Real Estate Sales in Turkey Experience Downturn: A Close Look at Istanbul, Ankara, and Izmir

The housing market in Turkey is hitting a sluggish patch, with September seeing the lowest level of sales in the past three months. Tighter monetary policies aimed at curbing spending, contributing to high inflation, have played a role in this slowdown.

In September 2023, 102,656 residential properties were sold, marking a 9.5% drop compared to the previous year. The decline continued into October, with a 16.4% decrease in sales compared to the previous month.

To understand what's happening, let's take a closer look at the real estate landscapes in major cities like Istanbul, Ankara, and Izmir — the three cities with the highest share in sales activities in the country. These cities also offer a unique blend of modernity and tradition, making them attractive to both local and international buyers.

But first, what has influenced this sluggish patch in the Turkish real estate market?

• Turkey's Evolving Property Landscape
• Housing Sales in Istanbul: Unwavering Dominance Amid Challenges
• Housing Sales in Ankara: Stability and Government Influence
• Housing Sales in Izmir: The Rising Star
• Foreign Investment and Tourism

Turkey's Evolving Property Landscape

From January to September, there was a drop of nearly 15% compared to the previous year, with just over 900,000 houses sold. Mortgage sales have been even more severely affected, with a 50.2% decrease in September compared to the previous year and a nearly 30% decline over the first nine months of the year.

One of the main reasons for this slowdown in the housing market is the efforts of the central bank to control high inflation. To address the issue of rising prices, the central bank has been consistently raising the benchmark interest rate for four months in a row. There was a rate increase of 500 basis points in September alone, bringing the total increase since June to 2,150 basis points.

This means that the interest rate was raised by 5 percentage points in September (since one basis point equals 0.01%) and a total of 21.50 percentage points since June. By raising interest rates, the central bank aims to make borrowing more expensive, which can potentially reduce spending and help control inflation.

These measures reflect the government's commitment to using more traditional economic policies in order to combat the high inflation rate, which reached over 61% in September.

Housing Sales in Istanbul: Unwavering Dominance Amid Challenges

Istanbul, Turkey's largest city, dominated the housing market in September with 15,247 sales, constituting 14.9% of the overall figure and accounting for the highest sales volume in that month.

The city's strategic location as a bridge between Europe and Asia, combined with a rich cultural heritage and abundant economic opportunities, makes it a magnet for property buyers and investors. When it comes to real estate, Istanbul offers a plethora of options that cater to a diverse range of preferences, be it opulent luxury apartments or charming historic homes that exude a sense of timeless elegance

However, recent market trends have unveiled challenges such as shifting consumer preferences and economic uncertainties. The immense popularity of Istanbul means real estate options in the city come at a higher price tag — the average price per square metre in the city centre is about  $2,850. In contrast, suburban areas come in at $1,675 per sqm.

Understanding the intricacies of Istanbul's housing market is crucial for investors seeking optimal returns. Different neighbourhoods present varying investment opportunities, and one's preferences must align with their investment goals. For instance, older neighbourhoods near the city centre may appeal to those seeking a summer home in proximity to the city’s action. However, if rental income is the main focus, considerations such as managing rent in certain districts like Fatih and Taksim should be taken into account. In 2023, the Turkish government introduced a 25% cap on rent increases, which may make it difficult for landlords to adjust rents to market conditions or maximise returns on their investments.

The short-term rental market, encompassing platforms like Airbnb and VRBO, opens up new possibilities. Tourists and business travellers often flock to areas such as Sultanahmet and Fatih, making them excellent choices for short-term rentals, with average ROIs ranging from 8-10%. On the other hand, investors with a long-term rental strategy may find neighbourhoods like Bebek, Levent, Şişli, Kadıköy, and Maltepe more suitable, each offering unique advantages and rental ROI averages ranging from 2% to 6.75%.

For those solely focused on achieving optimal ROI, districts like Beylikdüzü present the highest average ROIs, surpassing 7%. These districts outperform Istanbul's city-wide average of 5.58%. It is crucial to note that each district has its own charm, characteristics, and potential returns, and an astute eye for detail is necessary to navigate Istanbul's housing market.

Despite the challenges posed by shifting preferences and economic uncertainties, Istanbul remains a dominant force in the housing market. Its allure as a cultural and economic hub continues to attract property buyers and investors from around the world, ensuring a vibrant and dynamic real estate landscape in the city.

Housing Sales in Ankara: Stability and Government Influence

Ankara, Turkey's capital city, plays a significant role in the country's real estate sector. In September 2023, Ankara recorded 9,048 housing sales, representing an 8.8% share of the overall market. While slightly lower than Istanbul's figures, Ankara's real estate market remains robust.

Ankara offers a unique set of features and attractions to homebuyers and investors. As the administrative and political centre, the city enjoys a stable economic environment, particularly driven by government-related activities. Moreover, Ankara stands out for its excellent transportation infrastructure, making it a convenient location for both domestic and international travel.

The cost of living in Ankara is considerably lower compared to Istanbul, offering residents a high quality of life at a more affordable price. With an average monthly rent of around ₺7,000 for a single person, Ankara proves to be a financially advantageous choice. Property prices in Ankara are also relatively lower, with both rental and for-sale properties costing nearly half compared to Istanbul.

Government policies significantly shape the real estate landscape in Ankara. Initiatives aimed at improving infrastructure, urban development, and economic growth directly impact the market's attractiveness. Additionally, Ankara's proximity to government institutions and embassies makes it an appealing choice for foreign investors, facilitating business and diplomatic activities.

Furthermore, buying property in Ankara presents a perfect long-term investment opportunity. Property owners can benefit from leasing or selling their properties in the future, generating substantial income. Additionally, the Turkish citizenship by investment program allows property owners to become eligible for Turkish citizenship upon purchasing a property valued at least $400,000, offering an enticing incentive for foreign investors.

The citizenship by investment program, combined with Ankara's affordable property prices and promising real estate market, makes it an attractive option for foreign investors seeking to secure their future and reap the rewards of their investment. It provides a pathway to gain a valuable asset and access to the benefits of Turkish citizenship and the opportunities that come with it.

Beyond this, there are several other compelling reasons why buying a home in Ankara is advantageous:

• Cheap Properties: Compared to metropolitan areas like Istanbul, Ankara offers more affordable real estate investments in Turkey.
• Heated Housing: Unlike other cities in Turkey, Ankara is known for constructing modern apartments with heating, meeting the demand from citizens of northern countries.
• Convenient Transport Accessibility: Ankara offers convenient access to various regions within Turkey through its well-connected transport infrastructure. While Istanbul Airport is globally recognized as a major international hub and ranks 7th in passenger traffic worldwide, Ankara's Esenboğa Airport is the city's main airport, catering to domestic flights and a limited number of international destinations. Additionally, Ankara benefits from a well-arranged network of transport interchanges, including highways and railways, facilitating travel to other Turkish cities without significant difficulties. 
• Simplified Administrative Processes: Ankara, as the capital city of Turkey, plays a crucial role in various administrative tasks and the provision of social services. While bureaucracy is an inherent aspect of governmental processes in Turkey, Ankara benefits from a relatively streamlined system compared to some other regions. The city's administrative infrastructure is more developed, allowing for more efficient handling of documentation and access to social services relative to certain other areas in the country.
• Year-Round Job Opportunities: Unlike other resort cities in Turkey, Ankara offers many job opportunities throughout the year, making it easier to find employment regardless of the season.

Despite the Turkish real estate market's current challenges, Ankara stands out as a resilient and promising city for housing sales. Its stability, government influence, and attractive investment opportunities make it an appealing choice for individuals looking to establish a foothold in the real estate market.

Housing Sales in Izmir: The Rising Star

Izmir, nestled on the Aegean coast, has emerged as a rising star in the real estate market. With its strategic location, mild climate, and growing infrastructure, Izmir's potential garners attention from local and international buyers. According to the data, Izmir recorded 5,476 housing sales in September 2023, representing a 5.3% share of the total market.

These numbers, although smaller than the other two cities, paints a lucrative picture for the pearl of the Aegean. What makes Izmir an attractive destination for real estate investment?

• Izmir's Appeal: Izmir is a cosmopolitan city with a diversified economy and a population of around 3 million people, growing at a rate of approximately 1% per year. It is Turkey's third-largest economy, following Istanbul and Ankara. Unlike cities heavily reliant on tourism, such as Antalya and Bodrum, Izmir boasts a diverse economic landscape, including industries, trade, transportation, communication, and agriculture.
• Strategic Location: Izmir offers more than just the city itself. The nearby attractions, such as Çeşme, the ancient city of Ephesus, and the Shrine of the Virgin Mary, make the region a popular destination for tourists. Izmir's rich history, cultural heritage, and natural beauty contribute to its appeal.
• Diverse Target Market: Unlike Antalya, which primarily attracts mass tourism, Izmir caters to a range of target markets. It attracts local tourism, business travellers, digital nomads seeking off-the-beaten-path experiences, and medical tourists. The affordability of the city and its robust infrastructure make it an attractive destination for these diverse groups.
• Value for Money: Compared to Istanbul, Izmir offers better value for real estate investment. With the same budget, investors can acquire a tier A property in Izmir, whereas in Istanbul, it may only be possible to afford a tier B property. Additionally, Izmir provides more stability compared to Antalya, which can experience fluctuations due to geopolitical dynamics (changes in tourism trends, political events, or regional conflicts; which can lead to fluctuations in property prices and demand). On the other hand, Izmir's real estate market is generally considered more stable. This stability arises from its diversified economy, which is not solely dependent on tourism.
  Building regulations and zoning laws in Izmir are also more stringent, ensuring that buildings in the city adhere to higher construction standards, which include measures for earthquake resistance, safety, and environmental sustainability.
  
• Potential for Airbnb: While the long-term rental market in Izmir may not offer high yields, the Airbnb market shows promise. The local Airbnb market is not as saturated, providing opportunities for investors. Izmir's seasonal local tourism, year-round business activities, sporadic international tourism, growing digital nomad community, and medical tourism contribute to the potential for Airbnb income.

However, the market faces its own set of challenges, or important considerations before investors can embark on any ventures. For one thing, Izmir, like other parts of Turkey, has experienced earthquakes in the past – the most recent significant earthquake in Izmir occurred in 2020, resulting in the destruction or severe damage of approximately 700 buildings. 

To its credit though, new buildings in the city and Turkey in general adhere to strict regulations, and earthquake insurance is mandatory. Economic challenges, including inflation and geopolitical pressures, are also present in Turkey. Despite these drawbacks, the real estate market in Izmir remains active as people seek tangible assets for investment.

Foreign Investment and Tourism

Foreign investment and tourism significantly impact the real estate markets of Istanbul, Ankara, and Izmir – and Turkey as a whole. In recent years, housing sales to foreigners in Turkey experienced fluctuations in response to global geopolitical tensions and economic uncertainties. In September 2023, housing sales to foreigners fell by 42% year-over-year to 2,930 houses.

Despite the recent decline, it is worth noting that in 2022 purchases by foreigners hit a record high, with 67,490 houses sold. Among foreign buyers, Russian citizens remained at the top of the list, purchasing 722 houses in September and accounting for a significant portion of real estate purchases. Investors from Iran, Iraq, and Germany also emerged as key buyers, purchasing 327, 191, and 148 houses respectively, showcasing the diverse interest in Turkey's real estate market.

The real estate market's performance is closely tied to geopolitical and economic factors as investors seek safe havens or opportunities for growth. Monitoring shifts in foreign investment and tourism trends can provide valuable insights for understanding the demand and potential for real estate investments in these cities.

Looking ahead, industry experts forecast an annual growth rate of 8% in the Turkish real estate market by 2027. This prediction indicates a positive outlook for potential investors, with the potential for good returns and a stable market. With diverse motivations and the promise of growth, Turkey's real estate market offers a promising landscape for international investors.

In a Nutshell

In conclusion, the real estate markets in Istanbul, Ankara, and Izmir offer distinctive opportunities and challenges. Foreign investment and tourism significantly influence the performance of these markets, with fluctuations observed due to geopolitical tensions and economic factors. However, the record-high sales in previous years demonstrate the overall appeal of Turkish real estate to international buyers.

The future outlook for the real estate industry in Istanbul, Ankara, and Izmir remains positive, driven by factors such as city prominence, stability, and growth potential. Monitoring market dynamics, upcoming developments, and shifts in demand will be essential for investors and buyers to make informed decisions and navigate Turkey's evolving real estate landscape.

By carefully examining each city's dynamics, including housing sales, foreign investment, and future outlook, stakeholders can position themselves strategically and seize opportunities in these dynamic real estate markets.

Cover photo: Istanbul. Ümit Yıldırım (Unsplash)