Turkish delights

As featured in the July/August 2014 edition of Your Mortgage magazine

When it comes to overseas property investment, Turkey is proving a sweeter proposition than other foreign climes, says Clare Nessling

There’s a lot going for Turkey right now. Often referred to as the ‘new Spain’, it boasts a very strong tourism industry, excellent property values, and rising demand for rental properties, all of which have contributed to its popularity of late with overseas investors.

Tourism has risen dramatically over the last few years (it was up by 10 per cent in 2103 alone), ensuring that demand for quality rental properties in the popular tourist areas will continue to outstrip supply, making rental yields very lucrative. It was the sixth most popular destination in the world last year, according to figures from the UN and Turkey’s Culture and Tourism Office. And a recent survey conducted by the Post Office showed that Turkey is now regarded as the UK’s best value holiday destination, and the one which receives the highest rate of returning tourists.

The country is also growing in popularity as a retirement destination, with many being lured by the warmer climate, lower costs of living, cheaper house prices, and laidback lifestyle. Living costs are, in fact, around 50-60 per cent lower than the UK.

For many buyers, it’s simply a more cost effective location at the moment, and it certainly seems to be on an upward trajectory, especially now that the Turkish government is easing property ownership rules.

Simpler property ownership laws

In addition to relaxing its reciprocity laws in 2012, which opened the doors to foreign buyers outside Europe, the government has now streamlined the legal obligations on foreign buyers. The title deeds (TAPU) have a similar function to title deeds in the UK, which have to be registered with a government-owned agency when properties change hands. Without this documentation, it’s extremely difficult to prove legal ownership.

Previously, foreign nationals buying property or land in Turkey have had to apply for military clearance, which ensures that the property or land is not located in a military zone. This can take up to 10 weeks and has often deterred prospective investors from going ahead with their purchase, as it can complicate other parts of the process such as the mortgage finance.  

However, a recent revision to the real estate registration process for foreign nationals buying property in Turkey has cut the time it takes to obtain the TAPU deeds to just one day. No military clearance is required if the property in question was granted approval after May 2011, or if the investor is buying into a new development where an existing owner has already gained it.

The update will ease some of the issues buyers used to experience caused by both exchange rate fluctuations and finance availability. In a bigger help to buyers, the legal change also means that buyers could buy at auction should they want or consider discounted properties from bank repossessions. This legal difference that buyers can own a property from the start instead of having to wait until up to 10 weeks later essentially gives them a wider choice of properties.  

Property market

According to Knight Frank’s global price index, prices in Turkey increased by 13.8 per cent year-on-year by the end of 2013, putting it in an impressive fifth place in the world. Istanbul in particular has been performing very strongly, with prices up by 20 per cent in the 12 months to February 2014, according to data provider Reidin.

Residential rental values were up by over 12.5 per cent year-on-year by the end of 2013, according to Knight Frank, so there’s no doubt that investors are being tempted by some healthy rental yield potential as well as capital appreciation over the longer term. 

Hot spots

Bodrum is a particular hotspot at the moment, with many of our clients snapping up small coastal apartments which they can use for their own holidays, but also rent out easily to others. But there’s also been an increase in the number of people buying more expensive villas, especially in areas such as Fethiye, and those investing in multiple properties in the prime coastal areas.

Buy-to-let investors are also drawn to cities, where there is an emerging demand for housing. In Turkey’s three biggest cities – Istanbul, Izmir and Antalya – populations are growing and there are significant levels of migration from rural areas and neighbouring countries for employment.

With accessibility being a key factor too, Turkey has a wide choice of airports and is very well served by flights from the UK. There are four major airports serving the south-west coast, but there is also the option of travelling via the two airports in Istanbul which can be handy when there are fewer direct flights to the coast during the winter months.

Obtaining finance

It’s possible to obtain loans of up to 80 per cent loan to value, and considering that Turkey didn’t even offer mortgages to foreign nationals until 2007, availability is generally pretty good. Lenders tend to prefer shorter terms, with 10-15 years being quite typical, and rates start from around six per cent at the moment. Mortgages tend to available in euros or sterling rather than Turkish lira, and we generally advise that an overseas mortgage and the income used to service the repayments should be in the same currency, to avoid any exchange rate issues.

It’s important to obtain an approval in principle before signing any contracts or putting down a deposit. This will tell you what price range you can realistically consider, and will put you in a much better position with agents and developers, proving that you’re a serious buyer. The buying process can generally take up to eight weeks.

It’s imperative that you seek advice from an independent English-speaking lawyer who is not connected to your seller, estate agent or property developer. They will act on your behalf throughout the entire buying process, ensuring that, among other things, all required permissions have been obtained and that your title is secured.

You should also remember that bills don’t end at the asking price. Lawyer’s fees, local and national taxes and insurance can often add at least a further 10 per cent to your cost of acquisition.

Mass appeal

Turkey truly has mass appeal. Perhaps that’s why it’s currently the fourth most popular location with regard to mortgage enquiries we receive, after the more traditional hot spots of France, Spain and Portugal.

It could be a very attractive, as well as affordable, option for anyone who is thinking of buying a holiday home overseas, investing in a foreign buy-to-let property, or retiring abroad.  

Top tips  

Obtain a mortgage ‘approval in principle’

This will confirm how much you can afford to borrow and what price range you can consider.

New-build properties

Check the developer’s track record. Get references from previous buyers and check comparable properties in the area.  

Consider fluctuations in the exchange rate

It’s generally advisable for an overseas mortgage and the income used to service the mortgage repayments to be in the same currency, to avoid any exchange rate issues.

Factor in additional costs

Lawyer’s fees, local and national taxes, insurance, and so on can often add at least a further 10 per cent to your price of purchase.   

Seek professional advice

Take independent advice from an English-speaking lawyer who is not connected to your seller, estate agent or property developer.

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