The pulse of the market: Spring 2016 Istanbul

This is shaping up to be quite an unpredictable year for Istanbul property. Those familiar with the Istanbul real estate scene will know that this is not exactly a new phenomenon. One of the biggest surprises so far has been the dramatic crash of the Airbnb and short-term tourist rental market. In the past several years many people made extraordinary returns renting out their property in Istanbul to tourists on a short-term basis. This year, however, it is quite a different picture all together.

It is actually just a classic example of supply and demand  mismatch. There are a few other factors that are adding to it and exacerbating this seriousness of the decline. Unfortunately in the past years they’re just have been so many hotels built as well as so many Istanbul property owners who have looked to short-term rentals as a nice way to increase their overall yield on a property as well as to enable them to use it from time to time.

is this a new dawn for Istanbul property?

is this a new dawn for Istanbul property?

Several years ago I predicted that this was inevitable and I was surprised,in fact , that the good times went on for so long. I knew young people, often students, who were renting out flats for the purpose of sub letting them out to tourists. In fact, it became quite a trend. As the number of tourist rentals exponentially, the demand at the same time actually began to show signs of tapering off. Istanbul is a huge tourist draw and the number of tourists coming here yearly is breathtaking.

where have the Europeans gone?

These guys are taking a break from Istanbul

The issue is that the competition between hotels service Apartments grew while the number of tourists who opted for short term apartments actually decreased. Many tourists come from the Middle East and other regions of the world where the idea of renting somebody’s personal property is not widespread and, in fact, may even be considered  peculiar.

The European tourists are the ones who actually prefer the conveniences and flexibility offered by serviced Apartments. But their numbers have been declining for the past few years for a number of reasons.

I think that this is unlikely to change fundamentally over this short period. It looks like it will be a classic boom-and-bust cycle with the weaker operations getting weeded out and perhaps the stronger ones getting more market share as the others are forced out of the market. This could take a few years to play out. It’s not an overnight thing. The areas I am referring to are in downtown Istanbul so they are likely to rebound when the supply and demand issue works itself through the system.

What interests me more however is how it interacts with Istanbul property prices in the downtown area. The first thing that I noticed almost immediately in the past few months was that so many more properties in Istanbul came back onto the long-term rental market. It was literally a flood. And these are Apartments that have been well decorated, furnished and designed in order to appeal too wide range of tourists. The demand for rental properties in downtown Istanbul is pretty steady and strong. At the moment though this glut means that many properties that would usually be quickly snapped up remain empty for much longer then they would have been in the past.

Many Istanbul property owners are frustrated by this turn of events. Some have to pay mortgages and the lack of income generated no doubt creates stress. For this reason as well as many others it is not a big stretch of the imagination to conclude that quite a high number of those people will decide that it is time to cash in and sell their property in istanbul possibly in search of higher-yielding properties.

Is this all bad news? Not necessarily. The people who ran good short term rental businesses well may actually benefit from this in the future but they will have to be patient of course. The other very positive aspect is that house prices really have become artificially high in the downtown area. Many of the owners do not understand that the prices far exceeded affordability levels. Prices of $4,000 or $5,000 per square meter for properties with no particular outstanding features are just too high given the fact that interest rates are also very high.

This has created an environment where very few transactions are actually occurring. People involved in the market understood this well and were waiting for some event to break the log-jam. The dramatic free-fall being witnessed in the Airbnb scene looks to be exactly that catalyst.

Homeowners in downtown should not fret too much. Many of them have made exceptional returns and should be pleased with the investments they have made. Many also have  lovely properties and will not sell under any circumstances. And this in no way will cause a crash in prices. It will just mean that some people will make the rational decision to cash in on investments and perhaps try something new. This will create buying opportunities.
Over the mid to long-term, Istanbul is an exceptional place to own  property. Owners will just have to get used to the new reality and reduce their rental prices or their asking prices when looking to sell.

There are still enough buyers out there that they can certainly sell their properties to. Conversely, for new buyers it does represent an opportunity indeed. Also for many young people who have effectively been locked out of the market, this may be their moment to get on the ladder and own a home. In short the last few years represented a slow down in investments in the downtown area. What is happening these days may actually spur new investment, as investors see price levels that will be very tempting.

Being such a rapid and dramatic occurrence, I am very interested to speak with anyone connected to real estate in downtown, in order to brainstorm with a view to coming up with solutions to combat the adverse effects of this sudden new reality.

www.lilimont-istanbul-realestate.com

Carrefour on my street – Guest blog

I have been coming to Istanbul regularly since 2008 and even in that short period the changes are amazing. I recall being really pleased when the Belediye replaced the paving on our street, but that is nothing compared to some of the major changes that have happened. In less than ten years a metro has been built that can take me from Taksim to the airport and over to the Asian side, with a trip over the Halic on the way.

Metro on the Golden Horn

Metro on the Golden Horn

The infrastructure programmes have been amazing, and when compared with how slowly Crossrail has been built in London it makes me realise just how much has changed in a short period of time. The new crossing to the Asian side came in particularly useful to me when I accidentally booked a ferry ticket to Bursa from Kadikoy instead of Kabatas. The twenty minute journey to Kadikoy wasn’t anywhere near long enough however, for me to come up with a reason why this was my other half’s fault and not mine.

Regeneration comes in many forms, some good and some bad. Where I live in London has had extensive regeneration and I recognise a similar process in Istanbul. It makes buying a property here a slightly daunting prospect, as rapid change can make it difficult to know what will happen in an area, and one must just hope that the changes will be positive. Istanbul is a wonderfully comfortable city to visit, a good friend I love to see again and again. But like a friend who buys too many clothes, you can never be sure what you will see next and if you will like the most recent trend.

One of the biggest changes I have observed is the growth of what could be described as alternative lifestyles, more often than not described derisorily as ‘hipsterism’. Often seen cycling along the streets of Hackney in London, I see similar styles more and more in Istanbul. Turks make particularly fine hipsters as dark hair and high cheekbones really help to carry off the look and Turks are one of the few people who can get away with an ostentatious Ottoman style moustache.

Hairy guy

Hairy guy

At first hipsterism was confined to Cihangar, but soon the abundance of top nots and beards became too much for that small area and it began to spread it’s tentacles across Beyoglu. For a long time however, it seemed unable to get past the natural barrier that is Taralabasi boulevard. Not surprising, as that traffic can be a bit of a nightmare to cross at the best of times, never mind on a fixie. Eventually though the hipster tide broke down even that wall and I started to see hipster cafes everywhere. Well, I think they were cafes, but they might just have been really trendy people sat outside their house having a coffee.

Of course, there is nothing wrong with being a hipster, local organic vegetables and artisanal cheese is great and my male friends love being free of the tyranny of shaving. Istanbul is big enough to contain a wide cross section of people, including hipsters and hijab I teyzes in baggy trousers, this is part of what makes it an amazing city and why many of us want to own a property here.

And then one day, walking down Omer Hayyam, I smelt change in the air. Was it the Belediye fixing the street? Some hope there, Omer Hayyam is still a slippy slope in the slightest bit of wet weather. Maybe it’s those slightly uneven steps and nasty bins under the bridge. Perhaps it was a Starbucks, we all know there is no cap on the number of Starbucks that can exist in any one area. And then I saw it, like a beacon in the night. A Carrefour mini supermarket.

Carrefour on my street

Carrefour on my street

On Omer Hayyam. Just around the corner from my flat. My heart beat faster, could it be true? I peered in the window and there they were, hipsters shopping. And I knew that whatever happened to the area, we would be safe, as there was somewhere locally to buy milk. So thank you hipsters, your top nots might be daft but you’re brought Carrefour a bit closer to me.