Investors turn to Turkey

Turkey is becoming increasingly popular with British property investors due to attractive gross rental yields and low property prices, property experts say.

Rental yields of 5.48 per cent in Turkey are higher than in many other traditional European second home destinations, according to Global Property Guide – which this month recommended the country as the best place to invest in Europe.

In contrast, traditional second-home destinations such as France, Spain and Portugal have lower yields at 3.85 per cent, 3.81 per cent and 3.63 per cent, respectively.

Stuart Johnson of Experience International (EI), the overseas property firm, says there has been strong appetite from investors interested in buying property in Turkey this year, especially for properties in Istanbul.

“Investors can buy a one-bedroom apartment in Istanbul off plan from around £40,000 or a completed new-build apartment from £75,000 – property remains cheap in Turkey,” he says.

EI is currently marketing the No1 Knightsbridge development in Beylikduzu, on the European side of Istanbul. There is a choice of 1, 2 and 3-bedroom luxury apartments from just £41,000 with a two-year protected rental guarantee of 7.5 per cent.

Mortgage brokers are also seeing an interest in Turkish property. Conti, which specialises in overseas mortgages, has reported a steady increase in requests for quotes for Turkish properties in the past year. Turkey is the third most popular location, behind France and Spain, based on mortgage quotes issued by the mortgage broker so far this year. In May, the number of quotes for Turkey was double that of the previous month.

“Many say that 2009 was Turkey’s year, but the signs suggest that 2010 could be even better,” says Clare Nessling, operations director at Conti. “Because it’s outside the eurozone, it has been attracting an increasing number of holidaymakers who are looking for value.”

Simon Smallwood of International Private Finance says: “The Turkish market became popular fairly late in the last property cycle and, as a result, didn’t see some of the huge over-development seen in markets like Spain. Hopefully, this will ensure it performs robustly during these difficult times.”

According to Global Property Guide, Turkey is attractive due to low prices per square metre, cheap round-trip costs and a relatively attractive tax regime. Also, properties owned for more than five years are exempt from local capital gains tax.

The country has promising growth prospects, too. “Turkey hasn’t been as badly affected by the financial crisis,” says Johnson. “Gross domestic product is expected to grow this year, with the Organisation for Economic Co-operation and Development predicting GDP growth of 6.7 per cent per annum for Turkey from 2011.” This is the highest growth forecast for all OECD member countries.

But property experts say private investors should be cautious when buying property in Turkey, as it remains a fairly new destination for second-home buyers, and could therefore carry risk.

There is no official house price index in Turkey, making it hard to get a clear idea of how house prices are changing.

Johnson says property buyers also need to be cautious when dealing with Turkish property developers. “Unlike the UK, which has a long-established
process of conveyancing and real estate governance, Turkey is a lot newer in terms of European standards,” he says.

Mortgage rates are also more expensive than in traditional second-home destinations such as France and Spain.

According to Conti, buyers in Turkey can get a rate of 4.05 per cent in euros, with a maximum loan-to-value (LTV) of 70 per cent. By contrast, banks in France offer rates as low as 1.95 per cent available up to 80 per cent LTV.

Properties in France and Spain are also deemed lower risk long-term investments.

James Price, partner of international residential developments at Knight Frank, says his clients continue to prefer established “prime” markets in Europe such as France, Italy, Switzerland and selected parts of Portugal and Spain. While these tend to have lower yields, buyers are attracted by the prospect of steady long-term capital growth.

France remains the most popular second-home destination, and continues to enjoy a very stable property market.

“It has become an increasingly attractive investment option, not least because of very low interest rates – now starting from less than 2 per cent – but also due to the falling value of the euro and lower property prices,” says Nessling.