montitristo

Property investment with continued devaluation Turkey

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Greetings and very happy to be here to learn from you. I am Az from istanbul Turkey in Europe. 

Here is my situation: Turkish lira has been declining against the dollar for the past 15 years! When I bought a one bedroom apartment 4 years ago I traded in my dollars to buy it off the plan for 170k usd. When the property was complete and I got the aptmnt the market value when converted from our local currency became 130k usd! While in the past u made money when u signed up for a place from the ground up now I have lost 40k usd like many others. All property owners in Turkey have suffered due to the devaluation of the local currency. Enogh pain to force u inyo Preperation-H. ...At present the economy is depressed and property prices are low and no one is buying! 

So my question is this: If you live in a country which has a continuos devaluation against the USD and gold does it make sense to invest in property? What is the pro view to make profit in such economies? Then how the heck do people make money on such investments? Seems only developers over price, sell and make money where evrryone else loses! 

I would like to add that property is free and clear so no mortgages on this. What can I do now since if I sell I just lose 40k usd? Is the 7 year property doubles its value rule work in this scenario? 

You see the currency devaluation scenario happens here much faster than other countries.

Please any advice wd be awesome...I am very much down with this situation. Thank you very much for any views on this. 

You can view this devaluation as the dollar against gold although a bit different.

I attached our currency graph for past 6 years against USD.

 

 

SmartSelectImage_2018-01-07-17-47-28

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Hi

 

I have seen this a fair bit with developing countries over the years, as I have had interest in South Africa and Brazil. 

 

With investment in different countries you get the potential benefit of greater diversification, but of course the potential downside of currency risk...as you have found.

 

You have only lost money on paper in reality and so if you invest for income or a long-term basis then the impact on the reduced value will be limited. Of course, the income you receive will also be devalued based on the currency devaluation, that can't be avoided.

 

I guess you invested in Turkey as you had a personal reason to do so...it is home for you originally right? Likewise, I invested in Brazil (I skipped SA), as I have a personal reason and long-term interest in the country to do so. I do try and avoid the currency risk where possible and so I tend to leave my local currency in country where I can. Then, in our case we spend Real in Brazil, Euro across Europe, USD in the USA and GBP in the UK, which is where our portfolio spans. At some point we may need to realize the currency gain or loss but right now we are just re-investing the surplus cash to acquire more assets in these locations.

 

In your case, if you left the Lira in Turkey, perhaps you can take advantage of the lower prices to acquire another unit? Also, if you have local lending, you can service the debt in local currency and get some leverage on your investment too.

 

If this is your one and only investment and you NEED to convert the Lira into Euro/GBP/USD then it's not great news, but if you can wait and / or expand your portfolio into countries using a 'hard currency', then that will help to dilute the problem. You never know, one day when Turkey is a member of the EU or an affiliate member, you might start to see a reversal of fortune, so have a long-term and diversified view is my suggestion.

 

Best

Richard

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Dear Richard

Thank u very much for your fantastic help and sharing some real good advice and your valuable time. I will carefully consider your suggestions and see how I can turn this around.

Kind regards

Al

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Many good points from Richard, as always. 

 

I don't know your exact situation but keeping it might be a bad investment for you in the long term, especially if your rental yield is low. I am saying this because I wouldn't expect much from capital gain perspective in the very long run and it might turn out really bad. Reasons behind this are, current property stock is huge, properties have been being developed non-stop for the past 10 years and most of them are low quality and still very expensive (there has been a huge credit expansion which aided this), political and economic situation is very unstable in Turkey. If your property has a good rental yield then I would keep it and invest the rental money in Turkey again as Richard suggested, with this you would't take any loss and you would still earn in the local currency (maybe spend it as a pocket money when you visit Turkey or for holidays in Turkey), and your rental income will be increasing with the inflation.

 

I know TRL has appreciated past few months (from 1$ vs 7 TRL to 5.3 TRL) but it will surly collapse next year with the current economical indicators, and possibly with the local election in March. Therefore it is best to wait and be patient for further investment in Turkey, especially for the high quality good location properties because it is still not the time yet. I think we will see a collapse of the whole Turkey economy. Property market will be one of the main reasons behind this. All those wanna be property companies who got cheap USD and EUR credits will pay dearly.

 

If you are not earning much in terms of rental compare to the money you put in (ROI < 4% etc..) and if you can't wait for a very long time (~10 years) for your property to appreciate, perhaps sell it now while TRL is still strong compare to what it was and what it will be and stay on USD or gold, or invest in other profitable places. I know this might sound a bit extreme but what is there to keep your money there if it is not earning much and won't be earning much for 10 years time. You can perhaps do a quick calculation to prove this. Say you have $130K, with average rental returns in the UK with that (say ~7% ROI) you would earn ~$9K and you can cover your loss in 4-5 years time easily. Obviously you can do even better investment if you can go over the average though I must say I am taking things very simple here to give you an example but there would be other parameters to take into account.

 

On the Turkey being a European Country, I don't think it will ever happen (especially with the ongoing migration issues hurting EU so much) but EU will always use this possibility and try to keep TR close so maybe we would see some effect from that.

 

Using local lending and leveraging is a good idea but unfortunately interest rates are very high at the moment (Inflation is around %25) so interest would be very high and won't cover your rent. There is also not much lending market if you already bought your property in Turkey so not sure if this would be possible.

 

Personally If I were you, I would try to make this investment work for myself rather than taking a huge hit. I would see if I can achieve a decent ROI and use the money locally and keep it for a long term, especially if it is in a good location or location to be. Perhaps see if you can rent it yourself, through relatives & friends there. Maybe try room share (there is not much legislation or fee in Turkey for this) if it is close to city centres or universities, holiday let, air bnb etc...

 

Regards,

Kemal

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