Home sales in Turkey fall 9% in September, mortgage sales sink 72%

Home sales in Turkey fall 9% in September, mortgage sales sink 72%
By Akin Nazli in Belgrade October 19, 2018

Homes sales in Turkey declined by 9% y/y to 127,324 units in September following the contraction of 13% y/y registered in Augustnational statistics office TUIK reported on October 19.

September’s mortgage sales sank by 72% y/y to 11,300 units, following the 67% y/y fall seen in the previous month. This year’s sole annual rise recorded for mortgage sales occurred in June, at a rate of 35% y/y.

For January-September, home sales declined by 3% y/y to 1mn units, with mortgage sales down 29% y/y to 256,283 contracts. 

Home sales to foreigners rose by 58% y/y to 24,155 units in the first nine months.

The construction confidence index decreased by a sharper 16.7% m/m to 66.4 in September following a 10.7% decline a month ago, according to the latest business surveys by TUIK.

Turkey has lowered the requirements that foreigners must fulfil to acquire Turkish citizenship in a move to encourage investment, according to new regulations published in the government’s Official Gazette on September 19. To gain citizenship, a foreigner need now only make a fixed capital investment in the country of a minimum $500,000 compared to the previous threshold of $2mn. Foreigners who have purchased real estate in Turkey worth a minimum of $250,000, instead of the previous minimum level of $1mn, can also now avail themselves of Turkish citizenship.

The government tried to stimulate home sales prior to the June 24 snap elections. President Recep Tayyip Erdogan, who was re-elected in the poll, has, meanwhile, shown no let-up in maintaining his unorthodox line that the country needs lower interest rates despite Turkey's currency meltdown and rocketing inflation. He did, however, theatrically bow to the central bank’s apparent independence last month when the rate-setters brought in a major rate hike.

Lira up 20% since start of September
“The recent rallies in the Russian ruble and the Turkish lira, which is up by around 20% against the USD since the start of September, have added weight to our view that central banks in both countries will refrain from tightening policy further when they meet next week,” Jason Tuvey of Capital Economics said on October 19 in a research note entitled “Currency rallies ease pressure on central banks”.

Construction firms Ceylan Insaat, Kesmar Insaat, Nafia, Nuhoglu, Palet Insaat and Ozler Group are among the companies that have recently applied for bankruptcy protection, according to local media reports.

Expected further tightening in monetary and fiscal policies would particularly weigh on the construction industry which had already begun to show signs of a slowdown, the Contractors’ Association of Turkey (TMB) said on August 1 in its regular sectoral analysis report.

IMF estimates suggest that a significant share of domestic lending in FX has been to companies in the construction, real estate and energy sectors, whose incomes are presumably TRY-denominated as against their input costs which are FX-denominated.

Hakan Caglar, chairman of construction company Emay Insaat, told Bloomberg on August 1 that the company was in debt restructuring talks with lenders. Emay’s total debt was TRY1.2bn as of 2017 and the total value of its stock assets stood at TRY2bn, according to Caglar.

Ali Agaoglu, chairman of one of Turkey’s largest construction companies Agaoglu Group, on August 7 was quoted by Hurriyet Daily News as denying rumours that the company would file for bankruptcy. Agaoglu also said that the conglomerate was expecting $300mn from the sale of its two wind power plants.

Banks’ exposure  the construction and energy sectors
Exposure to the construction and energy sectors and high borrower concentrations were also significant sources of risk at many Turkish banks, Fitch Ratings said on October 1 when it downgraded the Long-Term Foreign-Currency Issuer Default Ratings (LTFC IDRs) of 20 Turkish banks and their subsidiaries.

In late August, the government backed the latest campaign in Turkey to stimulate home sales. Turkish property developers were targeting the sale of at least 25% of 100,000 discounted homes to be included in a campaign to run from August 29 to October 31, Turkish Minister of Environment and Urbanisation Murat Kurum said.

Kurum said on September 20 that more than 3,000 homes were sold under the scope of the campaign, according to BloombergHT.

There are a total of 1.5mn-2mn unsold homes in Turkey, according to sector representatives.

Annual home price growth in Turkey edged down further to 9.86% in August from 10.48% in July, placing it 804pp behind annual inflation, central bank data showed on October 16.

TUIK said on September 24 that annual growth in the construction cost index reached 27.01% in July. The index rose 16.18% in December and showed an escalating pace across the first seven months of 2018.

TUIK said on August 15 that the number of buildings granted construction permits fell by 28% y/y to 55,231 in H1 while the number of permitted dwelling units fell at a sharper 46% y/y rate to 349,985.

The construction industry grew by 0.8% y/y in Q2, the lowest growth rate registered since Q1 2015, after growing 6.6% y/y in the first quarter, according to the latest GDP data. The sector grew by 9% y/y in 2017.

Home sales rose by 5% y/y to 1.41mn units in 2017, marking a new all-time high, following the 4% y/y gain in 2016 to 1.34mn units.

Mortgage sales rose by 5% y/y to 473,099 contracts in 2017.

Property sales to foreigners increased 22% y/y to 22,234 units last year.

Data

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