Greetings from Side!

Welcome to the fifth edition of Side Property News - an independent update on the property market in and around Side. This is an edited version to comply with the Totally Property guidelines. You can read the original on the Side Property web site

In this edition, I will expose a little of how the property development business in Side works and yet currently fails. First a brief look at the Side property market as a whole. As ever, I welcome all feedback, comments, contributions and suggestions.

Market Outlook
After a quiet 2006 and a slow start to 2007, activity unexpectedly picked up in August - usually a quiet time for property sales. September 2007 has been Side Property's busiest month ever.

June 2007 was the first month that we had over 100,000 web 'hits' which translated to over 5,500 separate visitors - I was stunned. Every month since then has been even busier than the previous. It looks like September will finish with over 140,000 hits and over 6,500 separate visitors. As I say on Side Property's home page, the chances are that nearly all buyers of property in Side will know us through our web site.

There are now more estate agents in Side than there are bars (really!). Side Property therefore is sharing an ever smaller slice of a growing pie. It is now difficult for me to judge the larger picture based solely on our own sales. However, our lawyer, who deals with most foreign buyers of property in the Side area, is reporting a similar level of sales to 2005 which was the busiest property buying year ever.

As the cheaper and relatively under-priced properties sell, then the market is firming up. There is still an excess supply of two and three bedroom family-type apartments and yet the main developers are building ever more. It is hard to resell these apartments when the developers are in direct competition with the people they have sold to. As ever, location and presentation are the key saleability factors. See the full list of 'caveat emptors' at the end of this email.

The political crisis over the choice of Turkey's president has resolved itself and the ruling AK Party was re-elected with 12% increase in the share of vote, got its choice of President, and consolidated its mandate to move towards membership of the European Union. The Turkish Lira has since strengthened around 10%. The long term fundamentals for the Side property market remain strong.

Last of the Bargains?
Earlier this month I emailed details of a newly completed, two bedroom apartment in Side, just five minutes walk from beach for sale at f £28,752. It sold for cash over the telephone within 24 hours. Within another 24 hours, we had three other cash buyers wanting the same apartment. Despite having another four near-identical apartments available, the developer only wished to sell one at this price. The next was, and still is, for sale at £49,950. Needless to say, none of these cash buyers were interested in paying almost £20,000 more for essentially the same property.

This tale illustrates two points: 1) that prices of new properties in Turkey rarely reflect their actual valuations - £30k was too low and £50k is too high for the current market; and 2) there is a clear demand for cheaper 'holiday' properties. In this case, the buyers knew that the apartment was on the compact side and the second bedroom was only large enough for a single bed. However, there was, and still is, nothing else like it available for the money in the greater Side area. Why not? Why can't developers build smaller holiday apartments at a reasonable price, i.e. under £30,000?

How Turkish Property Developers Grow so Quickly
I have yet to meet a developer in Side who does not want to be the "biggest" in three, five or ten years from now. This appears to me to be a deep-routed cultural aspect of being a Turkish developer. What does "big" mean? It means building and selling more properties than anyone else. The size of their ambitions simply cannot be funded from either their capital reserves or from their cash-flow. New developments can be designed, approved and sold off-plan at relatively little cost. However building plots in and around Side are very expensive, possibly more expensive than any other coastal area in Turkey. Current prices are around £200-£300 per square metre. Given that only 20% of any plot may be built on and only up to a maximum height of 6.5m (intended to be two floors of 3m each, raised 50cm) to the start of the roof, then a 100 sq m apartment in a three-story block will cost £33k-£50k in land alone. Side's very low building density makes land easily the largest cost of any new building.

So how does an ambitious developer sell off-plan without buying the land they cannot afford for their latest mega-project? Simple, they do a deal with the owners of the building plot to give them an agreed number, usually around 50%, of the completed properties in exchange for the cost of the land. The developers will also agree to market the land-owner's properties as their own. For each property the developers sell, they must therefore build, finish and equip two. When one factors in the high commissions developers pay to their overseas agents (10%+), the commission they pay to their own sales staff on the ground (3-7%), the cost of marketing and allow for 30-40% profit, then it is plain to see that these properties are being built for really very little money. It is the economics of rapid business-expansion, greedy land-owners and excessive commissions that determine the current price of new properties in Side, not the intrinsic cost of building.

The Turkish Property Bazaar
What I regard as the 'Turkish bazaar principle' is easy to understand for anyone who knows Turkey. In every Turkish city the bazaars appear to be organised such that each street and every stretch of every street has its own specialisation. All the fresh-fruit and veg together, all the spice stalls together, same for jeans, hardware, fish, hookah pipes, DVDs, watches etc. etc. etc. For any one item the sellers are pretty much all in one place. This is very convenient for the shopper and one may think commendable of the managers of the bazaar for putting all the competition together. However, it is not down to management or planning, it is entirely self-organising and facet of the local culture. If you wish to start a new property stall in an established market, a European may wish to be away from their competition in order to have the best possible monopoly in that local area, a Turkish property seller would want to be next to the most successful existing property merchant in order to have a share of their business!

When, in 2002, the largest property developer in Side switched to building up on 'the hill', a social housing area of Side, a mile from the nearest beach and with splendid views of the municipal rubbish dump, I doubted their ability to sell expensive apartments there. None of the other developers shared my concerns and immediately followed suit, buying up large plots of land in the same area. Those developers with the best marketing engines sold well - surely a triumph for marketing over common sense.

Now amidst the ugly social housing blocks, there are hundreds of 'luxury' apartments for sale, many privately from individuals who bought off-plan, without taking any independent advice and who now cannot resell for anything like they paid. There are also the copy-cat developers who are burdened with apartments they simply cannot sell because collectively they saturated the market in one type of property in a bad location. This is the Turkish property bazaar - bizarre.

There remains strong demand for other types of property, especially cheaper holiday property in good resort locations but also luxury villas with a swimming pool. For investment buyers, potential rents vary far less than purchase prices. The investment numbers are so much more favourable for cheaper properties.

Top Buying Tips - Caveat Emptor!
1. Location, location, location! We live in Side - please, please seek our opinions about good/bad/upcoming locations.
2. New property prices in Turkey rarely reflect their resale value. Seek re-sale valuations BEFORE buying.
3. Inspection trips - don't do it! The buyers ultimately pay for all the free-loaders through higher prices.
4. Beware of helpful waiters, shop keepers, etc. Your new 'friend' will receive up to 10%, added to your property price.
5. Always use an English-speaking lawyer and check every point of the contract before signing.
6. There is no verbal contract in Turkey. Ensure everything agreed is written down before signing.
7. Budget for the lawyer's fee of 1% of the purchase price, Government taxes of 3% of the declared value and notary fees of around £50.

Tim Millea
Side, Sunday, 30th September, 2007.