Istanbul Investment Property in Prime Locations - forget the suburbs

  Date posted: 19th of June 2011

Forget the suburbs - focus on prime location areas in Istanbul. 

With every other emerging real estate site promoting low entry level properties in the suburbs of Istanbul, investors should ask themselves a fundemantal question.  What is my exit strategy?  Is there one? or am I being sold a dream that is unlikely to materialize? 

Every good investment in real estate should have the following attributes to make it a good investment

1. Acquire below market value
2. Ongoing income to offset running costs + time value of money + finance costs
3. Assured exit strategy

Now - reconsider Istanbul investments you are being sent left right and centre by various companies suggesting to have credible answers to the above.

1. Have you acquired below market value?  Of course not.  The rental guarantee package that you are given is paid by you upfront, in other words, your rental guarantee is nothing but a cash-back offer.  You wish to test this? OK, here you go, tell your agent that you do not wish to earn any rental income.  Will the price come down?  If yes, then you have your answer.  You will find that in most cases price will come down. 

2. Is your ongoing income a genuine rent?  Well, this has been answered in point 1 above.  Of course not....Contrary to all so-called supporting evidence that you are supplied with, to name a few - new industrial zone bringing 1,000"s of renters, a new university campus providing captive tenants, a new motor way creating jobs, shopping malls, etc, the truth is rental demand in suburbs of Istanbul is satisfied by existing accommodation.  Turkish developers provide interest free mortgages to Turkish buyers.  So, ask yourself, why should anyone rent in these areas, when there is a huge push from the government to get Turks onto the property ladder starting with low cost suburbs.  Who are you going to rent to?  certainly not holiday makers.....

3. Have you got an assured exit strategy? This is the most critically wrong assertion, rather marketing ploy that is fed to foreign investors mainly by foreign promoters.  Logic says that in an increasing population and dynamic economy like Istanbul, your exit strategy should not be a problem.  Think again.....Turkish government is opening up new development areas one after another.  The government"s plan is to ensure that lower income brackets of Turkish population can get on the property ladder easily in the next 10 years.  This is a 10 year timeline. And, Turkey"s landmass is over 5 times the size of say England with only around 30% more population. 

So, please do your sums...when you come to realize your investment in say 5 years" time, naturally with a handsome capital growth - that"s why you bought it after all - new projects in new so-called upcoming areas will always undercut your price.  Let"s face it, Istanbul suburbs are not exactly prestigious areas to live and projects are generic.  So, why would a Turk purchase your property at a premium (on an inflated price to start with) when there are many cheaper similar options.  Do we need to say more???

So are all Istanbul investments a marketing ploy??  Certainly not but most are....

Now let"s go back to 3 fundamentals

1. Acquire low
2. Ongoing income
3. Assured exit strategy

Where do we go from here?  We go to prime location Istanbul districts, where there is no further scope for new projects and where the trendy and wealthy are embracing "back to ghettos" move that we have seen in all major cities such as London, New York, etc.  

Beyoglu, as we believe you all know, is a very high foot-hold area with ever increasing rental demand for the area is what we call a transitional area. Place Overseas operates a management company in Beyoglu and manages suites, apartments, as well as small boutique hotels. As a sub-division of this operation, the company offers freehold apartments with associated rental income. Basically, "we fill up the units as part of our ongoing operation hence can provide contractual rental guarantee. Our purchase costs are below market value hence sustainable yields and our ability to offer buy back contracts after 5 years" says Cameron Deggin of Place Overseas.

"Stock moves very quickly so come 2 weeks from today, current stock may be totally renewed, however, concept is always the same, prices between GBP 95,000 - GBP 110,000 for quality 1 bedroom apartments (which is the segment most in demand by dweller profiles), always 6% rental guarantee and always 50% premium after 5 years. We select the units very carefully, usually through distressed sales and auctions and furnish them ourselves" says Deggin. 

So let"s go back to our 3 success factors

1. Low acquisition costs - yes via distressed sales and auctions
2. Ongoing income to offset costs - yes there is a contractual net rental guarantee in place and no further costs
3. Assured exit strategy - yes contractual with 50% premium, which gives a very handsome appreciation.