Iranians’ Growing Interest in Turkish Real-Estate Market

EghtesadOnline: President of Tehran Chamber of Commerce, Industries, Mines and Agriculture Masoud Khansari recently tweeted that Iranians’ investments in Turkish property market are growing because of Iran’s runaway inflation, lack of a clear economic outlook and poor state of investment.

News ID: ۷۸۷۰۹۱

02 October 2021

Iranians purchased 4,600 homes in Turkey during the first eight months of 2021 to top the list of foreign property buyers.

Latest figures released by Turkish Statistical Institute indicate a 20.79% growth in the number of housing units purchased by Iranians during the period, compared with the previous year’s 3,808 housing units.

The number is also the highest, compared with the corresponding period of the previous years.

Iranians were followed by Iraqis with 4,631 house purchases during the eight months. Russians with 2,575, Afghans with 1,819 and Germany with 1,186 units came next.

A total of 31,242 housing units were sold to foreigners during the period under review.

Istanbul, Antalya, Ankara and Bursa are popular locations for foreign buyers of property in Turkey.

The figures also indicate a sharp increase in the total number of housing units sold to Iranian nationals in August 2021, from 619 in last August to 911 housing units this year.

Foreigners bought a total of 5,932 homes in Turkey during the eighth month of the year, which indicate a substantial growth compared with the corresponding period of last year.

Lure of Investment

Foreigners are buying real estate in Turkey, as property values in Istanbul are among Asia’s lowest, and the Turkish government is encouraging foreigners to invest.

Likewise, real-estate values in major Turkish cities like Istanbul, Ankara and Izmir are not only cheap … but investing there also opens a path to citizenship and obtaining a second passport, according to InvestAsian.

The government is actively encouraging foreigners to invest in Turkey through their citizenship by investment program that is one of the biggest attractions for buying real estate there.

Purchasing a condo, house, or any other type of property in the country that’s worth at least US$250,000 can lead to Turkish citizenship almost immediately.

When Turkey first started its citizenship by investment program, you had to purchase a property valued at US$1 million or above. Soon, the minimum was dropped to a much more reasonable $250,000 and Turkey’s citizenship program has become very popular.

It now competes with other citizenship and Golden Visa programs in the region, including Portugal and Malta.

Turkey’s citizenship by investment program includes two other options outside of real estate: making a bank deposit, or contributing capital to a business in Turkey.

The investment required for those two options is $500,000, which is double the amount required from a real-estate investor.

There are multiple property taxes you’ll need to pay if you invest in real estate in Turkey. The purchasing tax, or title deed tax, is a substantial 4% of its sale price. Normally, it’s split, such that the buyer pays half of it while the seller pays the remaining 2%.

VAT, or value-added tax, is also applied to real estate in Turkey. Commercial properties have a VAT tax of 18% while residential properties have a smaller VAT tax that can range from 1-18% but is generally on the lower end of that scale.

Foreign investors have the option of waiving the VAT tax if they meet specific conditions, such as agreeing to not sell the property for at least a year.

You’re also required to pay annual real-estate taxes in Turkey. They’re cheaper than in most other countries, ranging from 0.1% to 0.6% of a property’s total value. Nonetheless, annual taxes are an ongoing cost that you should consider before investing here.

Since 2010, the Turkish lira fell in value from 1.50 against the US dollar to about 8.50. That’s an over 500% decline!

A steadily depreciating lira has made Turkey one of the world’s cheapest emerging markets to invest in real estate.

In fact, the Turkish property market ranks among the least expensive in all of Asia, despite its status as an upper middle-income nation.

Istanbul is the largest city in the country with nearly 20% of Turkey’s total population residing here. You can purchase a renovated apartment in Istanbul’s city center for a low price of only US$1,000 USD per square meter.

High Risks

Moving to the question whether through renting your property or eventually selling it, can you make a return on your investment in the future, the InvesAsian report says Turkey is a rather wealthy nation and ranks high on the human development index.

That said, while it’s not a “third-world country”, the Turkish economy is not in its prime either.

Unfortunately, the lira is in freefall. There’s no end in sight to the currency’s rapid and ongoing depreciation.

Keep in mind that, when you buy real estate in a country, you aren’t just investing in a physical structure or plot of land. You’re also making a bet on the future of a nation’s currency and the lira isn’t worth gambling on right now.

Turkey’s corporate debt levels are over 70% of the country’s GDP. Much of this debt is owed in US dollars, not Turkish lira. Due to the lira’s depreciating value, the amount of lira they’ll need to pay off their debt is increasing.

It’s a bad sign for anyone investing in Turkish real estate. Housing prices in Turkey might seem cheap, yet their value is decreasing alongside the Turkish lira’s.

Turkey suffers from one of the world’s biggest trade deficits as well – around US$50 billion to be precise. The nation’s industrial sector cannot easily compete on price or quality with East/Southeast Asia countries.

Simply put, Turkey does not have a competitive manufacturing industry like that of Thailand or China, especially compared to its imports. Thus, on top of all its other problems, Turkey lacks the flexibility needed to properly manage an economic crisis.

Your first impression might be that purchasing real estate in Turkey is a good deal. Despite low prices and relatively high rental yields around the 5% range, there’s a large degree of risk though.

It’s likely that you’ll end up losing money rather than making a return on your investment due to the lira’s declining value.

Don’t expect your net yields to approach 5% in reality either. Vacancy rates are generally high in Turkey, so after deducting repairs, damages and the fact that you probably won’t have a tenant all the time, expect lower yields. Not to mention you’ll get paid in terms of Turkish lira.

Favorite Tourist Destination

Apart from property investments, Turkey has been a popular destination for Iranian travelers for many years.

Iran was Turkey's fifth biggest source of tourism in the first eight months of 2021, accounting for 3.95% of all foreign tourists who visited the neighboring country.

Latest data released by Turkey's Ministry of Culture and Tourism show 555,035 Iranian tourists visited Turkey during the eight months to register a 114.71% growth compared with the similar period of last year.

Russia with 2.46 million (17.49% share) topped the list of foreign nationals visiting Turkey during the period under review. Germany ranked second with 1.87 million, followed by Ukraine with 1.44 million visitors and Bulgaria with 642,408.