Turkey no longer forever blowing (property) bubbles

By bne IntelliNews February 20, 2015

David O'Byrne in Istanbul -


Despite repeated claims of a growing property market bubble in Turkey, all the indications are that while there may have been speculative pricing in some small geographical areas, the overall market remains healthy and will continue to be so for the foreseeable future.

Mitigating in favour of such an optimistic prognosis are Turkey's continued economic strength and the demographics of its still growing population, which analysts concur should be more than sufficient to ensure continued buoyancy in the face of other factors that might otherwise have put downward pressure on sales. "People are always predicting a bubble but not much has changed. There are some regional bubbles in areas where prices are above TRY10,000 per square metre, but overall the market is still very buoyant," says Kerim Gokoz, real estate analyst at Istanbul’s Garanti Yatirim.

Certainly the figures for 2014 bear up that analysis. On the face of it last year should have seen a far more cautious market given that Turkey went through a particularly tense period of electoral uncertainty. Countrywide local elections in March led to a period of heightened tension as results in many areas were disputed amid allegations of electoral malpractice.

Tensions were further heightened with speculation that then prime minister Tayyip Erdogan would run as the governing AKP's candidate in Turkey's first ever popular votes for the country's president in June – a move feared by many to be a first step towards an executive presidency, with the predictable effects on sales of big ticket items such as property.

Little wonder then that sales over the first ten months of 2014 registered a fall of 1% to 926,932, against the same period in 2013 when sales were themselves affected by the countrywide protests in June, July and August.

In the event, the presidential poll was completed without incident and sales in the last two months of the year rallied, reaching 1.165mn for the whole year, a shade under 1% up on the 1.157mn recorded in 2013. An impressive result given the challenges. The more so given that the sales figures for both years were all-time records, suggesting greater buoyancy yet to come should Turkey manage to keep a lid on its perennial political tensions.

The results for 2014 were even more impressive given that in addition to political uncertainty the year also saw a major hike in mortgage rates from an average 9.7% in 2013 to an average 11.9% last year – a rise that saw the number of mortgages granted over the year fall by 15% to 390,000.

Equally encouraging despite far from ideal conditions were the sales of property to foreigners – a key factor in a number of regional housing markets. Sales rose by 56% across the country as a whole from 12,181 in 2012 to 18,959 in 2014.

Encouragingly this included a market recovery in sales in the Istanbul area, which had been badly affected by the protests in 2013 an effect which could have been expected to continue in 2014 given the continued political uncertainty.

In the event sales in Istanbul rose from 20% of total sales in 2013 to 29% of total in 2014, when 5,580 properties were sold while sales in other areas popular with foreign retirees also registered volume rises albeit with their overall share of sales declining. Sales in the most popular region, Antalya, for example declined from 45% of total to 34% last year although actual sales rose from 5,481 to 6,446.

The one dark cloud hanging over the property market in 2014 was that of office property, which analysts concur is distinctly lacking in buoyancy. Vacancies in Istanbul's central business district rose from 16.2% in the last quarter of 2013 to 235 by the third quarter of 2014, leading to warnings that average rental yields may fall from the current rate of 6.5%.

Optimistic outlook

Overall, though, the prospects for 2015 are reckoned to be similar to 2014 with no fall in demand or sales anticipated.

Unlike much of Europe, continued growth in Turkey's GDP is accepted as inevitable with the OECD predicting 3.25%, the World Bank 3.5%, and Turkey's own central Bank 4.0%. Garanti Yatirim concurs with the 4.0% growth prediction and adds that it expects the construction sector to grow by as much as 5.0% on the back of an anticipated pre-election spending spree.

Priming the pumps ahead of the June poll may indeed prove to be a major factor in boosting property sales, with Turkish Prime Minister Ahmet Davutoglu announcing on January 28 that his government plans to help first-time buyers by contributing as much as 155% of the sum necessary for a down-payment. No details have yet been announced, but it is safe to assume that they will be made public in plenty of time to accrue maximum benefit ahead of the June polls.

Coupled with a widely expected drop in interest rates on the back of improved inflation figures and increased government pressure on the central bank, any move to help first-time buyers looks certain to boost the property market. "45% of sales in 2014 were to first-time buyers so anything that helps them will increase sales," says Gokoz, pointing out how increased interest rates affected the market during 2014.

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