Dialogue with an expert on the fluctuations of the Turkish lira against the dollar and its impact on real estate

Follow up with us through  Imtilak Real Estate all the questions that business and investors can have in mind when buying the property, and the impact of lira fluctuations on the Turkish real estate market, answers the questions of the CEO of Imtilak Real Estate company Mr. Bara Badinjki.

1.Given the occasional changes in the exchange rate of the Turkish lira against the dollar, what is the right thing to do? Is it more convenient to buy or sell? Or wait a while?

This question can be answered by going into the details of the matter, in the case of the lira falling and rising, there is no doubt that the exchange rate is having a significant impact on the real estate market, construction companies and construction costs.

This effect will therefore also extend to prices, especially since the lira exchange rate is experiencing many changes, between the rise of the lira and the fall of the lira.

When the lira falls against the dollar, costs increase, and the likelihood that the price of the property will change upward by the lira increases, but there is always a break between the rise and the change in prices, and those with money in hard currency, such as dollars and euros, have a chance to buy and earn profits before the price of the property rises.

For example, an apartment worth 1 million lire, with a 7.5 exchange rate of $133,000, and when the exchange rate rises to 7.8, it finds that it has a dollar rate of $128,000 and your profit will be $5,000.

Here, we must act quickly to make a good profit from the exchange rate, with the possibility of the lira dropping further, but with time, construction companies will start raising prices to balance them with the exchange rate, so you will have missed the opportunity on yourself.

When the exchange rate rises, the situation is quite adverse. When the purchase is decided, it may be lost because the dollar rate is high, with attention to the fact that the exchange rate can fall again.

It can be said generally that one should not rely on the exchange rate change, to determine the profit or loss, and in particular when making the decision to buy a property in Turkey, because the profit and loss cannot be determined instantly, that is, the moment of buying the property only, but the issue depends on patience.

2. What factors affect the exchange rate of the Turkish lira against foreign currencies?

There are many factors affecting the exchange rate in Turkey, which can be mentioned through the following points:

• All the reasons for the increase in demand for the domestic currency lead to the appreciation of the exchange rate of the Turkish lira against the dollar, knowing that the appreciation of the exchange rate is not always a positive thing.
• The trade balance, which is the difference between exports and imports.
• Likewise, inflation, price increases and the interest rate, whose rise is leading to an increase in demand for the local currency.
• The many conditions in Turkey's political relations with other countries of the world.
• External debt has a significant impact on the exchange rate, as some companies borrow from European banks in hard currencies to expand their business, for example when repaying these loans, they need these hard currencies, raising their demand, and raising the exchange rate.

3. How does the decrease in the Turkish lira against the dollar affect the real estate sector?

The decrease in the Turkish lira exchange rate increases costs in Turkey, as Turkey is an importer of many raw materials, energy materials and oil, and this in turn greatly affects business costs and thus leads to an increase in real estate prices in the Turkish lira.

At the same time, however, the fall in the exchange rate of the Turkish lira is putting pressure on the domestic investor in some way. An investor with Turkish lira liquidity is forced to postpone or even cancel some of the projects because of the low lira exchange rate.

The State is also seeking to raise the interest rate, to control or reduce the exchange rate, resulting in lower demand for real estate on the domestic market, but prices are not fixed and balanced after a certain period, and demand is gradually returning to normal. Then the foreign investor can take advantage of the opportunity, and buy the property during this period because prices will not rise so much, which can increase when demand from the domestic market is high.

In this context, other things must be taken into account when purchasing property in Turkey, for example, the right location for the project, and dealing with the reputable construction company, which has the financial power to operate and continue to deliver in such circumstances.

4. There's a prevailing tip: In case the Turkish lira is devalued against the dollar, I will lose the property. Is that true?

The answer to this question may be surprising to the viewers, as we can say:

Yes, it is true that you are losing in this case, but this loss is a temporary loss, linked to a temporary circumstance, in other words, the return of price hikes to balance exchange rate depreciation is very significant, which is what actually happens, so the right thing to do is wait and not act quickly so that you don't really lose.

This is also true, of course, when your choice of property and location when buying is originally correct.

5. In case the Turkish lira goes down against the dollar, what's the right property to buy? Of course, if a purchase order is necessary, do I buy an apartment, a villa, or a farm? In other words, do I raise the value of the purchases or not?

When the exchange rate falls, the right thing to do is to increase the value of the real estate, which you want to buy to take advantage of the opportunity before prices rise again, with attention to what property is to be purchased or where, there is no connection between the exchange rate and the type of property you buy, especially since the type of property is determined by demand and market supply.

6. Do many factors, such as the location of the apartment or villa and existing finishings, help to protect the apartment from loss as a result of the exchange rate change?

Of course, the distinctive and central location of the estate, near services, airports and metro stations, and the distinctive finishings of real estate projects, are important factors in protecting the estate from all emergency fluctuations. Especially from exchange rate fluctuations, because no matter how low the demand for the property is, the property's characteristics and characteristics remain a point of attraction and polarization for all.

7. The rise in the Turkish lira against foreign currencies leads to an increase in real estate prices or a decrease?

There have been no changes in the price of real estate. Real estate prices are not changed or changed immediately. Construction companies are waiting for a little bit to make sure that prices are fixed, and then prices start to rise in lira, so they won't see real estate prices fall in Turkish lira.

8. Do exchange rate changes affect rents in Turkey?

Of course, there's a big impact. One of the causes of inflation is the exchange rate change, which will eventually lead to a change in real estate prices and a rise in the value of rents. It may raise more than usual, as people's reluctance to buy will lead to an increase in demand for rent, which is also an opportunity for those who prefer to buy and rent housing.

9. Does VAT change with the exchange rate?

A tax is a proportion of the price and not a fixed number, so an increase in the price increases the tax, regardless of the exchange rate.

10. I bought a property, and after the contract was signed, the exchange rate changed. What are the rights and duties of the companies in this case?

When buying a property, the contract must be signed, where there is a period to be obligated to pay, whether in cash or in limitation, but when the period is not adhered to, the non-payment is not made, and the exchange rate changes, the landlord may avoid the contract, due to the failure to comply with the statutory period of payment according to the contract.

This is sometimes the case for investors, when the exchange rate is low, to take greater advantage of the gains that result from the currency difference, but construction companies typically increase prices one or two months after the exchange hike.

Also, since the customer is bound by the date of payment in the contract, construction companies are not entitled to change the real estate price, on the pretext of a change in the exchange rate.

11. In the case of buying in installments ... is it better to pay in fixed installments in dollars or in liras?

It is better to buy the property in Turkish lira, because the premiums are usually long, and with the exchange rate changing, the value of the premium paid decreases over time.

12. Do the construction companies accept the dollar? And how does their exchange rate count?

Construction companies accept the receipt of dollars from foreign customers, and the exchange rate is usually calculated by the central bank, a day before the amount reaches their account.

13. Signing a contract to buy a new property, at a price that would qualify him for Turkish citizenship, that is, more than $250.000, and he pays in Turkish lira, in which case does the exchange rate change affect negatively or positively? And why?

There is no doubt that one of the most serious problems facing an investor when buying a property is the subject of exchange change and its reflection on the subject of progress towards Turkish citizenship.

First, we must know that the valuation of the property upon purchase is essential to the advancement of Turkish citizenship, and the date of issuance of the title, when calculating the value of the property in dollars, is often adopted by the printing services to achieve the amount of $250,000, matching what was paid for the acquisition of citizenship, through payment receipts, given to the customer and the seller by the bank.

Recently due to fluctuation in the exchange rate and the delay of some titles as a result of the Coronavirus pandemic, the Land Registry office has tolerated and the real estate dollar valuation has adopted payment dates, as well as the real estate valuation to calculate the value of the property in dollars, which does not mean that it cannot return to the status quo ante, relating to the adoption of the date of the title.

14. As an investor. How can I protect myself against all possibilities?

First, I advise all investors not to buy property, which stands at the price of the amount of Turkish citizenship but to buy a property worth 10 to 15% more than Turkish citizenship.

Second, try to buy things where getting titles is as quick as possible.

In the event of a delay for some reason, and the Land Registry office determined that the property was worth less than $250,000, the difference could be rectified by purchasing cheap properties and resubmitting for Turkish citizenship.

 

Edited by Imtilak Real Estate

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