Home sales to foreigners stumble as Turkey tackles inflated prices

Steadily increasing residential property sales to foreigners in Turkey, mainly driven by the promise of citizenship, are starting to slow after a new government rule aimed at tackling inflated prices, real estate experts say.

Property sellers and real estate professionals told Reuters that before the rule change, some cheaper homes were tagged and sold to foreigners for at least $ 250,000 – the minimum price for Turkey to grant a passport to foreigners.

Some sellers were working with selected appraisal companies to inflate prices and secure citizenship for buyers, they said, with the difference between market value and price paid in some cases later accruing to buyers.

But under a regulation passed last month, the cadastral authority now automatically assigns appraisers to properties, preventing collaboration that could lead to abuse.

GIGDER, an industry body that promotes Turkish housewives abroad, said that since September 20, when the regulation was passed, the prices of some houses sold to foreigners have fallen by 30-45%. , prompting some potential buyers to withdraw.

“This difference between the selling prices of construction companies and the new valuations has led to distrust of foreigners,” said GIGDER boss Ömer Faruk Akbal.

“Since then, we’ve seen sales offices empty and pre-sales contracts canceled,” he said.

Buyers from abroad

A construction boom has helped spur economic growth for much of the past two decades, and as part of the citizenship program, money from overseas has helped offset Turkey’s generally heavy trade imbalance. .

Some 7,000 foreigners obtained Turkish citizenship through the purchase of housing between 2017 and 2020, the government announced last year.

The general directorate in charge of cadastres declared having adopted the regulation in September to remedy “certain irregularities noted in the expert reports”.

Foreign home sales – mostly to Iranians, Iraqis, Russians and Afghans – hit an all-time high of 6,630 last month, according to official data, as a depreciation of the Turkish lira made Turkish property more attractive for foreign buyers.

Last year, net foreign investment in real estate stood at $ 5.7 billion, according to central bank data.

Foreigners acquired some 37,479 homes from January to September this year, according to the Turkish Statistical Institute (TurkStat), marking an increase of 43.2% from a year ago.

They had purchased around 40,812 homes throughout 2020, down 10.3% year-on-year from 45,483 units in 2019. This is still the second-highest annual figure on record.

GIGDER’s Akbal expects construction companies to sell a record 50,000 homes to foreigners by the end of the year, although new regulations may lower that figure.

Sales contributed to a rise in the cost of living, as housing inflation was over 20% last month, reflecting soaring rents, valuations and mortgage rates.

Inflate prices

Ankara adopted the Household Citizenship Program in 2017. A year later, it reduced the minimum price to $ 250,000, from $ 1 million, to attract foreign buyers.

A representative of the real estate industry who requested anonymity said that prior to regulation, properties valued at only $ 150,000 could be reported to the Land Registry Authority with a price of $ 250,000. in order to guarantee citizenship to the buyer.

After the sale, the construction company would return $ 100,000 to the buyer, the person said.

Ibrahim Babacan, chairman of Babacan Holding, which works mainly with foreign buyers, said the new regulations would likely result in the cancellation of six of its 10 recent sales to foreigners.

“The client buys the property with the aim of becoming a citizen, but when the appraiser reports a lower valuation, he cancels the contract,” he said, adding that appraisers and builders often use different metrics in them. evaluations.

While Babacan says the new rules will slow sales in October, the depreciation of the pound will keep foreigners interested. “You can buy property in Turkey at one-fifth the price in Dubai,” he said.

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