Why Istanbul Will Outperform London In 2012

Istanbul PropertyI make no secret that I am attracted to the eastern promise of Istanbul and while London still offers great returns for investors, I expect Istanbul to outperform it and offer a more exciting opportunity in 2012 – here’s why.

When I look at a property market in a major city, I like to take a look at what stage the market is at in terms of price growth and rental. London has scored a pretty good innings in terms of rental growth, with rents rising 27% since 2009 – not bad at all!

The rise in rents was driven by demand outpacing supply and a tightening of mortgage lending post 2008 which prevented anyone with less than a 5-star credit rating and a huge deposit getting a mortgage in the UK.

London has proved itself to be a safe haven for investors in times of trouble, however, there are signs that rental growth is beginning to slow. Third and fourth quarter figures  from 2011 showed that the breaks were well and truly on with successive figures of 0.6% and -0.1% indicating a slowdown.

There comes a point in any market where supply begins to catch up with demand. A host of new residential completions in the capital are giving tenants more choice than they have had since 2009.

Suddenly we find that tenants are in the driving seat in some areas of London and this is beginning to have an effect on rents.

London has also seen a surge in foreign investment from those looking to cash in on the excellent rental potential of properties in London. This has seen prices in the UK capital actually rising through 2011 while the majority of the UK saw price declines.

The increases are to a large extent driven by competition amongst foreign investors who were seeking a safe haven during the worst of the crisis. This effect has also been seen in other European capitals like Paris.

However, net yields on prime property in central London are currently around the 5.5% mark, while property prices have risen by just under 3% in 2011.  As property prices increase then these average yields will be driven down by more expensive properties and static rents.

There is little reason to suggest competition for property will subside anytime soon particularly in Olympic year, which is why I see the emerging city of Istanbul as a more profitable alternative for property investors.

If you compare the current net yield in Istanbul of 8.5% this already looks far more appealing from a cash-flow point of view.

Prices are also less than half what they are in London, even in prime areas, so the near 15% rise in property prices in 2011 look set to be repeated or even bettered in 2012 when competition for property heats up.

The lifting of the reciprocity rule, will trigger a flood of investors from additional countries when they are granted purchasing rights.

Rents are also still at low levels compared to those in London, yet apartments in good locations can still generate 1,000 Euro per month in rental income which should more than cover any mortgage payments and associated costs.

If we compare London directly with Istanbul, we see the former moving sideways in 2012 with rental growth fairly static. Istanbul on the other hand is likely to see another surge in property prices driven by foreign investment.

The young increasingly affluent population will not have the means to buy as prices rise out of reach which will help keep rental demand high. This will give investors more cash-flow through rising rents and strong capital growth which will translate into higher yields in the short term.

So now that the worst of the economic storm appears to be behind us, it is worth looking to emerging cities like Istanbul which I expect to outperform Western European capitals like London in 2012.

Which market do you think will offer the best prospects in 2012, London or Istanbul? Please leave your comments below:

Kind regards

Brett Tudor
Property Expert

Join The Conversation - Be The First To Comment

Categories: Property Invest / Turkey Property

Tags:

Like What You Read? Stay In Touch

Follow Colordarcy on Twitter or Facebook