Some people have asked for my opinion on land investment; I wanted to gather my answers here as an article.
To put it briefly: For many years, land investment in Turkey functioned almost like a "no-lose" investment. However, most of the conditions that made this possible have now changed. Therefore, I believe the risk-reward ratio of land investment today is much worse than in the past.
This doesn't mean "land will no longer be profitable." Rather, I think it is no longer the automatic wealth-generating tool it used to be.
1. What made land profitable was demographics
Historically, land investment in Turkey had a very strong narrative because three major advantages were working simultaneously:
- The population was constantly increasing.
- People were migrating from villages to cities.
- The carrying cost of land was almost non-existent.
Since 1950, our population has increased more than fourfold. Cities constantly expanded; fields on the periphery turned into plots, and plots turned into zoned parcels. People often became wealthy not through production, but through the increase in rent (unearned increment) resulting from urbanization.
But today, the picture is changing.
The birth rate has now dropped significantly. Although the population is still increasing, the rate of increase is slowing down markedly. Migration to cities is not at its old pace. In fact, population declines are even seen in some major cities like Istanbul.
At this point, the example of Japan is important. Japan won't be exactly like Turkey; however, the process experienced after 1980 showed us this: When population growth stops, real estate can cease to be a value-producing asset.
2. "Profit is made at the purchase" — but is there any margin left today?
Old investors have a beautiful saying:
"Profit is made not at the sale, but at the purchase."
In the past, fields on the city periphery were very cheap because the city hadn't reached there yet. People bought at low prices and waited for years, gaining significant wealth as the city grew.
Today, an interesting reversal has occurred:
While cities are not growing as fast as before, even in the most remote areas, future rent is already priced into the fields. In other words, in many places, the entry price already includes a significant portion of the value that might be created in the future.
A margin of safety in an investment is when the price is below the value. I think this margin has narrowed significantly on the land side.
3. The issue of zoning is riskier than thought
One of the least discussed risks of land investment is the zoning process.
Because the issue is not just "will zoning come?" The density of the zoning changes everything. Low-rise zoning can significantly reduce the rent expected for years. Perhaps it might not even come at all.
In addition, there is the risk of expropriation. Part of the land can be expropriated for public areas such as roads, schools, or parks.
Let me give a concrete example:
Years ago, my father-in-law's father bought a field in Dikmen, Ankara, with great expectations because it was close to the center. They waited for a long time. Later, the zoning that came was for only 3 floors; on top of that, part of the land was expropriated for a school. After decades, the result was mediocre. This situation is not an exception; it is one of the routine risks of land investment.
4. What made Turkey different?
It wasn't just population growth that made land investment so strong in Turkey.
The real difference was that the carrying cost was almost zero.
For many years:
- Land taxes were low.
- Assessed values were far below real values.
- There was no capital gains tax on land held for more than 5 years.
In other words, people could hold land for years at almost no cost.
In the West, the situation is different. In countries like the USA, property tax is closer to the real value. You pay a few thousand dollars in tax per year for a $200,000 plot. For larger lands, this figure can go up to tens of thousands of dollars.
In such a system, people cannot keep an asset empty for decades just because "maybe there will be rent in the future." They have to carry the cost of that asset every year.
In Turkey, the exact opposite happened for a long time:
- Carrying costs were low,
- There were tax advantages,
- Population growth was strong.
When these three combined, land turned into an almost automatic wealth-generating tool.
But today:
- Assessed values are rising,
- Carrying costs are increasing,
- Population momentum is slowing down,
- And the possibility of increased rent taxes in the future is strengthening.
For this reason, I don't see a period as easy as in the past.
5. Lands as the "hidden wealth" of companies
In the 1990s and 2000s, one of the easiest ways to take money out of companies was to buy land.
Because there was no capital gains tax on land held for a long time. Therefore, companies could often buy lands even in the middle of nowhere at high prices. Many transactions at that time were actually made with the expectation of future rent.
Looking back today, some of the lands purchased in that period have reached incredible values. This is often the story behind the "valuable lands" on the balance sheets of public companies.
However, today the same mechanism does not work as easily. Due to valuation reports, Capital Markets Board (SPK) regulations, and increased transparency, this area has become much more visible than before.
6. The residential side is a bit different
What I have described so far was mostly about land investment.
Real estate that generates rent, i.e., the residential side, should be evaluated a bit differently.
Peter Lynch has a famous saying:
"Don't invest in stocks before buying a house; because in ninety-nine out of a hundred cases, the house wins."
But the critical point here is this:
In America, people mostly buy houses with leverage.
Thanks to the low-interest and long-term mortgage system, people can own a large asset with a small down payment. This significantly increases the return on equity.
For example:
You buy a $500,000 house with $50,000 equity. Even if the house price increases by 5% annually, your return on equity becomes very high because the gain is generated over the total asset value.
In other words, a significant part of what Lynch says is actually the effect of financial leverage.
In our country, if you buy a house with a loan at a reasonable price by paying little money during a period when house prices and loan interest rates are low, you will definitely win. But if you are buying it in cash for rent, it might not be a wise investment.
7. Should you buy a house for investment?
I think there is a more reasonable debate here.
Because:
- Rent is a cash flow that can adapt to inflation.
- In some regions, rent multipliers have dropped significantly.
- In the long run, the real return on housing can be at reasonable levels.
Moreover, while achieving high long-term real returns in the stock market requires serious knowledge and psychological resilience, basic knowledge can be sufficient in real estate. While correctly calculating the value of a stock requires serious expertise, knowledge, and experience, a more basic perspective can be sufficient for looking at a real estate plot, its rental income, and the earthquake resistance of the building.
Therefore:
I agree with the view that "real estate purchased with the right multiplier in a good location that generates good rent can be bought." Dealing with tenants might seem difficult, but for example, a friend of mine buys a 1+1 house for 10-12 years of rental income. For an 8% annual real return, one can deal with a tenant. After all, there is income in the stock market if we struggle and strive. It is normal to have reasonable returns in housing if you struggle and research.
8. Conclusion
I think the common characteristic of good real estate investors is this:
They approach this business not like speculation, but like an asset valuation problem.
They think like they are analyzing a company:
- What is the current rental value?
- What is the future of the region?
- How will metro, transportation, and population movement change?
- What is the alternative use value of the land or the structure?
And they only invest if the price remains below the value they calculate.
Actually, the issue boils down to this:
You make money from the business you know and understand. Although real estate investment is easier to manage psychologically than stock market investment, it also requires working, researching, and knowing for success.
With my regards.
