In this article we will take a brief look at the potential of the Istanbul property market, and what key market indicators tell us about the viability of a buy to let property investment, especially from the perspective of the overseas property investor.
The first thing we will look at is the population and see if we can see a genuine need for housing in the city, the following figures come from the Jan 2008 census:
Population: 12.573.836 as of 1st of January 2008 (10.041.477 in 2000), that is 17.8% of the total population of Turkey (70.586.256 as of January 2008)
Density: 2.420 person/km2 (26 times that of Turkey in general , which is 92 people/km2)
Population growth rate: 3.3 % annually
This shows us that the population of turkey is growing by some 400,000 inhabitants per year, creating an urgent need for more good quality housing, and when an commodity is in short supply, the price goes up, which is an ideal environment for an overseas property investment, as Istanbul properties are in short supply.
Next we look at the current level of housing in the Istanbul property market:
Housing: 869.444 buildings or 3.393.077 single units
This tells us that there are 12 million people and 3 million residences, and we also know that some 20% of the residences are sub-standard and in need of severe renovation or demolishing.
What can we tell from this very raw data on the potential for buy to let property in Istanbul? well, we can tell that there is a requirement for more starter homes and first purchase properties in Istanbul. We know from the most basic of experience that this demand, both for rental and resale property, is fuelling, and will continue to fuel sustainable growth in Istanbul property.
What we need to look at now is whether that local market of buyers can afford to rents and/or buy property in Istanbul. The largest driver in the Istanbul property market is leverage. The introduction of mortgage products to help Turkish home buyers get on the housing ladder without having to pay 100% in cash. Traditionally, with the absence of mortgages in Turkey, residents had to use savings or inheritance to buy their home, now they can get a mortgage which opens up the market to millions of new property purchasers, again fuelling capital growth as residents rush to get their first home. Mortgages are available with loan to value ratios of up to 80% at rates form around 6%, meaning we can buy using good value leverage, increasing our investment returns.
We looked at rents for completed property in Istanbul and we found little difference between the rental yields for either one or two bedroom apartments. Over seven different comparable for 50 m2 apartments we found the lowest rent asked was £250 per month and the highest £575 per month with the average at £450 per calender month.
We found that the average cost per m2 in our particular area of focus is around £1,000 per m2.
Now we have enough raw data to do our maths and ‘stack’ this deal to see if the financials work which I will lay out below. This example is based on the average rent achieved, the average cost per m2 and a 50 m2 apartment. All figures are in GBP.
Mortgage @ 80%: 40,000
Annual Mortgage Interest: 2,540 (based on a rate of 6.35%)
Average Annual Costs: 720
Total Annual Costs: 3,260
Total Annual Rent: 5,400
Positive Cash Flow: 2,140 minus taxes
To conclude, and from the information we have the Istanbul property market works for overseas property investors looking for a buy to let property investment. Although there is much more to take into account, this works in principle and deserves a closer look.