Due Diligence

Due Diligence

Due Diligence

 

As a company we have a preference to buy almost completed properties at discounted prices usually when the first stage title deed is available (Kat Irtifaki- floor easement), this is confirmation that all the paperwork has met with town hall planning and the original title deed (usually the land parcel) has been separated into individual and separate title deeds for each property as defined on the architectural plans. Normally the properties are more than 75% complete. Even at this stage, we need developer guarantees by way of a promissory note (senet) for each deposit payment or a bank cheque until the title deed is transferred into our client’s name. VIP Property is not satisfied with notarising the contracts as this procedure is fraught with issues and developers have found ways of selling the same unit more than once. A senet seems to be the best method of protecting our clients’ money. On completion and after the municipality has conducted the completion certificate there is a final stage known universally as a habitation license or in Turkish, it is called Iskan (Kat Mulkiyeti-condominium), this general can take up to 90 days after completion and requires several documents one of which is the management plan of the development (site management). Many Turkish people do not use a lawyer preferring to pay everything on title deed transfer.

They put their Trust in the system which regrettably does little to protect them and there are numerous developments where clients are holding the title deeds of properties which will never be finished. This procedure of buying on title deed is unsecure as there are no conditional terms of sale and we as a company strongly recommend a signed agreement with the required appendixes and payment of good faith of up to 50% of the sales price. This enforces the sales contract and more importantly the terms and conditions of the developer. Such things as technical specifications, plans, delivery dates, penalties, snagging, communal facilities, etc. should all be clearly defined. VIP Property will help you to fully understand the entire purchase procedure from start to finish, informing you of exactly what funds are required and at what stage of the purchase. VIP Property strongly recommends that every investor personally looks at their proposed purchase in detail, seeking independent advice where needed to ensure it fully satisfies their requirements.

Country Economy

Country Economy

The country must have a good and strong economy. You need to research the country and check what the rating agencies are saying: is the grading by them moving upwards or downwards? How do these experts rate the country or even the city you are looking at? Check out the property magazines, and research top accountancy firms as they usually put together a property report once a year.

Check out Bloomberg, BBC, and online any articles written and in the local press such as Hurriyet to understand better the local market. Get a feeling of the place and how the country and people are doing. Look at the main indicators; how the currency is trading? GDP figures? Unemployment figures? Balance of payment? Export figures? Inflation reports? Rental growth? Capital growth? etc. Don’t forget the experts can be wrong as well! just look at the recent legal cases involving the rating agencies’ failure to predict the issues surrounding USA secondary mortgages in 2009, so it is sometimes only your instinct that will help you decide. Work with a professional agent who knows the project, and the location and who is not simply interested in making quick sales commissions at your expense.

Market Drivers

Market Drivers

If a market is identified as having strong growth potential, as an investor, it is important that you understand exactly what the “market drivers” are for this growth. Below are some of the most common real estate market drivers.

Location

Location

The importance of location cannot be underestimated when considering any property purchase as it is directly linked to the return on investment you can expect to achieve. Capital appreciation and rental yields will alter according to specific locations, so we recommend that you examine current property prices and rents in the direct and surrounding areas of your proposed investment. Where possible, you should personally visit the area to gain first-hand knowledge of local prices in your chosen location.

If the good investment is your target market for resale or rental, ensure your chosen property is within easy reach of an international airport, and public transport (prices of property in any major city close to a metro link will have 50% more value than a property that is not) and lots of amenities. Don’t forget the yields in the center are always much lower than in the suburbs but the prices can be sustainably different. One of the major issues in Istanbul other than price is the ability to walk and the distance to everything. Most young professional people do not want to use a car. Tax is extremely high on car purchases, road tax is very expensive, petrol is one of the highest prices per liter in Europe, the roads are limited and jam-packed during the day so people generally prefer to use public transport.

Cost/Value

Cost/Value

A property purchase is only a successful investment if it is bought at the right price. While calculating your investment, you should allow for its value to appreciate sufficiently to generate the strongest possible capital appreciation, often in addition to rental income.

Tax on the resale is also highly important. In Turkey you are advised where possible to keep your properties for a minimum of 5 years to avoid paying Capital gains tax (CTG) in the UK this will be 28% of your profits, in the USA it is 30% in Germany it is 40%.

Infrastructure/ Rental Catchment Area

Infrastructure/ Rental Catchment Area

A clear sign of an investment property hotspot is where considerable infrastructural improvements are being made to an area, generally in the form of increased local attractions, services, and amenities. As importantly, the improvement or creation of additional airports, seaports, and roads indicate imminent growth and a firm commitment by a local government to improve the prospects of a particular area. Universities are a great captive audience for rentals especially if they have poor or insufficient campuses. New factories or businesses moving to new locations again are a good target market. Large hospital complexes, business hubs near airports, overseas banks, foreign companies, consulates, and embassies are all great target audiences as they invariable generate a good rental market and are not dependent so much on local markets.

Natural Factors

Natural Factors

 

Give many locations distinct advantages over others, often simply by virtue of the fact that they may enjoy excellent views or seafront locations. Good weather conditions, combined with stunning beaches, quality ski resorts, or golf courses can also be important market drivers, but it is also essential to consider other factors in association with these. We look carefully for population growth areas and new commercial, business, or industrial centers.

Tourism

Tourism

 

Tourism– is a driving factor for some emerging property markets. Increased international flight connections make many previously distant locations far more accessible. Several have become an exciting new holiday and second home destinations, often offering a welcome alternative to the more traditional locations of recent years. There is an important isswith with holiday homes which is that the nature of the business is too fickle for real investment.

Large tourist operators are given huge tax breaks and incentives by some governments to move tourists from one location to another. This invariably results in little or no tourists for your rental property. This is an area of investment that we try to avoid, as the costs associated with short-term rents are very high and the transient nature of the tenant makes this a very unsubstantial and subjective investment. 

Stability

Stability

World terrorism is sadly an important consideration when investing overseas. There are therefore various political, religious, and legal implications to carefully consider when researching the political stability of your chosen investment location.

Building Licenses/Construction licenses

Building Licenses / Construction licenses

Powering Global Infrastructure

These licenses and permits are a legal requirement before the construction of any development. VIP Property offers occasionally pre-release opportunities to investors, enabling the earliest possible entry into projects. Many developments work on a pre-release basis and building licenses may therefore not be in operation at the earliest stages of an investment. In this case, monies must be held in an escrow account or the client account of a reputable lawyer.

The money is only released to the developers when all the necessary building licenses are granted. The importance here is to only deal with developers who own their land, many developers do not buy or own the land instead they opt for a barter agreement with landowners where they agree to share the completed project sometimes as much as 50/50 and this is fraught with difficulties. Landowners change their minds, are not happy with the sales performance, start selling their properties in competition to the developer at lower prices, do not accept standards, and use legal instruments to stop construction.

Developer Background Checks/Track Record

Developer Background Checks/Track Record

VIP Property always sources projects from experienced developers with high standards and a reputation for completing them on time. Amongst other things, we take a close look at previous projects as a good point of reference for future projects. We also request that the lawyers conduct a full legal search to see if there are any outstanding or past legal cases against the developer.

We do a full company search and take up a bank reference. “At the very least a developer needs sufficient funding in place to cover the costs of buying the land, getting planning permissions in place, designing the project, professional fees, developing the site infrastructure, and constructing central amenities. The best will also have sufficient funding in place to construct and not be expecting to use the client’s deposits to construct. A very dangerous situation for the purchaser.

Land Title Search

Land Title Search

A full search is made on the title deeds to ensure that the owners are as stated and that there are no mortgages, charges, or encumbrances on the land.

Sales Contracts

Sales Contracts

Sales Contracts are reviewed and agreed upon between the lawyers and ourselves to ensure full protection for our clients. We require that there are penalties for delays, building, and internal guarantees are fully covered, and that snagging forms an integral part of the agreement that the client has the right to assign to any third party; dates of payment and completion, title deed transfers, etc. are clear and concise. That all brochures, plans, technical specifications, communal facilities, and any verbal agreements form part of the agreement.

Lawyers

Lawyers

Your local attorney should work for you—and only for you. He should not represent anyone else in the transaction. That may sound like a given…but in many countries, an attorney can legally represent both sides in a transaction, and in many countries, civil law applies. Civil law is very black and white. There’s no pleading for fairness…you are either right or wrong. Have your contract translated in both local and your language and read it carefully yourself. Ask your attorney to explain anything you don’t understand. Your attorney may not explain a clause that is normal procedure in his country—but it may be very different from how you’d do things back home.

In Turkey, most people try to avoid the expense of a lawyer and only use one after problems develop and this is usually too late for them to have any success in winning their case. VIP Property has many years of experience in finding and negotiating property deals in many different countries. Their experience is one of the reasons for their success in the Istanbul marketplace. They are unique in their attitude of providing rental management long after the sale is completed and this ensures that they look after their clients.

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