation in recent years and the sharp decline in the value of the lira against the dollar. The gap between 2016 has increased by more than 100% so far, which has led to an increase in the dollar against the lira.

Currently, the value of the lira against the dollar has fallen to its lowest level, so that the exchange rate of the dollar against the lira has reached 9.2. This exchange rate in 2016 was about 3.

Thus, the value of the Turkish currency against the dollar is now 67% lower than it was five years ago. The 200 percent jump in the dollar in Turkey is the result of Erdogan’s unconventional policies in the form of “negative real interest rates”. The Turkish president claims that bank interest rates are the enemy of development.

Therefore, in the face of budget deficits and trade deficits in recent years, he seeks to provide an investment path by reducing interest rates to below the level of general inflation, and to reduce inflation. Policy error) in practice backfired so that with the real interest rate negative, investors received the signal of “negative return on investment” and the situation worsened. Since 2016, the Turkish economy has witnessed instability and rising inflation, as well as increased investment risk. .

Indicators such as the ratio of government debt to GDP, as well as the ratio of foreign debt to GDP in Turkey, further explain the “exit of the Turkish economy from the main rail”. It has risen from 47% to 63%. The budget deficit in this country has also been reported to be significant (about 20% in recent months).

All these signs indicate the unfavorable conditions of the Turkish economy for foreign investment. Recently, a survey of citizens of this country showed that more than 60% of respondents have no hope of improving the economic situation.

Scenario 1: Repetition of heavy loss of landlords to “Lear”

With this situation, the future of the Turkish real estate market can be examined in two scenarios.

The first scenario is something that has happened to investors in this market in recent years; It means “the heavy loss of property buyers to the fall in the value of the lira.” But how did this fall occur in these years?

Surveys of valid data on the economic variables of the Turkish housing market and other key economic variables of the country show: ‌The average housing price in Turkey, in the period between 2016, has increased almost 2.2 and from about 1,800 lira per square meter to 4,000 The dollar has tripled. But in the meantime, it has tripled. Is.

As summarized at the beginning of this report, if an Iranian investor bought a residential unit in Turkey in 2016 for 100,000 liras, the nominal value of the property in terms of housing inflation in this country would be around 220 today. It has reached one thousand liras. But in view of the drastically decreasing change in the value of the lira against the dollar, the capital invested in the Turkish real estate market five years ago in the form of the same 100,000 liras (equivalent to about 33,000 dollars) is now worth 24,000 dollars.

Thus, the dollar value of property purchased in 2016 in Turkey has now fallen by 27%, which means “the loss of foreign real estate investment in Turkey over the past five years.” Recently, this figure is the minimum loss for Turkish property buyers in the current situation.

Owners of houses and apartments in the Turkish housing market pay four types of taxes to the government between entry and exit, including “purchase time tax, stamp tax, annual property tax and capital gains tax.”

The rates of these taxes are 1.5 percent, 0.15 percent to 0.75 percent, 0.1 percent to 0.6 percent and also 35 percent, respectively. The 35 percent tax on capital gains is usually as part of growth. Property prices are set higher than general inflation.

Turkey’s spot inflation is currently around 31 percent, which is much higher than the country’s 20 percent inflation rate. By receiving these taxes from real estate investors, the loss of foreign real estate investors in Turkey will be much more than 27%.

Three alternative routes to the “loss-making” market

Between 2016 and 2021, Iranians who invested in the Turkish real estate market had other ways to invest in order to maintain the true value of their assets, which not only did not cause them to lose, but also resulted in a “positive return” for them.

One way was to invest in the stock market. If a person had invested in the Tehran Stock Exchange in 2016 instead of converting his capital into lira and buying property in Turkey, his capital would have increased at least 13 times today.

In this way, even with the depreciation of the rial against the dollar, the stock market capital of individuals in dollars has increased by 90% during these 5 years. Is.

Another way and alternative to the Turkish real estate market is our country’s housing market. Over the past 5 years, housing inflation in Tehran and other cities has been such that the real estate capital of people in this market has increased 7.75 times and 6 times, respectively. Turkish housing chose the Iranian housing market, but did not lose again because the growth rate of housing prices in Tehran is 1.14 times faster than the rate of devaluation of the rial against the dollar.

So here, too, that investor was making about 15 percent profit or positive return in terms of the dollar value of the property investment. Foreign currency deposits are also the third route for those who have invested in the Turkish real estate market in recent years. In this case, the rate of return on interest rates on foreign currency deposits is higher than the growth of the dollar.

The condition for the realization of the second scenario

In the second scenario, if the Turkish economy sees a “correction of the wrong policies of the President” and the independence of the central bank is restored after a few years, then the inflation rate could decline and the series of falling lira against the dollar could stop. Of course, the accelerating trend of the lira’s fall in recent years makes this scenario a weak option.

It seems that as the trend of political mistakes in the Turkish economy continues, it is necessary for investors in the Turkish real estate market to make decisions by “looking ahead” and, of course, “analyzing the past”.

The share of total foreign purchases in the Turkish housing market of the total property purchase transactions in this country is about 2%. Between 2015 and 2020, Iraqis were the first customers of Turkish real estate, followed by Iranians, Saudis, Russians and Kuwaitis, respectively. Over the past three years, however, shares have shifted somewhat, with Iranians ranking first in some years and Russians ranking third most of the time. In the Turkish housing market, On average, 1.2 million housing units and homes are traded. Foreigners make the most home purchases in Istanbul, followed by Ankara, Izmir and Antalya, respectively.

Source: the world of economy

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