In the boom years of the property industry in Turkey – roughly from 2002 to 2007 – buying property ‘off-plan’ was extremely fashionable and extremely common.
This is because people were persuaded that there was money to be made by doing so. They were told that prices were rising so quickly that, by the time the property was finished, it would be 20-30% more expensive than it was today and – in any case – you probably wouldn’t be able to find a newly built property to the exact specification that you wanted.
All this was true whilst the market rose sharply but, when the roundabout stopped, a lot of the people who had bought off-plan properties found they were in trouble as the developers went bust in droves and prices tumbled.
Sometimes – all too often – they lost all the money they had paid.
There is still a market for off-plan property, but this is mainly in Istanbul rather than in the coastal towns.
The benefits of buying an off-plan property
From the buyer’s point of view, there are several main benefits to buying an off-plan property.
The first – and, perhaps, least important – is the potential to benefit from prices rising in the way described above.
The second is that you can often negotiate changes to the standard specification with the builder. For example, you may want your bedroom to be a little smaller and your bathroom to be a little bigger or to convert one of the bedrooms into a dressing room or to have a separate dining room rather than a large kitchen-diner.
The third is that you should have a better range of properties available to you than you would if you waited for the properties to be finished. By that stage all the ones in the best locations or with the best views could well have been sold.
From the seller’s point of view, there is one massive advantage. He can use your money to build the property. That saves him a lot in project finance costs, which, in Turkey, would typically amount to, perhaps, 20% per annum in many cases.
The government, by way of an incentive to kick-start this industry, is also allowing foreign nationals and Turks resident abroad to buy new properties from developers VAT free – if the funds are being transferred from abroad.
The disadvantages of buying off-plan
There are few disadvantages from the seller’s point of view, but from the buyer’s point of view there are several:
It is often difficult to know what you’re buying
Most people are not good at interpreting plans. This is particularly so if the plans are measured in metres and they are used to dealing with feet and inches!
Your ‘large’ living room can turn out, in reality, to be very poky.
The quality of the workmanship may not be what you expected
Your contract will, no doubt, contain certain clauses setting out the quality of work and the quality of the fixtures and fittings you can expect but they’re usually too vague and, too often, open to debate. It is not uncommon for you to feel that what you have been delivered is inferior to what you were shown or promised. This may give rise to certain rights on your behalf, but it is always time consuming and inconvenient to have to deal with this sort of situation.
This is even true where you have been shown a property as a show house and think you’re buying an identical unit. Surprisingly often, your contract will not refer to the show house by saying that what is delivered to you must be equal in size and quality to the show house.
It is quite common for building projects to be delayed. Sometimes this is because the builder misjudged the time needed to complete the project and sometimes it can be for reasons outside the control of the builder, such as strikes or the non-availability of some essential components.
In the worst cases these delays can go on for months.
It is very important that your contract should contain a completion date, a clause stating that builder will have to pay you compensation if he goes beyond this date (unless it is for reasons beyond his control) and a clause saying that, if he goes beyond a fixed later date, you will have the right to cancel the contract and have all your money returned to you.
The builder may go bust
If the builder goes bust before he finishes work on your house, you will have a whole host of problems. Even if you’re protected by the law and you don’t lose any money, getting your house finished will usually take months and a lot of time and effort. This is because other builders are usually reluctant to get involved in half-finished projects because they never quite know what they’re going to find and so how much it is going to cost to finish the work. Unfortunately, before developers go bust they often start cutting corners and so the new builder can find that work that is apparently finished is substandard and has to be done again.
The worst-case scenario if your builder goes bust is that you could lose all the money that you’ve paid to him up to that point. You become just a regular creditor of the company and, when it’s put into liquidation, you – like all the other creditors – may only receive (say) 2% or (if you are lucky) 10% of what is owed to you.
General problems associated with new properties
You will, in addition, face all the issues that face any buyer of any new property. See above.
Financial guarantees on off-plan property in Turkey
The law does not give any specific financial guarantees to people buying off-plan property in Turkey. Unlike in some other countries, there is no limit to the amount of money that the builder can take from you before the property is built, and there is no arrangement where money taken has to be placed in protected bank accounts or in some other way guaranteed so that it is safe in the case of a disaster.
Stage payments on off-plan property in Turkey
Stage payments are usual in the case of a purchase of an off-plan property in Turkey.
These are payments made as the building work progresses. The size and staging of the payments is, in theory, a matter for negotiation. However, in practice, the terms are usually laid down by the builder – and there is little opportunity to modify them substantially.
Sometimes, the schedule suggested is unfair. It can also be dangerous in that it requires you to pay the developer far more at an early stage than the cost of the construction – meaning that, if the developer fails at the end of the project, there will not be enough money left to be paid to cover the completion of the building.
A typical schedule for payment might be:
- A 10% deposit when you sign the contract (if work has already started)
- A further 10% when the foundations of the property have been constructed
- A further 20% when the walls have been finished
- A further 20% when the roof has been put on the property and it is watertight
- A further 20% on the structural completion of the property
- The final 20% when the property is delivered to you and you take legal title to it
Mortgages on off-plan property in Turkey
If you want to take out a mortgage on an off-plan property, you will have a cash-flow problem.
No bank will lend you money to pay for the initial deposit or the stage payments. They will insist on waiting until you get the legal title to the property and then, at the same time as you get that title, they will release the agreed mortgage money to you and take the protection of a registered mortgage (legal charge) over the property.
This is because, until that point, they cannot have any security for the loan they are making to you. You don’t own the property, so you can’t mortgage it to them.
You will, sometimes, be able to obtain a mortgage if the developer is able to give you an interim legal title to the property. This is the kart irtifak tapu (provisional title). See our Guide to Buying a Property in Turkey.
Special steps to take if buying off-plan property
The two main special steps that your lawyers will need to take on your behalf if you’re buying an off-plan property are to see that the proposed terms of the payment are reasonable and to make sure that, when it is built, you will be able to get a habitation licence for the property. Without this your property is considered as incomplete.
If the construction of the property has been properly licensed by the municipality and it is built in accordance with that construction licence, you should be able to obtain a habitation licence without difficulty but, all too often, builders make changed to the design (sometimes substantial) without getting the necessary approvals. In these cases, it can be difficult (or even impossible) to obtain your habitation licence. This is especially a problem if the size of the property has been increased without permission.
There are, of course, many other things for them to do, many the same as when buying any property.