Does the TL vs USD Exchange Rate Affect Real Estate Investment in Turkey?
Real estate in Turkey has been affected during the last five years by the change in the exchange rate of the Turkish Lira against the US Dollar, which led to a noticeable change in real estate prices, but did this sudden rise affect negatively or positively on real estate investment in Turkey? These questions and others will be answered by the real estate expert and CEO of Akarkom Mr. Omar Farouk, as follows:
Impact of the change in the exchange rate of the TL against Dollar on real estate investment
Currently, there are no losses in terms of the exchange rate of the US Dollar against the Turkish lira, in case US dollar rises or falls, as the price of the property is estimated by the price of the US dollar because:
- The price of the Turkish Lira has been constantly changing for nearly 5 years, reaching 60-70%.
- The raw materials, Turkey, are purchased in US Dollars, so the buying and selling equation has become directly linked to the Dollar.
- The Turkish government supports foreign investors and does not want to lose them. They made things easier and made all transactions subject to the US Dollar.
- In fact, the payment of the value of the property has become obligatory in US Dollars, and the government supervises the procedures for converting it into the Turkish lira.
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The best time to buy and sell real estate in light of the change in the exchange rate of TL
There is no specific time for selling a property, but the longer the sale of the property is delayed, the higher its price increases. In Turkey, the price is constantly increasing compared to other countries in which the price of the property is exposed to rise and fall from time to time, for several reasons, including:
- There is no real estate boom or balloon in Turkey, as happens in other countries.
- The price of the property is low, compared to the prices of real estate in other countries whose economies are considered powerful.
- The regions are constantly evolving with building infrastructure and services.
After buying a property that is under construction you can sell it when it becomes ready. Yet, if the area will be connected to new services, such as a metro line or any other services, then you must wait until they exist, because prices in Turkey are constantly increasing and there is no specific limit to the price.
While if you buy agricultural land with a construction license, issued later, you can sell it and benefit from the profit. Yet, if you wait for the construction plans to actually start, of course your profits will be higher, and if you build on this land, the price will rise incredibly.
At this stage, the rise or fall of the Dollar and the Turkish Lira does not play any role. When the investor sells, of course, the price will be offered in Dollars, and the buyer will pay the amount in Turkish Lira.
Yet, I would say that I agree with the proverb that says: “The best time for purchasing was yesterday” When an investor decides to buy, he should go immediately to buy and not wait for the prices to drop.
Is it Better to Invest in Residential Real Estate or Land?
The price of real estate in all its forms remains conservative and not affected by the change in the exchange rate, whether it is a land or residential or commercial real estate. So, our advice to everyone who wants to make a quick profit is to invest in a small real estate, such as a (1+1) apartment or (2+1) apartment because it is quick to sell, but if the person does not currently want to sell, it’s better to keep his investment in agricultural land.
Is it better to sign the purchase contract and pay the due installments in Dollars or TL?
Of course, documentation is in the Turkish lira, because it loses its value permanently against the US Dollar, but not all real estate companies accept to document the contracts in the Turkish lira. In case the investor finds a company that accepts documentation in Turkish lira, it is considered a great opportunity and should not be lost.
How to avoid the loss in real estate in light of the exchange rate change?
All those who invested their capital in Turkish real estate 5 years ago did not lose a single Lira. On the contrary, they gained more than 30% on their real estate, so far, despite the fact that the Turkish Lira lost nearly 70% of its value, which was confirmed by our customers who bought real estate in 2019, when the exchange rate of the US Dollar was 5.5 Liras until it reached approximately 27.5 Turkish liras, today. There are also some of our clients whose profits have increased by more than 80% during the past three years.
Are there certain areas in Turkey that loss of investment is less in case of a change in the exchange rate?
As we mentioned before, there is no loss in real estate investment, currently, in Turkey, Yet, there are investors who want to guarantee profit and high returns on their capital. They can invest their capital in real estate and real estate projects in the city center, because the city center is the only area that can be valued in US Dollars, not the local currency. This is not only in Turkey but all around the world, because the city center has a greater demand than the rest of the other regions, for example in Istanbul, the city center is the areas surrounding the Bosphorus Strait, both on the Asian side: Kadikoy, Uskudar and Beykoz, and on the European side: Maslak, Sariyer and Levent all the way to Beyoğlu and Taksim, investing in these areas reduces the risk in the capital; If the exchange rate of the Turkish lira rises or falls, it is not affected at all.
How do new investors avoid losing in the Turkish real estate market?
To ensure that new investors’ profit in the real estate market and never lose them, they must follow the most important step, which is consulting a reliable real estate company and take advantage of their advice, taking in consideration not to get deceived by some companies.
We, at Akarkom, inform the investor of all the project’s data, surrounding services and upcoming plans that will be implemented in the region, which makes the investor comfy in terms of the purchase decision based on the conviction he adopted through consultation and reliable data that touched reality. We highly recommend this step so that the investor is not deceived by a friend or relative’s talk, especially if they are not fully familiar with the real estate market, and this is what exposes many investors to great losses.
Investors can also make sure of the company's credibility by requesting the certificates obtained by the company and the documented paper to ensure that he is putting his money in safe hands.
How can the exchange rate change be used for the benefit of the investor?
First: Inflation in the exchange rate against the US dollar is a global inflation and is not confined to Turkey only. Likewise, the paper currency is constantly declining. Three years ago, a thousand Dollars was equivalent to 700 Dollars, nowadays. For this reason, if a person wants to invest his capital, it is better for him to invest in real estate, in order to benefit from inflation, whether it is inside or outside Turkey.
Second: If a person wants to benefit from the low price of the Turkish lira, he must go to real estate projects that sell in Turkish lira, not in dollars, or buy from the local market “second sale”, that is, buy from the owner and not from the construction company, in such case the investor gets higher profits because all buying and selling processes are done in Turkish Lira, not Dollars. This is more beneficial than investing a person’s money in banks and leaving them there. Investing money in banks loses the value of the capital of 10-20% annually, in different international currencies, whether Dollars, Euros, and even Pounds, as well as digital currencies.
Third: In worst scenarios, when not having profits, real estate remains preserving its value, no matter how high or low the currency rates rise or fall. Real estate is always a price and a value; the price is the amount of money paid, while the real estate value is what is derived from the utilities and the modern infrastructure surrounding the project.
When does the owner have the right to change the price of the sold property when paying by installments while the exchange rate changes?
When someone buys a property and decides to sell it within five years from the date of purchase, there is a difference in the dealing of the Turkish government with the property, so the profit tax imposed on it is as follows:
First: The Turkish government calculates the rate of inflation, for example: if someone buys a property of one million TL and the exchange rate of $1 is equal to 10 TL, then the price of the property is equivalent to $100,000. During the five years, the inflation rate reached 50%, so the owner has the right to sell the property for 1,500,000 TL, without paying profit tax to the state because this is the rate of inflation.
Second: In case someone wants to sell an apartment with higher profit than the price he bought in, for example, with 100 or 200 thousand dollars more profit, and the sale was within 5 years of the purchase, then he must pay a profit tax estimated of 20-35%. This tax is calculated based on the location of the property, space, and the building permits it obtained. The Turkish government considers this investment land belongs to them, so they will be a partner in the profits with a certain percentage, as we mentioned previously.
Third: In case someone buys a property and leaves it without selling for 60 months, “five years”, he can sell the property multiple times without paying the profit tax to the state. Here, the state considers the investor that he bought the property for housing, not investment.
Unfortunately, not all real estate companies tell this information to their clients, which makes them unaware of how to sell and invest in real estate correctly, and within the state’s decisions, which may avoid many losses in terms of real estate and capital development.
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