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Properties Turkey The ultimate guide to BUYING BARGAIN TURKISH PROPERTY
Magazine
Turkey Compared
We test drive Turkey, Bulgaria, Cape Verde & Spain!
How to analyse a property deal
Non Completions
-A no deposit purchase opportunity Buy direct &
Save a fortune Homes • Lifestyle • Food • Wine • Golf • Property
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Introduction Buying a property is invariably the most expensive purchase a person makes in their lifetime, yet the decision is often taken far too lightly. Research has shown that most househunters only spend between 30 and 60 minutes viewing a home before parting with tens of thousands of pounds of their hard earned cash. This absurdity reaches new heights when it comes to off-plan property purchasing. Here many so-called intelligent people are cajoled into parting with their pounds on the strength of a rough artists’ impression, basic floorplan and the obligatory enticing glossy brochure. It therefore comes as little surprise to hear that it can, and does, go horribly wrong. This magazine will guide you through the maze of purchasing a property in Turkey. Articles will teach you how to spot a true bargain and, callous as it may sound, profit from someone else’s mistakes whilst protecting you from making the same. A frank, no-nonsense magazine which is not for the fainthearted or for those who have already stumbled…
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Contents Why Turkey?
4
Set your objectives
5
Buy-to-let
6-7
Off-plan investing
8-9
Non completions, a buying opportunity
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10-11
Budget
12
Location, location, location
13
Investment analysis
14-15
How to analyse a deal
16-17
Finance
18-19
Fractional ownership
20-21
Rental guarantees
22-23
Currency exchange
24-25
The beauty of Bodrum
26
Marina life
27
Contact
28
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Why Turkey? An addictive, heady mix of Mediterranean and Eastern influences seduces visitors to Turkey from all over the world, while spectacular coastlines, a warm climate and very affordable prices make for the ideal holiday and investment destination. Imminent EU accession is behind an overwhelming drive to meet modern Western standards, so hold onto your fez – drastic changes are afoot to catapult this country’s already strong infrastructure and tourist industry to entirely new levels. Weighing in at over three times the size of the UK and straddling both the continents of Europe and Asia, Turkey manages to combine a rich historical background with a contemporary cosmopolitan atmosphere attracting almost 31 million foreign visitors in 2008. With quaint fishing villages and trendy beach resorts washed by turquoise seas (from which the name Turkey originates) the country is served by a host of airlines touching down in numerous international airports from Alanya to Antalya, Istanbul to Bodrum. At just three hours flying time from many northern European cities, regular mini breaks are a highly viable proposition. An incredible 279 Turkish beaches display the coveted Blue Flag whilst snorkeling over sunken ancient sites is a rare treat. Golf has also now become a strong market driver in Turkey, as it has been in many successful property markets around the world, and new golf courses are appearing as each year goes by. Golf generates a very strong secondary season with thousands of golfers looking to visit Turkey to play golf during a time when they cannot play their sport at home. All these factors, alongside a wide choice of property - both new-build and resale - available at very affordable prices compared to other more established European destinations, will see savvy property investors making good returns from a slice of Turkey.
Turkey Compared Comparison between Turkey, Bulgaria, Spain and Cape Verde TURKEY
BULGARIA
SPAIN
CAPE VERDE
EU Member
Affiliated
Joined 01/07
Full
Est. 07/08
Wealth of country (world ranking)
17th
66th
12th
158th
(GDP)
$612b
$71b
$1000b
$3b
Population
70m
7.7m
44m
0.5m
Good
Poor
Very good
Est future price recovery Access
Summer good, rest of year ok Ok to poor, mostly charter flights Excellent every day of the year at most UK airports
Poor Few direct flights
UK flight time
3.5 hours
3.5 hours
2.5 hours
Over 7 hours via Lisbon
Infrastructure
Cities good, resorts ok
Cities good, resorts poor
Cities good, resorts good
Poor
Tourist Season
Potential 12 months
4 months
12 months
Potential 12 months
Cost of living
Cheap
Cheap
In line with the UK
Cheap
Summers
Very hot
Hot
Very hot
Very hot, wet
Mid Season
Hot
Cool
Hot
Very hot, dry Hot, dry
Winter
Warm
Very cold
Warm
Golf
Very little, good potential
Very little, fair potential
Very high
Little
Coastline
Stunning
Ok - good
Good - very good
Very good
Int. Tourism
Over 25m tourists p.a.
Few million from western Europe, high levels from Romania
Very high, no one holiday spot. Over 40 million visitors p.a.
Small, too far for short breaks
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Set your Objectives
‘‘
‘‘
It’s a well known fact that the more specific you are with your goals, the easier it will be to achieve them
Which objective(s) describe you best... a dream holiday home that provides warmth, relaxation • Toandown a true home away from home. sell-up at home and relocate to enjoy a new way of life or • Toretirement overseas. a holiday home which will also be a solid investment and • Togiveown you good capital appreciation over the long term. own a holiday home and get extra monthly cash flow from • Toletting it out to renters when you’re not there. own property overseas for pure investment potential, for • Tocapital and/or monthly cash flow (i.e. buy off-plan and sell once completed or buy-to-let)
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Buy-to-let The buy-to-let market has become very popular in the UK over the last ten years with the number of people becoming landlords multiplying hugely. This concept was initially funded by soft mortgages from lenders who offered high loan-to-value with little risk assessment.
Key points to understand with a buy-to-let investment: i) Financing and running costs v Rental income. It’s vital to be aware of the rental debt ratio. That is to say does the rental income exceed finance and running costs - if so, by how much? Remember that whilst rents tend to remain relatively stable, mortgage interest rates can change and this could affect the ratio. For example a 100,000 interest-only loan at 5% would cost 5,000 per annum. Increase this to 6% and your financing cost increases by 1,000. Even if this happened the same month as rent review, you’d be unlikely to be able to increase the rent to match. Movements in interest rates could therefore easily cause costs to exceed rental income and give you a negative rental yield. Be aware that expenses can change month-by-month but your rental income probably only once each year.
3 factors that will affect rental yield: a) Interest rate changes b) Exchange rate fluctuations – especially if the mortgage and the rental income are in different currencies c) Increasing costs and taxes The key here is to keep any initial surplus and save it as a cushion for the future. If interest or exchange rates do change in your favour - save the difference rather than spend it. It’s also wise to weigh up the pros and cons of using rental surplus to pay off the capital sum of a mortgage. Whilst it appears to be a good idea due to the interest saving, the money is not easily returned if interest rates move against you resulting in a monthly shortfall. Even if you have reduced the capital debt considerably, banks do not consider you to be a good customer if you do not meet your monthly interest payments.
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ii) Loan-to-Value Ratio Many buy-to-let investors take the highest mortgage with the expectation that the property will increase in value. This high risk strategy is totally dependent on a continually appreciating property market. This tactic can become dangerous firstly as mortgages at this level may not be covered by the rental income and secondly, even when using interest-only mortgages, even a minor rate change could mean a negative rental yield. Furthermore a downward move in the property market can, and recently has, put properties into negative equity. There are now many homes in negative equity and with monthly rental shortfalls - a double whammy.
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Off-plan Investing
Buy to Sell (Flipping)
The off-plan phenomenon of recent years was based on a simple premise - property prices will increase over time and an off-plan property can be bought below the market value of a completed equivalent. By using a small deposit, these off-plan benefits could be multiplied to deliver some amazing returns.
For example; Completed property valuation
100,000 (A)
Property price off-plan
80,000 (B)
Deposit of 30%
24,000 (B x 30% = C)
Build period 24 months
10% p.a. capital appreciation (D)
Property value when finished in 24 months 121,000 (A x D = E)
Profit
41,000 (E – B = F)
Overall return on investment
70% (F / C)
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All sounds great
...however there are risks:
1. Strength of final resale market. This type of off-plan investment only works when there is a strong demand for the finished unit. If not the investor will have to raise finance to complete on the property and the many advantages are lost. 2. Legal issues. Investors need to be sure that it is permitted to sell before, or at, completion. Many contracts do not allow ‘flipping’ and often the taxes and costs involved eat heavily into the profit. 3. Ability of development company to complete project. When buying off-plan the purchaser is making an investment into the development company and not the property. Should the company fail the investor could lose the deposit. It pays to do due diligence on the development company and verify that the deposit is guaranteed.
Important questions that many off-plan investors never ask. • How many of the units have been sold to investors? Will you face tough competition when you
come to resell your unit?
• Is there an oversupply of units being built? Supply could then outweigh demand in the near
future putting downward pressure on values.
• What are the associated costs to sell before completion? • What is the likelihood of being able to ‘flip’ in the short window of opportunity before
completion?
• How long does it normally take to sell a finished property?
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Non completions, a buying opportunity Why this has happened. Investors purchased off-plan property on the basis that it would both increase in value and they would be able to sell prior to completion. The investor entered into a legal contract with the development company to buy the property. The plan to ‘flip’ had nothing to do with the legal purchase. Due to a number of reasons – competition, oversupply and so on – resale may never have happened and the investor was required to complete. Many did, but a huge number did not. By failing to complete the purchaser breached a legal contract. Many investors have tried to wriggle out of the purchase contract citing construction delays, exchange rate fluctuations, inability to raise finance and so on but, with the exception of an extreme delay, none negates the investor’s legal requirement to complete.
What this means to the:Development company. They have lost significant income through non-completions. It’s the final completion payment that is vital to the development company with the initial deposit long spent on construction, sales, marketing and running costs. The development company would also have to lay out additional money on sales and marketing to resell the noncompletions. In a nutshell the development company’s business plan has been destroyed; income has dropped and costs have accelerated. This is the simple reason why so many have filed for bankruptcy. The consequence is partly completed developments with at best only a few lived-in units and at worst a deserted ghost town.
Off-plan Investor. The investor has also suffered, in many cases losing the initial deposit. However the situation may get worse as many development companies, or indeed the banks that have now assumed control, are now taking steps to sue the off-plan investor in the UK for breach of a legal contract. They could not only lose their deposit but also be forced to complete or face losing UK assets – including their primary residence. This will provide the motivation to find a quick solution such as passing over their purchase contract at no cost to someone willing to complete.
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The Opportunity. For a cunning investor, now is the ideal time to buy. Distressed non-completed properties may be discounted by the initial deposit and in some cases even further via the development company or the original off-plan investor. The majority of non-completions arise from multiple unit purchases effected heavily by the credit crunch and the restriction on mortgages. The winners will be those investors and end-users who have that vision and enter the market now whilst there are superb opportunities. People who buy low and sell high always make the money.
EXAMPLE Off-plan price
€150,000
Initial off-plan deposit 30%
€45,000
Further discount 5%
€7,500
Net purchase price
€97,500
A saving of
€
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52,500
11
Budget After you decide upon your objective, it’s very important to take a long hard look at your budget. There is nothing worse than spending time and effort researching areas and opportunities that are not achievable. No matter how excited or interested in a particular area you are, you must treat a property purchase with extreme care. Spending thousands of pounds is a huge decision and you need to understand your exact threshold. Without a firm handle on your available funds, you may fall into the trap of getting emotional and taking on something that you can’t realistically pay for. Many purchasers have failed to calculate all the costs and prior to getting their property, they run out of funds and have to make some very difficult decisions. Once you understand your budget, you can actually arrange your finance, such as mortgage options along with currency exchange and transfer details, before you visit your country of choice. This will put you in a solid position to negotiate a good deal. We can point you in the right direction and introduce you to either Turkish Banks or household name UK Banks operating in Turkey.
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Location, location, location Without homing in on an area it’s easy to find yourself faced with too many opportunities and therefore decisions. If you’re serious about buying soon then refer back to your objectives and analyse both coastal and inland locations to see which best meet your requirements. For example if your objective was pure investment, you’ll want to head for the hotspots and then zero in on areas projected to enjoy high rental yields and / or capital appreciation. The scattergun approach will just waste time. It often makes sense to use the services of a professional real estate company who is totally familiar with your chosen location. If your objective was a dream holiday home then simply create a matrix of all the criteria you want fulfilled from number of bedrooms to distance from the beach. Be specific and keep narrowing locations and properties down until you come up with a potential winner. Again don’t be afraid to ask for local, professional help.
Popular Buying Locations in Turkey A would-be Turkey homeowner tends to focus attention in three main geographic areas: Istanbul, the Aegean coast and the Mediterranean coast. Whilst the city of Ankara takes on the role of capital, Istanbul is Turkey’s largest city and a vibrant melting pot of ornate Ottoman mosques alongside art galleries and seriously happening bars and restaurants. Istanbul does not get the same level of interest from foreigners as the coastal hotspots but it does provide an interesting investment prospect. As it teeters on the threshold of EU membership, Turkey’s cities are attracting increased international investment and raised commercial activity. In the property market demand outweighs supply as rural-urban migration and a growing young, educated professional class face quite a substantial housing shortage. The popular Aegean coastline is a truly magnificent collection of rugged cliffs, tiny coves and long sandy beaches lapped by clear turquoise waters. Coursing down through Cesme, Kusadasi, Altinkum and on to the Bodrum peninsula - dubbed the ‘Turkish Riviera - this region offers something for everyone from history to throbbing nightlife and as such attracts a high demand and some higher property prices. Thankfully development has been strictly controlled and blocks are painted in authentic whitewash with low density restrictions and no high-rise construction as seen elsewhere in the Mediterranean. New marinas and golf courses are being established to meet the demands of a discerning target audience. The Aegean meets the Mediterranean at Marmaris in the east following around to Alanya in the west. This vast tract of bougainvillea-clad coastline is served by the international airports of Dalaman and Antalya which prop up each end – the most expensive property being the most accessible. As expected from the location, this Mediterranean location basks in long warm summers whilst snow makes an unexpected appearance in the mountains behind in the winter months. This coastline’s popularity amongst foreign investors is growing as the golfing fraternity joins the beach brigade attracted by several new golf courses which bid to make this part of Turkey rub shoulders with the Algarve or Spanish Costas. This, alongside the climate, extends the season and makes for a very interesting year-round investment.
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Investment Analysis
Key Factors to Analyse Price per square meter. In order to accurately compare different properties, make sure you know the price per square metre of the enclosed living space. Many agents make a property appear larger and the price per square metre lower by using built space which includes the walls. Others even include a percentage of community space such as hallways and stairwells. It’s always worth checking as supposedly ‘cheap’ property can actually work out more expensive per square metre than a more expensive but larger property. A mortgage valuation tends to be based on the living area and a percentage of outside space - for example covered terraces are generally valued at 50% of the internal price per square metre. Interest rates This will tell you how much it’s going to cost to borrow. The cheaper money is to borrow, the better your return will be. Buying costs Legal fees vary and, like many things in Turkey, they are often negotiable but buyers should budget around 4 - 5% of the purchase price to cover all taxes, fees, insurances and registration charges. This compares favourably to for example Spain where the associated costs can add up to 14% of purchase price. Selling costs It’s important to be aware of the associated selling costs before you buy as of course they will impact upon any profit. In Turkey agents charge a commission of 5 - 7%. Capital gains tax is exempt after five years of ownership. Beware. UK tax law applies capital gains tax on worldwide gains for UK taxpayers. So even though there is no tax to pay in Turkey after five years, a UK resident will still need to declare the gain on their UK tax return and may subsequently be taxed. Always consult an accountant or tax professional in your country of residence.
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Financing/Refinancing In some countries foreigners cannot get a mortgage, in others you can get up to 85% loan-to-value for 30 years with interest rates under 4%. In Turkey the mortgage market is in its infancy but has now been opened up to foreigners. Interest rates depend on the currency of the mortgage. Your budget, income and available cash are key to whether or not you can finance a property. Taxes You should investigate not only buying and selling tax costs but also annual taxes which could eat into your profits. If you are intending to rent the property out you should consider potential taxation on the rental income and what allowances can be offset against this income. Best to speak with an accountant who specializes in your country of choice. Accessibility If you’re going to rent to tourists you’ll need to be within one hour of an airport. If you’re going to rent to a local market you’ll want to consider public transport. A nice villa out in the sticks might be cheap to buy but getting paying renters could prove impossible. Political situation Is the country politically unstable or is it economically weak? Does it have developed infrastructure such as roads, hospitals and public transport? Is the country safe to invest in? If not, reconsider your options or prepare to get burnt. Check with the British Consulate to get peace of mind. Legal issues Some countries will not let you take money out of the country; others have a bad land registration system or none at all so it’s unclear as to who actually owns the land. It’s imperative to research these factors in advance. Economic/Employment Check out the trends of the country’s economy - is everything going in the right direction? If employment is on the rise that is an excellent sign. Another good indicator that things are going well is an increase in tourist arrivals.
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How to Analyse a Deal
Demand This is paramount. It makes absolutely no sense to buy a property that is not in demand by renters or future buyers. Financials Does the deal make sense? Will the rent cover the mortgage? Will you get an acceptable cash flow? What are the maintenance and running costs? What are the forecasts for capital appreciation? Have you considered all fees, taxes and add-on costs?
Seller/Developer Is the seller or developer reputable? This is especially important for investors. Developers across the world can deliver properties up to two years late in which time you’ll receive none of your budgeted return. Furthermore, just as in the UK, there are bad builders everywhere. You’re not only risking a loss of time and income with a bad builder but also risking the loss of all your funds invested. Location In some countries you must be within an hour of the airport, five minutes of the beach, have a swimming pool and be near amenities to get maximum rental yield – or indeed any yield. If you’re buying to sell, select a location that appeals most to your target market. Avoid properties under a flight path, on a busy road, next to sewage treatment and so on. Risk Not only do you want a great return but you also want to sleep at night. In the world of investment the higher the risk, the greater the return - but buyer beware. Research key indicators until you are comfortable with the level of risk. Equity By purchasing at a discounted price you can buy a property that already has equity in it. Many developers or estate agents will also work out deals where, if you buy more than one property, they’ll pass on a discount. Do your comparables to determine if you are actually getting a discount. In any case always try to negotiate a reduction in the price of the property. Research by Reading Read at least one book covering your chosen country and region. This will give you a solid foundation to ensure that you know the basics and should cover much of your research from legal to health care and culture to employment. Tip: While reading, jot down ‘Things to Do’, ‘Questions to Ask’ and ‘Resources to Use’. As you continue through the buying process these notes will help you to effectively do your research.
Other things to consider Language It’s in your best interest to at least learn the basics of the language. Although most foreign people can manage some English, it’s not a good idea to assume that everyone understands it. Whether you need repairs, help at the local supermarket (to find those baked beans), to consult a local builder or the ability to program your phone answering service, understanding and speaking the basics will reduce your stress and that of those around you. Furthermore the locals will respect you for making an effort to learn their language. Start learning sooner rather than later.
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Contact a Lawyer Contact a lawyer before you commit to any property. We can, should you wish, introduce you to a number of very reputable legal firms who speak fluent English. A lawyer will review the sale agreement, confirm title deeds and carry out other checks to ensure that you’re protected. These investigations can include verifying that the property is clear of any charge, lien, mortgage or other third party claim. The lawyer will also be responsible for paying any taxes and registering the property with the land registry if this is required in the country of purchase. Charges vary for this service but can be between 1 - 2% of the sale value of the property. Contact an Independent Financial Adviser or Accountant This is highly advisable. Depending on your particular circumstances there may be ways to save on tax. Decisions such as whether you take out a mortgage or loan or register the property in yours, a company’s or your children’s name have the potential to reduce or increase the amount of tax you will have to pay. It’s well worth your time and money to seek proper financial advice before going abroad to view property. Feel free to consult a UK-based advisor with a broad knowledge of various countries, but it is recommended that you speak with one based in the country of purchase as they will be up to speed on local legislation.
Buying Process in Turkey Buying property in an emerging market such as Turkey is quite different from investing in a more established traditional market well-used to foreign ownership. However, foreign investment is becoming more commonplace across Turkey and, provided the buyer is a citizen of one of the countries that do not prevent Turkish citizens from buying property, it will be possible to purchase property on Turkish soil. Until now, the absence of finance from Turkish banks has been a stumbling block amongst many investors. However in late 2006 the introduction of Turkish mortgages for up to 80% loan to value was at last confirmed. As years go by the mortgage market is becoming more sophisticated and the terms more attractive. Turkey does have some potential pitfalls when it comes to a property purchase. Many homes do not have titles or planning permission or have simply been constructed illegally. There are also various types of ‘title’ available in Turkey giving different and rather complicated land ownership rights. Clearly it’s imperative that you use the right combination of quality estate agent and independent lawyer to avoid these problems. Once you have found your ideal property in Turkey, you can usually expect to go through the following procedure which can take anything from three to six months for a completed property: Signing a reservation contract takes the property off the market, usually for between two and four weeks, allowing time for your preferred locally-based lawyer to request a copy of the title deeds (TAPU), check that the property has planning permission and draw up the Preliminary Contract. A reservation fee is paid which will be deducted from the deposit monies later on. If a legal problem causes you to withdraw from the purchase, you should contractually be entitled to a refund of the reservation fee, but be sure of this provision in advance. However, if you decide not to proceed due to a simple change of heart, then expect to lose the entire reservation fee. After the reservation contract is signed and the required fee paid, your lawyer will present you with his or her findings. Subject to this report, a Preliminary Contract is signed and you will now be committed to the purchase and expected to pay your deposit of approx. 10% to 40%. Now’s also the time to open a Turkish bank account and register with the local tax office. With off-plan property purchases in Turkey a number of stage payments may be payable throughout the construction process. Once all parties are ready to proceed, the property sale is completed at the Land Registry office. A solicitor can be appointed power of attorney to sign the deed of sale (TAPU) on your behalf if you can’t be present. Land Registry will need to see proof of identification and a copy of the deeds then undergo a check of your suitability and ensure that the property is not in a military sensitive zone or prohibited area. With a green light both the property buyer and seller sign final contract, the balance is paid and the property title registered.
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Finance Before you get too far along the buying process, it’s important to understand the finance options available. In almost all cases you’ll need to pay a deposit which can be financed from savings or perhaps re-mortgaging an existing property. The remainder of the purchase can then be covered with cash, a sterling based mortgage or a mortgage in the local currency.
a. Pay cash b. Secure a Sterling based mortgage c. Secure a currency mortgage
Consider hiring an accountant as well as a local, English-speaking lawyer and possibly an architect. The accountant will be able to guide you through complicated tax returns and explain the taxation laws to you. Go with your lawyer to carry out a final check of the property before completion. You should check for fixtures and fittings that were included in the price, and any structural damage that might have occurred since your last viewing. If there are any problems, you can ask for a reduction in the price or some other form of compensation. This may slightly delay the signing of the deed. Always, it is highly recommended that you seek specialist advice from independent surveyors, solicitors and currency exchangers before buying any overseas property. When dealing with such large purchases many people fail to take absolute responsibility for their actions. You must keep in mind that the legal system overseas may not be in your favour if troubles strike, so it’s paramount that you hire qualified people who can ensure your financial future.
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A - Pay Cash If you’re lucky enough to be cash rich this method is straight-forward. However, for tax purposes it may be better to apply for a mortgage even if you don’t need to. Seek the advice of an Independent Financial Advisor or Overseas Mortgage Broker. B - Sterling based mortgage Many UK lenders now offer international loans based in sterling. With respect to Turkey some UK-based lenders will offer up to 75% of the property’s valuation with repayment terms up to 15 years on a standard variable rate repayment mortgage. Offers are based on relevant credit reports and tend to be valid for around 180 days which should give time for title deed checks and military approval and so on. The advantages of a sterling based mortgage (or re-mortgage) are that you may be able to do business with your current lender with whom you have an existing relationship and the application can be conducted on home soil without cultural barriers. Likewise there is no currency exchange risk with the repayments. However, should the value of the currency where you own the property fall, you could find the property moves into negative equity even if its value remains the same. This particularly applies to an interest-only arrangement. Take a 100,000 euro home with an 80% loan taken out in sterling at a current exchange rate of 1.1€ to £1 giving a loan of £72,727. If the euro were to weaken back to historic rates of 1.45€ to £1 then the equivalent sterling value of the property would only be £68,965 - less than the mortgage value. C - Currency mortgage A mortgage based in the local currency of the country where you purchased is known as a currency mortgage. Generally the overseas lender will be more willing to lend a higher loan-to-value as they are more familiar with their local market. Again, the main disadvantage could be movement in currency exchange rates. Recently the euro strengthened against sterling at 1.1€ to £1 in comparison to a year ago when the rate was some 1.45€ to £1. This means that someone paying a mortgage of 1,000€ per month would have seen the amount of sterling transferred to service the loan increase from £689 to £909 – over 30% more. This exchange rate risk can be offset by advance purchasing fixed rates for a period of time, specialist currency brokers can provide this service. If the property is rented in the currency of the loan and the money used to pay the mortgage, exchange rate fluctuations will have no impact. Currency mortgages for foreigners are in their infancy in Turkey. Please contact an Overseas Mortgage Broker for latest information and products. Overall Generally it is better to have both the loan and the property in the same currency and then protect the payments from exchange rate fluctuations.
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Fractional Ownership Fractional ownership is the latest wallet-friendly method for buying luxury items that would not otherwise come in on budget. The system allows for a group of individuals to jointly purchase anything from a jet to a yacht, a vineyard to a property, whereby they enjoy all the benefits of ownership but at a much lower cost. Fractional ownership then opens up the possibility of owning slices of several homes or yachts adding variety and kudos.
How Does it Work? Thanks to the internet this market is burgeoning across sectors and countries but traditionally property, in particular holiday homes, is the most popular fractional purchase. The asset is broken down into shares and individuals buy a quantity of these shares with a management company in place to oversee both the process and the property. Typically the owners actually take shares in the company that in turn owns the asset – in this case, the property. An ownership agreement is drawn-up by a lawyer to outline responsibilities for management fees, usage of the property, sub-renting and future sale of an individual’s shares. This eliminates any grey areas or headaches down the line making fractional ownership a trouble-free way to own property.
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Advantages Fractional ownership is absolutely not timeshare neither is it a vacation club. Fractional ownership entitles the owner to an actual portion of the property and not a collection of units of time. Similarly the price you pay in Fractional ownership goes almost in its entirety towards the asset, unlike timeshare when up to 50% goes on staff commissions. Fractional ownership not only gives usage but also a fraction of the title deed which makes it a true asset. The purchaser can see their investment increase in value as the property appreciates at current market rates and should the client wish, sell their fraction on at a profit. Conversely, as timeshare ownership is not linked to the property and the product is becoming more difficult to resell, the value of most timeshares has actually depreciated. A fractional share is much easier to sell or transfer to a subsequent user. Another advantage is that banks and mortgage companies often view fractional purchases in the same manner as second home purchases making it easier to raise finance against them. Meanwhile fractional owners can also enjoy any tax advantages associated with owning that particular asset.
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Rental Guarantees Rental guarantees were originally devised to provide buy-to-let investors with a regular assured income which would cover mortgage payments or provide a return on investment. Generally the rental guarantee pays a fixed amount for a period of time in return for the investor giving up usage rights to the property. Rental guarantees are funded either by an expectation of future rental returns or from a separate source such as within the property sales price or from the property developer’s profit. The major risk with any rental guarantee scheme is just how strong the guarantee is - will the rental income be paid? If the rental guarantee is loaded into the sales price it may feel that you are paying over the odds for the property. This may not necessary be the case as long as the property is being sold at, or below, independent market valuation.
As a rule of thumb you should never purchase any property with any aftersales incentive such as a rental guarantee, cashback or free furniture, without independent confirmation that the price is at, or below, the current market valuation. Otherwise you are simply financing your own benefits. There could also be issues with the mortgage if the mortgage valuation is less than the purchase price (due to benefit loading) resulting in you having to pay a larger deposit.
Assuming that you are getting a true benefit, which in most cases you are, you need to now ensure that the benefit is protected. This usually happens in one of two ways - upon final completion an amount is placed in escrow to guarantee your income payment or an independent guarantee is provided such as a bank guarantee or insurance policy.
Over the years most rental guarantee schemes have worked well, however a rental guarantee scheme which is only guaranteed by the development company is the most likely to fail as it is not protected. You could be left having to find monthly mortgage payments whilst possibly still being under contract to the rental guarantee scheme and therefore having no, or very limited, access to the property. The result could be a lengthy costly court case in a foreign country.
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Points to consider when using any third party rental arrangement. 1.
Strength of rental market. What history does it have and how does the future look?
2.
Level of rental income. Are market rents lower than the guarantee amount?
Where will this shortfall come from?
3.
Type of rental market. Short term holiday makers or long term residents.
4.
Management costs. Short term holiday rentals need much more looking after and generally cause more
damage. Is your quoted return net of these costs?
5.
Other costs. Do you still have to pay utilities, community fees, property and third party insurance
- if so how much?
6.
Furniture. Do you have to purchase from the rental scheme provider and if so is this fair market value? Who
deals with replacement and damage to furniture and who pays for it? If the furniture is provided free under the
rental scheme, is the furniture yours at the end of the guarantee period or will it be removed?
7.
Access. Do you have access rights? If you do what happens if the property is rented long term?
8.
Cancellation. Do you have the option to cancel the contract at any time? If rental guarantee payments are
missed can you get access back to your property easily and quickly?
9.
Always get all market information verified by an independent source.
10. Most importantly, what independent equity guarantee against any non-payment is provided?
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Currency Exchange
Buying a property overseas? Don’t let the banks cash in! Buying a property abroad is a significant investment and for many it will be the first time you’ve had to buy large amounts of foreign currency. As a result you’ll probably be unaware of the impact fluctuating exchange rates can have on the final cost of your property, and the savings you could make by using a currency specialist rather than your high street bank. You’d never agree to buy a property in the UK without knowing the final cost. However, if you agree to buy an overseas property,
It works by selecting the future date when you want the foreign
especially off plan, without fixing the exchange rate at the start
currency (this can be up to 12 months/1 year). Agreeing a rate
that’s exactly the gamble you’re taking. Bear in mind that the
and then paying a margin (generally 10%) as a deposit.
average off-plan property takes 2 years to be built. Remember in 2006 sterling was over 1.45 euros to the pound now it is under 1.2. People who failed to protect against this drop would have seen the cost of a €300,000 property increase by around £50,000. Types of Currency purchase. 1.
Spot Contract.
This is straight forward buy now pay now arrangement. You agree a rate with the provider, pay in one currency and receive the new currency. 2.
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Forward Contract.
3.
Market Order.
With this option you specify the rate you will accept to purchase the foreign currency, and if and when the market moves to achieve that rate it is automatically purchased. The obviously the downside to this is that the market may not reach the level you specify. 4
Regular payments.
It is basically a forward contract in that the rate is fixed, for up to 12 months/1 year, at the outset. However, you buy the currency in a set frequency which ties in with a regular payment requirement. i.e. monthly to pay an international mortgage.
This how you can protect against future adverse movements
It provides peace of mind that your monthly payment will not be
in the foreign currency, especially useful if you know a point
effected by exchange rate changes. It should be noted though
in time in the future that you will need to transfer funds, i.e. to
that changes to prevailing interest rates on any international
make a further payment on an off plan property.
mortgage may effect your required payment.
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Using a currency broker? Essentially there are four reasons people transferring large sums of money overseas should consider using a currency specialist rather than a bank. Firstly, you’ll save money by getting access to highly competitive exchange rates. On average, mystery shops in the UK’s national newspapers show that the high street banks are charging up to 4% more to exchange your money. 4% doesn’t sound a lot but this means if you were changing £100,000 into Euros for example you’d pay around £4,000. Secondly, if you use your bank you could be subject to a number of additional bank charges which include commission fees (up to another 2% of the amount you’re transferring), transfer charges (usually £25 for each and every transfer) and finally depending on where you’re sending the money up to another half a percent bank receiving fees!!!. Finally, buying a property abroad is a significant investment and for many people it will be the first time they’ve transferred large amounts of money abroad. Good currency specialists will provide you with all the help and expert advice you need in simple jargon free language. HiFX, for example are used by over 30,000 people each year because they make sure their clients have all the right information and tools to protect themselves from fluctuating exchange rates. Simple advice - don’t let the banks cash in! Make sure you shop around and compare the rates given by your bank with a currency specialist.
Are brokers regulated? When choosing a currency broker, we suggest that you look for the following: - Client funds at any time are in pooled client trust accounts segregated from the broker’s own funds,. - Professional indemnity insurance protecting customers from staff fraud etc. - Direct access to SWIFT. SWIFT is the world’s largest payments and settlements network for domestic and international trades. Direct access ensures you benefit from faster payments and enhanced security.
Article provided by HIFX
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The Beauty of Bodrum Bodrum, the most cosmopolitan and longest established of the Turkish coastal resorts, is a perennial favourite with international tourists, moneyed yachties and the weekending Istanbul set. Dressed up in swathes of bougainvillea, the coastline is punctuated with secluded sandy coves, impressive rocky crags and relaxing marinas with waterfront restaurants. At the southwest tip, where the Aegean meets the Mediterranean, Bodrum is also a most verdant part of Turkey and the scenery journeys from olive orchards to citrus groves and pine forests in the space of kilometres. Within the vicinity of Bodrum is a selection of smaller, distinctive resorts from the pretty bay of Gümüslük to new marina resort of Yalikavak, so there’s plenty to see and explore, by land or at sea in a traditional Turkish gület. These crystalline seas are also coveted by the many divers and snorkelers who return year after year to explore the caves and reefs below the surface.
Although Bodrum’s history stretches back thousands of years, evident from its 15th century castle and atmospheric amphitheatre, there are plenty of interesting plans afoot for the future. The large marina has recently been joined by an International Cruise Line Terminal and the biggest golf resort in Turkey, with two 18 hole championship PGA golf courses, is now open for play just a few kilometres to the north of Bodrum. Bodrum International Airport, 30 minutes’ from the resort, already has a new international terminal receiving daily flights from across northern Europe but is set to double capacity to more than five million passengers annually. In keeping with the rest of the southern Mediterranean, Bodrum has a welcoming climate with hot dry summers and mild winters. This extends the tourist season which, alongside a strong golf offering, brings good returns to buy-to-let investors.
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Marina Life With water that turquoise and endless whitewashed towns separated by rugged countryside to gaze upon from a vantage point at sea, it comes as little surprise to hear that Turkey is boating-mad. Over 8,000 kilometres of coastline washed by four seas throws up limitless opportunities for exploration and Robinson Crusoe-esque deserted coves for dropping anchor. Whether your chariot of choice is a traditional indigenous gulet with its wide decks and tall sails or a modern fuel-guzzling motoryacht with every comfort, Turkey is a paradise. And, should the champagne and sunbathing become too much, there’s always the underworld to fish, dive or snorkel amongst and the gentle waves to waterski or surf. Although only accelerating in popularity over the past three or four decades, Turkey is now well-equipped with modern marina facilities which mingle well with the ancient sites. Already numbering in the 20s, with more under construction, Turkey’s marinas reach from Istanbul round to Alanya with the former-mentioned and Izmir being the country’s largest.
Istanbul is quite a spectacle for the yachtsman. Where east meets west, Europe meets Asia, the Bosphorus Strait is a wonder to navigate marvelling the Ottoman architecture and passing under the two colossal bridges that span its distance. But most of the boating fraternity converges onto the Aegean waters where the many marinas provide not only safe shelter for the night but also a focal point for vibrant evenings in the bars and restaurants that fringe the berths. Famous-name marinas such as Kusadasi, Bodrum, Marmaris and Fethiye are situated here, with more under construction or undergoing expansion. Momentum for upgrading marina facilities to capture, and indeed keep, the wealthy yachting set is at a peak. Investment from both Turkish enterprises and also overseas experts including Camper & Nicholsons Marinas is sending out a strong message about how important Turkey is to the industry. Meanwhile those lucky enough to have a second home close to these hotspots are seeing the value in terms of both capital appreciation and rental income. In a similar vein to frontline beach or golfside property, marina-front homes are sold at a premium and become a coveted asset due to their finite supply.
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Daren Wallbank and Brian Murray hold regular Property Investment seminars. Should you be interested in attending a seminar please register your interest at the email address below:
daren@makepropertywork.com
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