Market in Depth

Slower house price rises in Turkey

November 06, 2017

House prices in Turkey continue to rise, albeit at a slower pace than last year.  During the year to July 2017, Turkey's nationwide house price index rose by 11.6%, according to the Central Bank of the Republic of Turkey (CBRT). When adjusted for inflation, house prices only rose 1.65%, less than the 4.76% inflation-adjusted y-o-y price rise during the same period last year.
  • In Istanbul, Turkey’s largest city, house prices went up by 8.38% during the year to July 2017. However, when adjusted for inflation, house prices actually fell by 1.28% y-o-y.
  • In Ankara, the country's capital, house prices rose by 8.04% y-o-y in July 2017. In contrast, prices actually fell by 1.59% y-o-y when adjusted for inflation.
  • In Izmir, the country's third largest city, house prices surged by 19.54% y-o-y (8.88% inflation-adjusted) in July 2017.

New homes in Izmir also had strong price rises. According to CBRT, prices for newly-built houses in Izmir saw an annual increase of around 20.22% (9.5% inflation-adjusted), while Istanbul's new home prices rose 10.22% (0.39% inflation-adjusted), and Ankara's 6.11% (-3.35% inflation-adjusted).

During the global crisis of 2008, existing house prices in Turkey plunged 14.65% after inflation, by 2.82% in 2009, by 3.54% in 2010, and by 2.39% in 2011.

Since then, home prices in Turkey have risen continuously, largely due to the rising middle class gaining access to mortgage finance for the first time, says Kate Everett-Allen, Knight Frank´s head of International residential research.

In 2016, however, house price rises started to slow due to economic and political turmoil: terrorist attacks, political uncertainty and violent currency fluctuations, among others. Istanbul's prime market suffered that year; Knight Frank's prime home index dropped by 8.4%, mostly due to the sharp depreciation of the Turkish Lira.

“Even before the coup, the stalling economy meant investors, both foreign and domestic, were rethinking Turkish property,” says Istanbul agent Firuz Soyuer, of Pamir & Soyuer.

"Security concerns, Russian sanctions and mounting pressures on the lira are curtailing investment despite high demand and low supply characterising the wider property market," notes Everett-Allen.

Despite the recent price slowdown, “In the long-term, Turkey is likely to remain on the radar of investors, given the underlying market fundamentals of strong demand set against low supply, ” according to Everett-Allen.

Foreign ownership in Turkey is ruled by the reciprocity principle. Citizens of countries that allow Turkish citizens or legal entities to own property in their country are allowed to acquire property in Turkey. Citizens of most EU countries (except for Belgium, Cyprus, Czech Republic and Slovakia), the United States, Canada and other countries in Asia, Latin America and Africa can freely purchase properties in Turkey.

Since January 2017, Turkey has granted citizenship to foreigners purchasing property worth at least US$ 1 million.

Foreigners can also be granted citizenship through other means:
  • Making a fixed capital investment worth at least US$ 2 million;
  • Creating a minimum of 100 jobs in the country;
  • Keeping at least US$ 3 million in a Turkish bank account for a minimum of three years. 

Aside from a citizenship grant, the government also introduced other measures to entice foreign home buyers:
  • Reduction of Land Registry fees from 2% to 1.5%, until end of September 2017.
  • VAT exemptions to property owners who own a Turkish property but are not living there, on a condition that they pay for the property with foreign currency. Home buyers must also hold the property for 12 months after purchase.
  • Stamp duty for “promise to sell agreements” was reduced to 0% from 0.95%.

Analysis of Turkey Residential Property Market »

Rental Yields

Poor rental returns on residential property in Istanbul

In Istanbul, the gross rental yields on apartments - the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs - range from 2% to 4.7%.

n previous years, our research has shown that rental yields are significantly higher on smaller apartments.  But then smaller apartments tend to need more maintenance, so a higher yield is justified.  This year we are using Reidin's figures, which do not distinguish between apartment sizes.  It is rather obvious, however, that higher rental yields are to be earned in the poorer districts where per square metre prices are lower, and it is in these districts that rental yields edge up beyond 4.5%.

Prices per square metre range for apartments range from  €1,700 to €8,400, but this very large range obviously depends enormously on location. Apartments in the marvellously attractive Bebek district of Besiktas are much more expensive than in most other parts of Istanbul, with prices of around €8,400 per square metre.

Round trip transaction costs are reasonable in Turkey. See our Poland transaction costs analysis and our Turkey transaction costs compared to other countries.

Read Rental Yields »

Taxes and Costs

Rental income tax is high in Turkey

Rental Income: Net rental income is taxed at progressive rates, from 15% to 35%.

Capital Gains: Capital gains from sale of real estate are tax-exempt provided that the holding period is longer than five years (four years if the property was acquired before 01 January 2007). For properties held less than five years (four years if the property was acquired before 01 January 2008), normal income tax rates apply.

Inheritance: Inheritance tax is imposed on the value of the inheritance at progressive rates, from 1% to 10%.

Residents: Residents are taxed on their worldwide income at progressive rates, from 15% to 35%.

Read Taxes and Costs »

Buying Guide

Total transaction costs are low in Turkey

Total transaction costs are low in Turkey. The buyer pays for all transaction costs, which are around 8% to 11%of the property value.

Read Buying Guide »

Landlord and Tenant

Turkish rental market generally favours tenants

Turkish laws are pro-tenant

Rents: Rents may be freely agreed at the beginning of rental contracts. There is no other form of rent control in Turkey.

Tenant Security:The parties of the lease may specify any duration period they wish. The lease is automatically extended for one more year, unless the landlord informs the tenant in writing at least fifteen days before the expiration date of the lease that it cannot be renewed.

Read Landlord and Tenant »


Strong economic growth in 2017

Turkey gdp inflationThe Turkish economy performed strongly in the first half of the year, with a 5.1% GDP rise during the year to Q2 2017. Construction investment soared by 25% y-o-y, which led to a strong 9.5% expansion of fixed investment. Exports had a double digit growth by around 10.5% y-o-y in Q2 2017, mainly due to improved demand and lira's depreciation.

Turkey's economy is expected to grow by 5.1% in 2017, up from 3.2% in the previous year, according to the IMF. In September 2017, annual inflation was 11.2%, double the central bank's target of 5%. This was partly attributed to stronger domestic demand and weaker lira. This The government's budget deficit stood at TRY 25.2 billion (US$ 6.93 billion) for the first six months of the year, according to Finance Minister Naci Agbal.

Unemployment was 10.2% in June 2017, same as last year's rate, according to TurkStat.

The Turkish lira hit a record low of TRY 3.8950 per USD on January 11, 2017, which brings total loses for 2017 to roughly 9%. The day before that, the lira hit below TRY 4 per euro for the first time. As of October 24, 2017, the exchange rate closed at TRY 3.7417 = US$ 1.

The currency declined by around 17% in 2016. Turkish Lira joined the Mexican Peso and the Argentine Peso as some of the worst performing emerging market currencies last year.

A major reason for the currency´s depreciation is the political turmoil in Turkey - the political risk brought by the failed coup attempt in July 2016, which prompted the government to declare a state of emergency, which led to a credit rating cut from two rating agencies. Standard & Poor´s (S&P) cut Turkey´s credit rating to ´BB´ with negative outlook in July 2016. Two months later, Moody´s Investor Service downgraded the country´s credit rating to ´junk´ status, cutting the government´s long-term issuer and senior unsecured bond ratings from Baa3 to Ba1.

In January 2017, the country's remaining investment grade was turned into "junk" as Fitch downgraded Turkey's sovereign debt to BB+ from BBB-. "Political and security developments have undermined economic performance and institutional independence," according to Fitch's statement. During the same month, S&P reduced its outlook for Turkey from "stable" to "negative".

Another reason for the Lira's weakness is the end of the period of rapid economic growth. Growth slowed sharply after the Eurozone crisis hit to 5.5% annually from 2012 to 2016, down from 8.5% and 11.1% in 2010 and 2011.

A final reason is the chaos on Turkey´s doorstep in Syria and Iraqi Kurdistan, and the deterioration in relations with Turkey´s own Kurdish population.

In an attempt to impede lira's further decline, the central bank implemented some measures such as reducing the foreign exchange reserve requirement ratios by 50 basis points for all maturities, cutting the bank borrowing limits to TRY 11 billion (US$ 2.97 billion) for the Interbank Money Market on January 13, and opening the foreign exchange deposit market against Turkish Lira deposits on January 18, 2017.

Switching to presidential system after constitutional referendum
In its early years, Turkey’s AKP government was seen internationally as the Islamic equivalent of Europe’s Christian Democratic parties. However in recent years President Erdoğan has become increasingly authoritarian. Many journalists are in prison, violence against demonstrators is common, a bizarre purge of the military and of those associated with the Gülen movement has undermined judicial independence, and Erdoğan himself has been implicated in a wide-ranging corruption scandal.

The Justice and Development Party (AKP) lost its majority in the parliamentary elections of June 7, 2015, after 13 years in power. However, after coalition negotiations broke down, a snap election was called by President Recep Tayyip Erdoğan on November 1, 2015 resulting in a ´shock´ victory for the AKP, which regained its parliamentary majority, winning 49.5% of the votes and 317 parliamentary seats. The Republican People´s Party (CHP) gained 134 seats, the People´s Democratic Party (HDP) 59 seats, and the Nationalist Movement Party (MHP) 41 seats.

The resignation of Prime Minister Ahmet Davutoğlu from his post in May 2016 heightened the concern regarding President Erdoğan´s authoritarianism. Such move brought President Erdoğan´s aim to move Turkey to a presidential system an inch closer, as Davutoğlu was replaced by a known Erdoğan loyalist, former transport minister Binali Yıldırım.

In July 2016, President Erdoğan´s government was tested by a coup attempt by the faction within the Turkish Armed Forces, the "Peace at Home Council". The coup was suppressed by the military, but left 300 people dead, more than 2,000 others injured, and more than 6,000 people arrested.

The government linked the failed coup to Fethullah Gulen, a Muslim cleric who leads a popular religious movement. A series of purges has followed, with many arrests, and many firings, targeting people allegedly affiliated to Gulen´s movement, but in fact spreading much wider.

The year 2017 started with a terrorist attack, a mass shooting by Uzbek gunman Abdulkadir Masharipov happened during a New Year celebration at the Reina nightclub in Istanbul on January 1, 2017. Around 39 people were killed and 70 others were injured. The Islamic State of Iraq and the Levant (ISIL) claimed credit. A month earlier, there was another shooting incident in which involved a policeman killed the Russian ambassador as an act of revenge against Russia's military involvement in Syria.

In April 2017, a constitutional referendum was held in Turkey regarding the approval of 18 proposed amendments to the country's constitution. The "Yes" votes narrowly won garnering 51.41% of the total votes against "No" votes with 48.59%. The constitutional amendment includes the government switch from a parliamentary system to a presidential system, which would significantly raise President Erdoğan´s powers, according to his critics.

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